TMI Tax Updates - e-Newsletter
May 3, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Articles

1. Amendments in Deemed Export Policy under Foreign Trade Policy – What is the intention of Ministry of Commerce and Industry.

   By: Surender Gupta

2. SERVICE TAX TERMINOLOGY – PART IV

   By: Dr. Sanjiv Agarwal

News

1. India-Australia to Collaborate for Wool Testing Facility in Mumbai Bilateral Trade Touches US$ 14.90 Billion in 2011.

2. Including Procedural Simplification in Annual Supplement to FTP.

3. Annual Growth of Exports at 26.7 Per Cent.

4. Exploration of Potential of Small Tea Growers.

5. Stringent Rules of Revalidation for Cotton Export.

6. Export of Agricultural Products.

7. Ban on Export of Iron Ore.

8. Steps to Increase Export of Coffee .

9. Clarification on Vodafone Tax Issue.

10. Quarterly Report on Public Debt Management for the Quarter Jan-Mar 2012 Released.

11. Finance Minister to Leave for Three-Day Official Visit to Manila And Dhaka Tomorrow; to Take over the Chair for Next ADB Annual Board of Governors’.

12. Banks must pay Rs100 a day penalty for delay in reimbursement for failed ATM transactions.

13. India’s Foreign Trade: March, 2012.

14. Change in Tariff Value of Brass Scrap, Gold and Silver Notified.

Notifications

Customs

1. 22/2012 - dated 2-5-2012 - ADD

Anti-dumping duty on imports of Partially Oriented Yarn originating in, or exported from, the People’s Republic of China.

2. 29/2012 - dated 30-4-2012 - Cus

Amends Notification No.21/2012-Customs - substitution of date in the proviso - from “1st day of May, 2012” to “1st day of June, 2012”

3. F.No. 437/73/2010-Cus. IV - dated 2-5-2012 - Cus (NT)

Corrigendum to, Office Order dt. 06-05-2011, regarding Common Adjudicating Authority.

4. 40/2012 - dated 2-5-2012 - Cus (NT)

‘Proper officer’ under the Customs Act, 1962 - assigning functions as the proper officers in relation to the various sections of the Customs Act

5. F.No. 437/14/2012-Cus. IV - dated 30-4-2012 - Cus (NT)

Appointment of Common Adjudicating Authority of Ajit Bapu Satam and others.

6. F.No. 437/10/2012-Cus. IV - dated 30-4-2012 - Cus (NT)

Appointment of Common Adjudicating Authority of M/s Agarwal Traders, Kolkata.

7. 39/2012 - dated 30-4-2012 - Cus (NT)

Amends Notification No. 36/2001-Customs(N.T) - Palm oil, Palmolein, Soyabean Oil (Crude) and Brass Scrap (all grades) - Traiff Values.

DGFT

8. 112 (RE – 2010)/2009-2014 - dated 1-5-2012 - FTP

Amendment in policy for export of Casein and Casein products.

Circulars / Instructions / Orders

FEMA

1. 114 - dated 2-5-2012

Exim Bank's Line of Credit of USD 80 million to the Government of the Republic of Burundi.

DGFT

2. 61(RE-2010)/2009-14 - dated 1-5-2012

Clarification regarding withdrawal of provision of revalidation of RCs by RAs for export of cotton and cotton yarn.

3. 60 (RE-2010)/2009-14 - dated 30-4-2012

Online transmission of DES (Advance Authorization), DFIA and EPCG at ICD CONCOR , Tondiarpet, Chennai, Tamilnadu ( IN TVT 6 ) w.e.f. 08.05.2012 - regarding.

Customs

4. 12/2012 - dated 1-5-2012

Classification of Micro / Mini SD Cards - regarding.

Highlights / Catch Notes

Income Tax

• High Court Grants 40% Waiver on Interest u/s 234C of Income Tax Act.

  Case-Laws - HC : Application for waiver of interest u/s 234C - interest waived to the extent of 40%. - HC
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• Understanding Section 36(1)(viia): New Provisions for Bad Debts Cannot Offset Reversed Amounts; Only Increases Count.

  Case-Laws - AT : Deduction u/s 36(1)(viia) of the Act - Provision for bad and doubtful debts - provision for bad and doubtful debts newly created during the year under consideration should not be netted against the amount written back or reversed. However, there might be a situation that the provision created for a particular debt needs enhancement and in that situation, only the enhanced amount should be treated as the new provision for the purpose of sec. 36(1)(viia) of the Act. - AT
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• Court Rules Excess Suspense Account Funds to Be Taxed Over Three Years, Altering Taxation Timeline.

  Case-Laws - HC : Assessment of excess amount kept in suspense account - to be taxed in three years instead of one year - HC
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• Criminal Courts Empowered to Issue Requisitions for Books of Account u/s 132A(2.

  Case-Laws - HC : Criminal courts are appropriate authority or the person in terms of sub-section (2) of Section 132A to issue for requisition books of account. - HC
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• Dispute Over Tax Deduction: Are 72 Doctors for 100 Students Justifiable Salary Expenses for Educational Institutions?

  Case-Laws - AT : The disallowance of expenditure on salary - strength of 72 doctors against 100 students - AT
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• Court Rules Engineer Hiring Costs as Revenue Expenditure, Not Capital, Given Director's Expertise in Business Setup.

