TMI Tax Updates - e-Newsletter
May 5, 2014

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax

Articles

1. CUSTOMS VALUATION OF IMPORTS – RELATED PARTY TRANSACTION

   By: Srikanth Rao

2. Non Bailable offences under Service Tax do not have retrospective effect

   By: Bimal jain

News

1. ASSOCHAM - National Seminar on Tax deduction at Source (TDS) 9th May 2014 Hotel Radha Ragent, Chennai

Notifications

Customs

1. F. No.437/42/2014-Cus-IV - dated 2-5-2014 - Cus (NT)

Appointment of Common Adjudicating Authority

2. F. No. 437/31/2014-Cus-IV - dated 2-5-2014 - Cus (NT)

Appointment of Common Adjudicating Authority

Income Tax

3. 25/2014 - dated 29-4-2014 - IT

National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 approved for the purpose of section 36(1)(xii)

Circulars / Instructions / Orders

Companies Law

1. F. No. 2/6/2014-CL.V - dated 29-4-2014

Companies (Removal of Difficulties) Second Order, 2014.

Highlights / Catch Notes

Income Tax

• Assessee Must Prove Payment Isn't 'Royalty' u/s 195 & India-US DTAA for Tax Deduction at Source.

  Case-Laws - AT : TDS u/s 195 - assessee is required to prove that the payment made was not for 'royalty' as defined in explanation 2 to section 9(1)(vi) read with India-US DTAA - AT
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• Penalty u/s 271(1)(c) Not Applicable for Losses on Sale of Original Units, Courts Determine Interpretation Valid.

  Case-Laws - AT : Penalty u/s 271(1)(c) - losses on the sale of original units - assessee had valued the bonus units at nil value by taking one of the possible views and various courts has held that penalty under these circumstances is not leviable - AT
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• Loss from Debt Assignment Deemed Capital; Impacts Tax on Letting or Leasing Properties.

  Case-Laws - AT : Loss on account of assignment of debt - Nature of sum advanced - Letting or leasing out of premises - as far as the assessee is concerned, the advance was made to acquire a capital asset - loss is of capital in nature - AT
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• Assessee fails to differentiate speculative from non-speculative income in share trading, leading to unassessed speculative losses.

  Case-Laws - AT : Non-assessment of losses incurred in the business of share trading – Speculation loss - Assessee itself had failed to bifurcate its classes of income appropriately, though some of it pertained to speculative business - AT
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• Court Partly Favors Assessee in BCCI Cricket Media Rights Case on Arm's Length Price Adjustment.

  Case-Laws - AT : Transfer pricing adjustment – Determination of ALP of International License Revenue - Cost of international rights – media rights in respect of BCCI cricket - decided partly in favor of assessee - AT
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• Re-assessment under Income Tax Act Sections 147/148: Section 50C Applicability Doesn't Imply Income Escapement.

  Case-Laws - AT : Validity of re-assessment proceedings u/s 147/148 of the Act - full value of consideration u/s 50C - on mere applicability of section 50C would not disclose any escapement of income. - AT
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• Indian Company Operates Independently; Agency Permanent Establishment Provisions Not Applicable for Royalty Taxation.

  Case-Laws - AT : Taxability of Royalty under the Act - Since the Indian company who obtained the rights is acting independently, Agency PE provisions are not applicable to the assessee company - AT
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Customs

• Goods Confiscated for Violating Customs Act Section 111(m); Penalty Imposed u/s 112.

  Case-Laws - AT : Imposition of Penalty & Fine - There is violation of Sec. 111(m) of the Customs Act,1962, hence the goods are liable for confiscation and consequently, imposition of penalty is also warranted u/s 112 - AT
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• Revenue Must Prove Indian Currency Origin Tied to Smuggled Silver Sales; Lacks Evidence for Smuggling Connection.

  Case-Laws - AT : Smuggling of IC - Proceeds of Smuggled silver - No Evidence - onus to prove that the Indian currency and the sale proceeds of smuggled goods is on the Revenue - AT
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• Section 110(2) Protects Property Rights by Limiting Customs Officers' Power to Hold Seized Goods Indefinitely.

  Case-Laws - HC : The object of enacting Section 110(2) is that the officer of Customs department may not deprive the right to property for indefinite period to the person from whose possession the goods are seized u/s 110(1) - HC
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• Penalties u/s 112(a) Not Applicable: Importers Cleared Goods with Duty Payment, No Doubt on Confiscation Liability.

  Case-Laws - AT : Imposition of penalties - u/s 112(a) - action is not covered u/s 112(a) in as much as the importers or their employees never could have had a doubt that their goods are liable for confiscation, as the said goods were removed on BOE on which there was payment of duty - AT
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• Section 18 Amendment: Unjust Enrichment Provisions Inapplicable for Pre-July 14, 2006, Provisional Assessments.