  Case-Laws - AT : Capital or revenue expenditure - Commencement of business - There was no necessity to employ Engineers because the Director was competent to render advisory services for setting up the business. - AT
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• India-Germany DTAA Article 8: Permanent Establishment in International Shipping, Feeder Services, and Slot Arrangements Explained.

  Case-Laws - AT : Article 8 of DTAA between India and Germany - Reference to DRP - Pooling/slot arrangements - Permanent Establishment (PE) - Feeder services - operation of ships in international traffic - AT
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• High Court Examines Inclusion of Returnable Plant and Machinery in Section 10A Tax Exemption Eligibility Calculation.

  Case-Laws - HC : Exemption u/s 10A - Percentage of new plant and machinery and old machinery - inclusion of plant and machinery received on returnable basis for determination of percentage - HC
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• Depreciation on Tippers, Vibrators, and Compactors Limited to 15% Rate u/s 32 of Income Tax Act.

  Case-Laws - HC : Depreciation @ 40% or 15 % on Tippers, Vibrator and Vibrator Soil Compactor - AO allowed depreciation at the rate of 15% only - Section 32 - HC
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• Assessee Granted Immunity u/s 271AAA Despite Not Paying Full Tax Before Filing Return.

  Case-Laws - AT : Penalty u/s 271AAA - Search and seizure - Undisclosed income - assessee could not be denied the immunity under section 271AAA(2) only because entire tax, along with interest, was not paid before filing of income tax return - AT
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• Unrecorded amounts in profit and loss can't determine book profits u/s 115JB of the Income Tax Act.

  Case-Laws - AT : MAT - Book profit -- the amount which was never routed through the profit & loss account and never debited to the profit & loss account could not be considered for the purpose of determination of book profits under clause (b) of Explanation 1 to sec.115JB - AT
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• High Court Upholds Addition u/s 68 of Income Tax Act; Assessee Fails to Prove Claims in VDIS Case.

  Case-Laws - HC : Addition u/s 68. - VDIS scheme - Retraction of statement - Assessee failed to discharge the onus - HC
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Customs

• Customs Act 1962: Updates on Officer Assignments and Jurisdiction for Effective Compliance and Enforcement.

  Notifications : Assignment and jurisdiction of the officers and above the rank of officers, the functions as the proper officers under Customs Act, 1962
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• Customs Circular Clarifies Tariff Classification for Micro and Mini SD Cards to Streamline Import Duties and Taxes.

  Circulars : Classification of Micro / Mini SD Cards - regarding. - Cir. No. 12 / 2012 - Customs Dated: May 1, 2012
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• Shrimp Export to Canada Returned Due to Expired "Best Before" Date; No Samples Taken by Port Health Officer.

  Case-Laws - HC : Return of Export cartons of shrimps to customer at Canada - shelf life of the shrimp - it had been typed in the carton boxes, as 'Best Before Use' as April, 2011 - Port Health Officer refused to take the samples - HC
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• Court Approves Reprocessing of Returned Product; Test Report Confirms Safety for Human Consumption Under Official Supervision.

  Case-Laws - HC : Re-import of the product returned by dis-satisfied customer - The test report and the details no where indicates that the product is dangerous for human consumption - re-process under the supervision of the concerned official allowed - HC
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• India Amends Notification 21/2012: Exempts Certain Imports from Additional Duty u/s 3(5) Until June 1, 2012.

  Notifications : Exemption from additional duty u/s 3(5) when imported into India – Notification no. 21/2012 amended to allow exemption in respect of certain goods without conditions upto 1st June 2012
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• Port Trust can't claim demurrages or port charges beyond 75 days from landing date.

  Case-Laws - HC : Port Trust authorities were not justified in claiming demurrages and/or port charges for any period beyond 75 days from the date of landing. - HC
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• Appellant's Exemption Request from RSP-Based Assessment on CVD Not a Misdeclaration by Importer.

  Case-Laws - AT : Merely because the appellant had sought an exemption from RSP based assessment in respect of CVD, it does not amount to any misdeclaration on the part of the importer. - AT
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DGFT

• No Revalidation for Cotton and Cotton Yarn RCs; Affects Trading and Export Processes under New Directive.

  Circulars : No revalidation will be granted to RCs for cotton and cotton yarn.
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• Casein Export Reclassified: Shift from "Prohibited" to "Restricted" Category Enables Controlled Trade Opportunities.

  Notifications : Export of Casein and Casein products has been moved from “Prohibited” to “Restricted” category.
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• Electronic Submission for DES, DFIA, EPCG at ICD CONCOR Chennai Starts May 8, 2012, per Circular No. 60 (RE-2010.

  Circulars : Online transmission of DES (Advance Authorization), DFIA and EPCG at ICD CONCOR , Tondiarpet, Chennai, Tamilnadu ( IN TVT 6 ) w.e.f. 08.05.2012 - regarding. - Cir. No. 60 (RE-2010)/2009-14 Dated: April 30, 2012
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FEMA

• Exim Bank Provides $80 Million Credit Line to Burundi Government Under Circular No. 114, Dated May 2, 2012.

  Circulars : Exim Bank's Line of Credit of USD 80 million to the Government of the Republic of Burundi. - Cir. No. 114 Dated: May 2, 2012
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Indian Laws

• Amendments to Deemed Export Policy Enhance Efficiency, Simplify Compliance, and Boost Competitiveness in Global Markets.

  Articles : Amendments in Deemed Export Policy under Foreign Trade Policy – What is the intention of Ministry of Commerce and Industry. - Article
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• Understanding Recent Changes in Indian Service Tax: Key Terms and Important Aspects Explained with Annotations

  Articles : SERVICE TAX TERMINOLOGY – PART IV - Article
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Service Tax

• Are Payments to SWIFT for Inter-Bank Transfers Subject to Service Tax? Legal Analysis Underway.

  Case-Laws - AT : Whether the payment made by the applicant to Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) for transfer of funds to members Banks is liable to service tax - AT
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• Reimbursement of Expenses in CHA Services: Understanding "Pure Agent" Criteria for Service Tax Valuation.

  Case-Laws - AT : Service Tax valuation - reimbursement of expenses - Pure Agent - CHA services - AT
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• Services charges for liaising with Customs for duty drawback are taxable under Customs House Agent services.

  Case-Laws - AT : Customs House Agent' Services - services charges were received by the assessee for liaisoning with the Customs department for collection of duty draw back - held as taxable - AT
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• Court to Decide if Visiting Network Services Qualify as Exempt, Limiting Cenvat Credit to 35.

  Case-Laws - AT : Whether the service provided by the appellant as a visiting network service provider shall be treated as exempt service and Cenvat credit shall be limited to 35% - AT
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Central Excise

• Supreme Court Orders Tribunal to Reassess Case After Rejecting Ex Parte Order Recall Application.

  Case-Laws - SC : Application for recall of ex parte order - tribunal rejected the application - Apex Court ordered the tribunal to fresh adjudicate the matter - SC
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• Appellate Authority Must Independently Evaluate Arguments, Not Just Repeat Appellant's Grounds, Says High Court.

  Case-Laws - HC : Application of mind by appellant authority - mere quoting of the grounds verbatim and extenso in the order itself cannot be application of mind on the grounds raised by appellant. - HC
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Case Laws:

• Income Tax

• 2012 (5) TMI 31
  India U.K. DTAA - Reinsurance brokerage/commission with international re-insurance companies – Revenue treated it within the definition of fees for technical services u/s 9(1)(vii) r.w Article 13 of the India U.K. DTAA - Held that:- The assessee company was an international reinsurance intermediary (broker) a tax resident of United Kingdom - not maintaining any office in India and had a referral relationship with reinsurance Broker duly licensed by the Insurance Regulatory & Development Authority to transact reinsurance business in India - the role played by the assessee in the reinsurance process is only rendering intermediary services or facilitator in getting the reinsurance cover for New India Insurance Co - Tribunal rightly held that such receipts would not amount to FTS as the "make available" clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case – in favour of assessee.

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• 2012 (5) TMI 30
  Addition made on account of cessation of liability – various creditors are very old and no interest has been paid on these loans - AO held that the liability incurred in regard to the purchase from the parties as claimed have seized to exists – ITAT deleted addition made by AO - Held that:- ITAT is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities - merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist – it is on part of AO to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation which he fails to do - in the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable – in favour of assessee.

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• 2012 (5) TMI 29
  Claim of assessee as bad debts written u/s 36(1)(vii) - Revenue stated writing off bad debts of Rs.5.12 crores in one year itself would distort the income of the said year - Held that:- The income returned in the year in question was at loss and the income assessed by the Assessing Officer is at a loss of more than Rs.7.94 crores, writing off of bad debts would result in increase in the loss figure - no evidence or material on record to show the deliberate attempt by the assessee to delay writing off the bad debts in the earlier assessment years, which has resulted in understatement of income or short recovery of tax - in most of the earlier years, the assessee had shown taxable income and if bad debts were written off in the said years, it would have resulted in lower taxation or nil taxation - Revenue has not been able to dispute and show that the provisions of Section 36(1)(vii) r.w.s 36(2)(i) are not satisfied in the present case – in favour of assessee.

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• 2012 (5) TMI 28
  Recovery proceedings - series of appeals together with series of stay petitions are pending consideration of the second respondent - Writ petitions - Held that:- Directing the Appellate authority, the second respondent, to consider and pass orders on pending appeals and stay petitions filed by the respective petitioners as expeditiously as possible at any rate within four weeks of receipt of a copy of judgment - recovery proceedings stand stayed – in favour of assessee.

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• 2012 (5) TMI 27
  Revised return declaring Nil income after claiming deduction u/s 80HHC and 80IB - Revenue stated that no deduction u/s 80IB available as the machinery was found to have been used previously for some other purpose – AO issued notice for reassessment - Held that:- No concealment on the part of the assessee in disclosing the facts to the Assessing Officer, thus not open to the AO to invoke the provisions of Section 148 for the purposes of reassessment - change of opinion on the same facts cannot constitute basis for exercise of jurisdiction under Section 147/148 – in favour of assessee.

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• 2012 (5) TMI 26
  ITAT deleted the disallowance made under Section 14A - Held that:- The matter is no longer res integra - questions of law already been decided against the revenue by the Division Bench of this Court in the case of Commissioner of Income Tax-II v. M/s Hero Cycles Ltd.( 2009 - TMI - 35238 - PUNJAB AND HARYANA HIGH COURT ) stating disallowance under Section 14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance under Section 14A cannot stand - against the revenue.

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• 2012 (5) TMI 25
  Reassessment - Addition u/s 68 - Reason to believe - AO after verifying the assessment records and information received from the Director General (Investigation) through CIT, Delhi-IV, had come to the conclusion that the assessable income had escaped assessment - held that:- Mere reproduction of the language of the proviso and observation by the Assessing Officer that there was failure or omission on the part of the assessee to disclose fully and truly all material facts is not necessary. It has to be examined whether the Assessing Officer had drawn an inference or given a finding that there was omission or failure on the part of the assessee to disclose fully and truly material facts. The requirement is that there should be full and true disclosure of the material facts before the Assessing Officer. In the present case, the tribunal has not referred to the letter dated 19th July, 2006 written by the Additional CIT and the information, which was enclosed with the said letter. What was the nature and character of the said information has not been considered and examined by the tribunal. - Matter remanded back to tribunal - Decided in favor of revenue.

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• 2012 (5) TMI 24
  Closing stock of the subsidiary company not shown as opening stock of that company but shown as opening stock of the holding company - Revenue stated that the value of the stock should be considered for assessment only at the hands of one company – Held that:- Since the subsidiary company submitted that in the Income Tax Appeal that was pending against the assessment of closing stock of the subsidiary company, they will not press that ground thereby accepting the closing stock of that company to be treated as opening stock for assessment - allow the appeals by setting aside the orders of the Tribunal and restore the matter to the Assessing Officer for re-consideration while revising the orders of assessment issued pursuant to the judgment in the case of Holding company

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• 2012 (5) TMI 23
  Application for waiver of interest u/s 234C - CCIT (Central) rejected the application for waiver of interest - Held that:- Circular/instructions dated 26.06.2006 does not have any clause similar to clause (b) of the earlier circular/instructions dated 26.06.1996 in respect of cash which is seized and which was not allowed to be utilized for payment of advance tax installment or installments if they fell due after the seizure of cash - the department had released FDRs worth Rs.6 crores on or about 17.02.1999 and the said amount was utilized towards payment of advance tax on 17.02.1999. Similarly, some further FDRs were released on or about 15.03.1999 and an amount of Rs.1.5 crores was paid as advance tax on the said date - assessee is entitle to waiver of some/proportionate interest under Section 234C in terms of the Boards Circular dated 23.05.1996 - interest waived to the extent of 40%.

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• 2012 (5) TMI 22
  Deduction u/s 36(1)(viia) of the Act - Provision for bad and doubtful debts - The assessee is assailing the decision of Ld CIT(A) in holding that the Provision for bad and doubtful debts created during the year should be netted off by the amount of provision created in earlier years and written back during the year and the amount of net provision so arrived at is only to be considered for the purpose of allowing deduction u/s 36(1)(viia) of the Act. - held that:- the decision in the case of The Lord Krishna Bank Ltd. [2010 (10) TMI 860 - Kerala High Court] shall apply to the assessee herein. We agree with the contention of the assessee that the provision for bad and doubtful debts newly created during the year under consideration should not be netted against the amount written back or reversed. However, there might be a situation that the provision created for a particular debt needs enhancement and in that situation, only the enhanced amount should be treated as the new provision for the purpose of sec. 36(1)(viia) of the Act. Hence the claim of quantum of new provision made by the assessee, needs verification at the end of the AO. If the assessee has created a new provision on a particular asset by fully reversing the opening balance of provision relating to that asset, then the net accretion should only be treated as new provision. The appeal of the revenue is allowed and the appeal of the assessee is partly allowed.

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• 2012 (5) TMI 20
  Writ petition - Warrant u/s 132A - Rule 112D(1) of the Income Tax Rules - Powers to requisition books of account - Powers of criminal court - held that:- the restriction placed by the provisions of Sections 132, 132-A or Rules 112-A are not unreasonable restrictions on the freedom under Articles 19 (1) (f) and (g) or Article 14 of the Constitution. The provisions of Sections 132 (1) (5), 132A and R. 112A are directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the government dues would stand justified in themselves. In the interest of the community, it is only right that the fiscal authorities should have sufficient powers to prevent large-scale tax evasion. Provisions of Section 451 of the Code of Criminal Procedure - A plain reading of the aforesaid provision leaves no doubt that the said Section makes the Criminal Court custodia legis of the property produced before the court in connection with the case regarding which an offence appears to have been committed or which appears to have been used for the commission of the offence. Criminal courts are appropriate authority or the person in terms of sub-section (2) of Section 132A to issue for requisition books of account.

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• 2012 (5) TMI 19
  Block assessment - addition u/s 68 is based on evidence recovered in the course of search in the form of realisation statement from the premises of another partner who is assessee's brother - Held that: the addition of 40% share income received by the assessee from the above said film i.e. Rs.4.5 lakhs for the assessment year 1994-95 sustained. - In the case of assessee's brother, we have not considered the addition for the year 1995-96 in respect of the same film as the amount involved was low. The findings therein apply to this assessee also for the year 1995-96 - the addition should be separately considered in the case of this assessee alone.

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• 2012 (5) TMI 18
  Question of law - Order of the tribunal cancelling assessment - Block assessment - Search and seizure - assessment based on evidence - held that:- the contention raised by Senior counsel for the Revenue is that when assessment of undisclosed income is based on concrete evidence received from the documents and accounts seized from the residence of assessee and the film distributor above referred, the Tribunal's refusal to uphold the assessment without any basis or material is a perverse finding which gives rise to a question of law. We find force in this contention because when block assessment of any item is made based on evidence collected in the course of search, the assessment under Section 158BC read with Section 158BD is supported by statutory provision namely, Section 158BB of the Act. The Tribunal cannot cancel the assessment of undisclosed income if the same is based on tenable and acceptable evidence recovered in the course of search and which is not disproved by the assessee. - Decided in favor of revenue. Block assessment - AO computed undisclosed income movie-wise and the basis of addition is that the film distributor namely, Sri.P.D.Abraham of Swargachitra Films for whom assessee produced the film, has accounted payment of higher amount than what is shown as received by the assessee in his books of accounts. - held that:- The assumption by the C.I.T.(Appeals) as well as by the Tribunal that without the confirmation statement by the assessees undisclosed income cannot be assessed based on evidence gathered on search is wholly unrealistic and contrary to statutory scheme for assessment of undisclosed income under Chapter XIV B of the Act. We, therefore, set aside the order of the Tribunal and that of the first appellate authority and restore the addition of Rs.10 lakhs being the undisclosed income from the film "Manathevellitheru". Regarding addition of Rs. 10 lakhs - held that:- The first appellate authority as well as the Tribunal deleted the addition by stating that assessee has not given statement to corroborate the unaccounted income. We do not know what more evidence is required other than the clandestine account received from the assessee - Decided in favor of revenue. No other ground raised by the Revenue gives rise to any substantial question of law. In the result, we allow the appeal in part by sustaining a total addition of Rs.22,20,959/- and confirming the order of the Tribunal cancelling the balance addition of Rs.78,64,811/-.

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• 2012 (5) TMI 11
  The disallowance of expenditure on salary was on the premises that the assessee had employed staff in excess of the norms of the Dental Council - assessee has explained that some doctors had left and in their place other doctors were employed, so that the norms could not be strictly complied with, and which rather by itself shows the exigency of the situation - Held that:- assessee has not been able to lead satisfactory evidence with regard to its claim for expenditure, having been called upon to file the full names and addresses as well as proof of filing the return of income by the relevant doctors - strength of 72 doctors against 100 students, as is stated to obtain for the current year, is disproportionately high, and the AO in stating so is only drawing support from the guidelines of the Dental Council of India in this regard, and not basing his disallowance thereon, as projected by the ld. AR before us - Decided against the assessee by way of remand to AO. Advertisement and hotel expense - assessee explained that the heavy expenditure in the month of March, 2005 was for purchase of heavy quantity of sweetmeats, namkin, dry fruits, cents, etc., which it had to in view of the inspection of the college on March 10 & 11, 2005 for starting of the classes of the Third Year - Held that: the incurring of the said expenditure for the object/s of the trust is not explained, much less proved. Where is the question of commercial expediency while incurring expenditure in extending common courtesy to the officials on an official visit, and in computing the income of a charitable trust, as the assessee, which itself pleads for the non-application for the provisions of Chapter IV-D of the Act in the computation of its income, an argument with which we have expressed our agreement. The said disallowance is thus upheld. Regarding cash donation - Held that:- a clear contradiction in the findings by the assessing authority and the first appellate authority. - The AO states that the identity has not been established - ld. CIT(A) admitted the assessee's plea - where the identity is not disclosed, the presumption would be that the same flows from the beneficiary of the assessee's activity, i.e., the students, or their parents or close relatives. The same could not be termed as a voluntary contribution subject to sec. 11(1)(d), and neither would the ingredients of sec. 68 be satisfied in such a case. Whether given under a general direction to form a part of the corpus, or as toward, say, a building fund, the furnishing and proving the identity of the donor is the first pre-requisite, which remains unsatisfied in the instant case. If, on the other hand, the identity is confirmed, and the donor confirms the same to be toward a particular fund or corpus, in our view, the onus to prove that it is not 'voluntary', and given, or made to be given, for and toward a consideration, so that it is income would only be on the Revenue. Also, where given for a `building fund', and utilized for that purpose, the same would only amount to an application of funds for the objects of the trust, where the building is owned by the trust and used, or to be used, for its purposes. In view of the foregoing, we remand the matter back to the file of the AO to allow an opportunity to the assessee to present its case - Appeal is partly allowed

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• 2012 (5) TMI 10
  Capital or revenue expenditure - Repairs and maintenance - Enduring nature - substantial repair had undertaken for rig - AO was of the view that expenditure has been incurred before commencement of business - Held that: it could not be said that the business was not set up. There was no necessity to employ Engineers because the Director was competent to render advisory services for setting up the business. Meeting and discussions, was therefore an indication of setting up of business. Following the said view and considering the entirety of the evidences placed on record, as also the totality of the circumstances, it appears that no capital asset had come into existence through which the assessee has obtained enduring benefit. - Decided in favor of assessee. Regarding head Office expenditure - Held that:- the contracting States have kept in mind the provisions of the tax laws of the contracting States and to avoid any conflict in the provisions of the tax laws vis-à-vis the provisions of Treaty, as also to streamline the applicable provisions of law, it was decided to incorporate that, for the purposes of determining the profits of a permanent establishment, there shall be allowed deduction of expenses incurred for the purposes of the business of the permanent establishment including general administrative expenses but in accordance with the provisions and also subject to the limitations of the tax laws of that State. Therefore by this amendment in the Article the applicability of provisions of section 44C has been enforced, nevertheless with effect from 1st day of April-2008. Regarding previous year income - AO has noticed that as per Schedule XIV - notes to the accounts, the said claim was confirmed by Cairn India Pvt. Ltd. On the other hand, as per the assessee, the claim was still under dispute and the claim was not recognized by the said party - Held that: It is worth to note that the final payment was received from the said party in the F.Y. 2006-07 as per the TDS certificate given by the assessee and that fact has also been noted by the AO - once the admitted factual position is that the payment in question has actually been received in the F.Y. 2006-07, i.e. A.Y. 2007-08 and that fact has been noted by the AO himself, inter alia, further reaffirmed by ld. AR that in the next Financial Year it was duly recognized in the books of accounts - Appeal is partly allowed

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• 2012 (5) TMI 9
  Article 8 of DTAA between India and Germany - Reference to DRP - Pooling/slot arrangements - Permanent Establishment (PE) - the entire ship was chartered by the assessee and the same was operated by the assessee and other carriers operated its feeder service. - held that:- the DRP has already granted relief to the assessee to the extent of the profit earned from transportation of cargo by feeder vessels and the assessee is able to establish the link between the feeder vessels with mother vessels voyage wise. Feeder services - operation of ships in international traffic - held that:- The assessee has not disputed the fact that freight receipts taxed u/s 44B is towards transportation of the cargo by feeder vessels under slot/pooling arrangements and the mother vessels was not owned, leased or chartered by the assessee. Hence, when there is no link between the transportation of cargo by the feeder vessels and transportation by mother vessels owned or chartered by the assessee, then the said activity cannot be termed as operation of ships in international traffic and subsequently the benefit of Article 8 of Indo German DTAA would not be available on such profit. - the benefit of Article 8 would be available only on the profit from the operation of ships in international traffic would not necessarily be available to the profits computed u/s 44B. What is a participation in a pool - held that:- it is clear that slot sharing is not the same as participation in a pool or a joint business or an international operating agents. Hence the nature of arrangement does not fall in Article 8(4) of DTAA. - Section 115V-(2)(ii)(A) Explanation (a), explains pooling arrangement. This does not include slot charter, etc. Section 115VB definition cannot be applied to DTAA as the definition is for the purpose of that chapter only and even then the requirement is that the slot has to be chartered. Application of article 7 of DTAA - held that:- There is no dispute that the assessee carrying out the business of operation of ships in India through its Agent M/s Hapag-Lloyd India Pvt Ltd. The agent in India concluding the contract of cargo transportation by issuing bill of lading which are legally binding on the assessee; therefore, the assessee is carrying out the business of operation of ships in India and thus is having a PE in India as per article 5 of DTAA. This is not a case of availing service of agent in support of the business but the assessee is carrying out business through the agent in India. Therefore, the source of income to the extent of booking of cargo by the agent in India and physically transported the cargo from port in India to the mother vessels is in India and constitute a PE in India. The assessee has earned income through such business in India and thus certainly said to have a source of income in India Apart from having a PE, when the assessee is carrying out the business in India and earned income from such source in India, then, the contention of the assessee is not acceptable that the income is not assessable to tax in India. As it is clear from the facts in the case in hand that the assessee has carried out the business in India and the agent was concluding the contract which is legally binding on the assessee; therefore, remuneration paid to the agent is not relevant factor for taxing the profits and gain at source from India.

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• 2012 (5) TMI 8
  Exemption u/s 10A - Percentage of new plant and machinery and old machinery - inclusion of plant and machinery received on returnable basis for determination of percentage - held that:- Neither in section 10A(2) nor in section 80-I, there is any requirement in law that the assessee should own the machinery before claiming the said exemption. The requirement of law is that the assessee should use the machinery or plant in the business. - In the instant case, it is not in dispute that the total value of the plant and machinery which was owned by the assessee is Rs. 44,93,797/-. - the plant and machinery which is used and transferred to the new undertaking is only Rs. 13,15,083/-, which is less than 20% of the total value of the machinery used in the business. - Decided in favor of the assessee

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• 2012 (5) TMI 7
  Depreciation @ 40% or 15 % on Tippers, Vibrator and Vibrator Soil Compactor - AO allowed depreciation at the rate of 15% only - Section 32 - held that:- According to explanation, the commercial vehicle is to include heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle but is not to include maxi-cab, motor-cab, tractor and road-roller - The reasoning adopted by the Tribunal would not suffer from any legal infirmity because the Tippers are registered under the Motor Vehicles Act, 1988 (for brevity 'the 1988 Act') as road transport vehicle as would be vibrator and vibrator soil compactor In the case of Karnataka High Court in the case of CIT v. Mahalinga Setty & Co. [1991 (3) TMI 36 - KARNATAKA High Court - Income Tax] has opined against the revenue by giving the benefit of investment allowance to the assessee. If that be so then Vibrator and the Vibrator Soil Compactor would follow the suit because the reasoning adopted is that the vehicles are registered under the 1998 Act and it is essential machinery to carry on the construction work - Decided in favor of the assessee

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• 2012 (5) TMI 6
  Penalty u/s 271AAA - Search and seizure - Undisclosed income - AO also initiated the penalty proceedings u/s 271 AAA and observed that "Since the assessee has not paid the full taxes and interest on disclosure made u/s 132(4), penalty proceedings u/s 271AAA of the Act are initiated - Held that: Once a time limit for payment of tax and interest has not been set out by the statute, it cannot indeed be open to the Assessing Officer to read such a time limit into the scheme of the Section or to infer one - on the facts of the present case wherein entire tax and interest has been duly adjusted out of seized cash or otherwise paid in deference to notices of demand, well before the penalty proceedings were concluded, the assessee could not be denied the immunity under section 271AAA(2) only because entire tax, along with interest, was not paid before filing of income tax return or, for that purpose, before concluding the assessment proceedings - Appeal is dismissed

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• 2012 (5) TMI 5
  TDS u/s 194C - Disallowance of payments of stevedoring expenses to Calcutta Dock Labour Board - The contention of the assessee, however, is that the provisions of Section 194 C are not applicable on the facts of this case, and, therefore, disallowance under section 40(a)(ia) cannot be made, and it is this contention which has been accepted by the CIT(A), on the ground that "the Dock Labour Board is operating as an agent of stevedores, who are actual employers" and that "there is no contractual relationship between the appellant and Calcutta Dock labour Board" - Held that: there is no dispute that the assessee has paid the amounts for "supply of labour" for carrying out work - CDLB is an agent of the stevedores like the assessee in the sense that the labour is recruited by the assessee through CDLB, but then this fact does not affect the nature of payment by the assessee to the CDLB which is admittedly in the nature of payment for supply of labour - There is no cause and effect relationship between workers assigned by the CDLB having employer workman relationship with the assessee, and the payments being made by the assessee to CDLB being not in the nature of 'payment for supply of labour' - Appeal is allowed by way of remand to CIT(A)

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• 2012 (5) TMI 4
  MAT - Book profit - Adjustment of reserves created on revaluation of the assets of the amalgamated Company - held that:- Supreme Court clearly observed in the case of National Hydroelectric Power Corpn. Ltd. (2010 -TMI - 77137 - SUPREME COURT) that for making an addition under clause (b) of Explanation 1 to sec.115JB two conditions must be satisfied jointly. (1)(a) There must be a debit of the amount to the profit & loss account, (clause (b) of Explanation 1 to sec.115JB) the amount so debited must be carried to the reserve. - Further, the reserve contemplated by clause (b) of Explanation 1 to sec.115JB is required to be carried through the profit & loss account. - The Hon'ble court also observed that there can be two types of reserves, namely, those that are routed through the profit & loss account and those which are not routed through the profit & loss account, e.g. capital reserve such as share premium account. It is clear that assessee has debited a sum of Rs. 47,39,19,646/- which is the present market value of the work-in-progress which has been taken over and, therefore, it cannot be said that it consists of some portion of reserve also. Creation of general reserve out of revaluation reserve cannot be said to be out of appropration of profits - the amount which was never routed through the profit & loss account and never debited to the profit & loss account could not be considered for the purpose of determination of book profits under clause (b) of Explanation 1 to sec.115JB - Decided in favor of the assessee

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• 2012 (5) TMI 3
  Deduction u/s 10A - Transfer pricing adjustment - It is relating to the reduction of export turnover by communication expenses i.e internet charges attributable to the delivery of computer software outside India and not reducing the same from total turnover also for the purpose of computing deduction u/s 10A of the Act - learned counsel for the assessee submitted that this issue is now covered by the decision in the case of CIT v. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT ] - wherein it has been held that if certain expenditure is reduced from the export turnover, the same has to be reduced from the total turnover also - Decided in favor of the assessee Regarding Transfer Pricing adjustments - DRP decided the ALP to be @ 119.45% of the operating cost and reduced the same by the price shown in the international transaction and arrived at the short fall of 3,55,93,801 - TPO did not accept the analysis conducted by the assessee and he conducted a fresh economic analysis and failed to appreciate that such data was not available in the public domain to the assessee at the time of complying with the mandatory TP documentation by the prescribed due date - the basic objection of the assessee is that the TPO has rejected the filters adopted by the assessee and has adopted untenable filters for arriving at the comparables and in his detailed submission before the TPO as well as the Tribunal, the assessee has brought out the various factors that would justify the adoption of comparables by the assessee - The information acquired by the TPO u/s 133(6) was no doubt provided to the assessee. However, the assessee was not allowed to rebut the said information by way of any evidences - In the case of Genesis Integrating System India Pvt. Ltd., Bangalore and this Tribunal vide orders dated 5.8.2011 had answered the various issues raised by the assessee therein and has also issued guidelines for adoption of comparables and has also directed the TPO to allow the assessee to cross examine the comparables whose replies were sought to be used against the assessee if the assessee so desires - Decided in favor of the assessee by way of remand to AO

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• 2012 (5) TMI 2
  Addition u/s 68. Appellant submitted that the persons who had made statements had declared the jewellery under the VDIS scheme and the said statements were later on retracted in as much as it was stated by all of them that the earlier statements were recorded under coercion and duress. Held that: the benefit of VDIS scheme where various persons had declared the jewellery thereunder was not available which could have been taken by the appellant. There was huge cash deposit of Rs. 16.28 crores in a period of 1 month and 7 days from 13.2.1998 to 20.3.1998 in the bank account of the assessee for which heavy onus lay upon it to satisfactorily tender explanation along with supportive material to substantiate its plea which the assessee had failed to do. Even with regard to the retraction of statement, it may be noticed that the earlier statements of these persons were recorded in the year 2000 whereas they had sought to resile therefrom in the year 2003. Appeal is dismissed

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• Customs

• 2012 (5) TMI 17
  Writ Petition – Goods imported were seized as the packings did not have the name and address of the manufacturer and Importer - Held that:- Such seizure is clearly without authority of law, no reasonable belief has been entertained or made out on the face of records to show that the imported goods are indeed liable for confiscation under the Customs Act - Revenue is directed to release the subjected to necessary tests by the Port Health Authorities before the customs clearance is sought for by the assessee, the respondent shall allow the petitioner to re-pack and re-label the goods in a customs bonded area - the respondent shall not release the goods unless they are found to be fit for human consumption

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• 2012 (5) TMI 15
  Re-import of the product returned by dis-satisfied customer - Port Health Inspector declared the goods not in conformity to the standards prescribed by the Prevention of Food Adulteration Act – cannot be allowed to be dumped on the local consumers - Held that:- The test report and the details no where indicates that the product is dangerous for human consumption - the appellant must be given a chance and allowed to re-process under the supervision of the concerned official at the ware house and then re-export the same subject to test report to be obtained from CFTRI at the instance of the Port Health Officer – in favour of assessee.

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• Corporate Laws

• 2012 (5) TMI 14
  Application filed by the Official Liquidator – misapplication of funds belonging to the company to the extent of Rs. 1,88,60,835/-and are therefore guilty of misfeasance and breach of trust - Held that:- No contrary material to indicate that the said entries were dishonestly made by the first respondent for his benefit and to cause loss to the Company-in-liquidation and has been misapplied by him – since the first respondent was also a Director in the sister concern, the adjustment of amounts by Journal entries cannot be considered as a benefit derived by the first respondent for himself - as the amount which was due to the Company-in-liquidation from the sister concern as against the dues from the Company-in-liquidation to its sister concern as Indicated item wise has been wiped out by book adjustments by virtue of the journal entries but no personal benefit is evident or is proved – in favour of assessee.

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• 2012 (5) TMI 1
  Company in liquidation - maturity of fixed deposits - interest on such FD - held that:- what is to be noticed is that the said deposit receipts are not issued in the name of the company-in-liquidation, but in the name of the second respondent. However there is no dispute with regard to the fact that the money for the purpose of deposit has been kept with the third respondent-bank by the company-in-liquidation. The deposit receipts were lodged with the second respondent as a compliance of the requirement for the purpose of issue of Money Lenders licence. In that circumstance, for the company-in-liquidation to carry on its business of money lending, licence should have been in force till the date of winding up. If that be the position, the company-in-liquidation was required to have the money lending licence in force till 13.03.2002, unless the company-in-liquidation had made any positive efforts to see that the company does not require the money lending licence as the activities had come to a standstill. Therefore, first or the second respondent cannot be held liable for negligence as on the date of maturity, more particularly in a circumstance when the second respondent has acted immediately on receiving the communication from the Official Liquidator pursuant to the statement of affairs which had been filed by the Directors and when the second respondent had addressed a letter dated 27.07.2009 seeking for return of the certificates. Considering that the deposits had matured much prior to the date of winding up, it is the persons who were in charge of the company as on that day who need to explain if there was any lapse in that regard and the respondents cannot be held liable. Hence, the first prayer already having satisfied by the return of the documents, the second prayer cannot be granted for the reasons stated above. - Application of official liquidator dismissed.

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• Service Tax

• 2012 (5) TMI 32
  Whether the payment made by the applicant bank to Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) for transfer of funds to members Banks is liable to service tax - Held that:- As per provisions of Section 65(12) the definition of ‘banking and other financial services' which provide the services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely provision and transfer of information and data processing the activity undertaken by the applicant is covered under the ‘banking and other financial services'- no waiver of pre-deposit of the service tax - against assessee.

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• Central Excise

• 2012 (5) TMI 13
  Determination of the cost of raw material in the assessable value of the final product for the purpose of levy of Excise duty - The application filed on behalf of the assessee for recall of the said order was dismissed by the Tribunal by a cryptic order dated 21st September, 2007. It is argued that the appellant had made out a very strong case for recall of order dated 31st May, 2006 but the Tribunal without adverting to the cause shown for non-appearance of the counsel, dismissed the application on the ground that the appellant did not have a strong case on merits. - Held that:- Determining the question of invocation of extended period of limitation in the interest of justice, it is a fit case where the appellant deserves to be granted adequate opportunity to place before the Tribunal its view point on all the aspects of their case - the impugned orders are set aside and the matters are remitted back to the Tribunal for fresh adjudication - in favors of assessee.

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• 2012 (5) TMI 12
  Penalty u/s 11AC - Cenvat credit - Transit loss - Order of first appellant authority - Application of mind - held that:- in the process of giving brief statement of submission of the appellant, if all the grounds running in several pages are quoted in any order or judgment and that too in a different font, then it may be possible that instruction may have been given to the Steno or any other person to type verbatim the grounds raised in the appeal starting from one point to the last point. It will be appropriate to mention here that in the judgment, if there is reference of previous judgments, then such portion also are required to be quoted, but for the purpose of finding out application of mind upon the ground raised by the appellant, mere quoting of the grounds verbatim and extenso in the order itself cannot be application of mind on the grounds raised by appellant. Such practices are required to be deprecated and the Appellate authority and the Tribunal should be very precise in narrating the facts of the case and the grounds raised by the parties. Reduction of penalty to 25% - held that:- So far as benefit of the proviso under section 11AC is concerned, that was available to the appellant as statutory benefit. It may be true that the Division Bench of Delhi High Court issued instruction to the authorities to incorporate the intimation to the assessee of condition of payment within 30 days to take the benefit of waiver of 75% of penalty and interest amount but that is a guideline which cannot be the reason for giving benefit to the person who did not deposit the amount in time knowing the law very well and tried to evade the provisions of law and further to the person who did not deposit such amount before preferring the appeal. The appellant, even before lower appellate authority, did not pray to permit him to deposit 25% of the amount of penalty and interest, therefore, we are not inclined to extend that period available under section 11AC and thus, the appellant is not entitled to such benefit.

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