  Case-Laws - AT : As the disputed period is prior to amendment of Section 18 i.e. before 14.07.2006 and the assessment being provisional, the provisions of unjust enrichment are not applicable - AT
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Corporate Law

• Company's Last-Ditch Effort to Stall Winding-Up Process Raises Appeal's Maintainability Concerns Under Company Law.

  Case-Laws - HC : Maintainability of appeal - Winding up of company - even after the merits of the admission order became final, the respondent-company is making a last ditch or desperate attempt to stall the proceedings - HC
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Service Tax

• High Court Dismisses Appeals: Transition from Construction Services to Works Contract Service for Projects as of June 1, 2020.

  Case-Laws - HC : Switching over from “Commercial or Industrial Construction Service“ and “Construction of complex service“ to “Works contract service“ for those projects which were already under execution as on 1.6.20 - Since tribunal has already remanded the matter, appeals dismissed - HC
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• Foreign Client Services by Inspection Agency Classified as 'Export of Service' Under Indian Tax Rules.

  Case-Laws - HC : Technical Inspection and Certification Agency Service - benefit of the services accrued to the foreign clients outside India. - This is termed as 'export of service'. - HC
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• Court Reduces Pre-Deposit from 25% to 10% for Construction Services Case, Balancing Revenue and Petitioner Relief.

  Case-Laws - HC : Waiver of pre deposit - Commercial or Industrial Construction Services - The interest of the revenue would be safeguarded if the petitioner is directed to deposit 10% of the demand confirmed as against the 25% as directed by the tribunal - HC
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• High Court Grants Refund to SEZ Unit Despite Initial Denial Due to Non-Commencement of Authorized Operations.

  Case-Laws - HC : Denial of refund claim - SEZ unit - authorized operations were not started by the said assessee during the currency of the period in issue - refund allowed - HC
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• Service Tax Liability on Indian Railways: Proceedings Invalid Unless Against Union of India Through Ministry of Railways.

  Case-Laws - HC : Service tax liability on Indian Railways – proceedings commencing with the notice to show cause must be initiated against the Union of India through the Ministry of Railways - the entire exercise of adjudication which commenced with the notice to show cause is clearly a nullity - HC
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• Penalty Unjustified if Tax and Interest Paid Without Intent to Evade, No Specific Finding Required.

  Case-Laws - HC : If the due tax has been deposited alongwith interest and there is no specific finding that there was any intention on the part of assessee to evade payment of tax, imposition of penalty is not justified - HC
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Central Excise

• High Court clarifies auctioning discarded railway materials doesn't imply non-duty paid status under Notification No.202/88-CE.

  Case-Laws - HC : Benefit of Notification No.202/88-CE - Mere auctioning by the railway the discarded rails etc. would not automatically lead to the inference that the same were clearly recognizable as deemed non-duty paid - HC
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• High Court Rules Executive Decisions on Rebate Claims Must Align with Statutory Rules; Unauthorized Actions Not Permissible.

  Case-Laws - HC : Denial of rebate claim - Mere executive decision cannot authorize the authorities concerned to do something which is not otherwise permitted under statutory rules - HC
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• High Court to Decide if CENVAT Credit is Valid When Supplier Mistakenly Paid Excise Duty.

  Case-Laws - HC : CENVAT Credit - It is a different thing that the supplier of the goods to the respondent paid excise duty on such product under mistaken belief - HC
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VAT

• High Court Clarifies ITC Disallowance u/s 18(1)(e) Applies Only to Exempted Goods, Not SEZ or Export Transactions.

  Case-Laws - HC : Disallowance of Input Tax Credit - u/s 18(1)(e) only the 'exempted goods', have been taken out of the purview of ITC and not person or class of persons or sale or purchases for promoting Special Economic Zones or exports u/s 8(3), (3A) or (4) - HC
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• Cooked Food in Uttarakhand Restaurants Exempt from VAT Due to Service Component, Says VAT Act 2005.

  Case-Laws - HC : Whether supply of cooked food in the restaurant are covered under Uttarakhand VAT Act, 2005 – no VAT can be imposed on service component involved thereon - HC
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• High Court Rules Stock Transfer as Sale, Affecting Compounding Scheme for Transferee Firm.

  Case-Laws - HC : Applicability of Compounding scheme to Transferee firm - Whether transfer of stock by assessee to M/s Rajvir Brick Field could have been treated to be a sale and excluded from compounding admitted by assessee as also the transferee firm - Decided against the assessee - HC
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• High Court erred by stating Tribunal's order was prospective; original 1990 registration certificate restored, amended version voided.

  Case-Laws - SC : Registration certificate - Since the order passed by Tribunal restored the certificate of registration dated 06.12.1990 and quashed amended certificate of registration which operated retrospectively, High Court ought not to have observed that the order passed by Tribunal is prospective only - SC
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Case Laws:

• Income Tax

• 2014 (5) TMI 83
  Deletion on account of depreciation of goodwill – Held that:- Since the issue about allowability of depreciation on goodwill as claimed by the assessee has been allowed by ITAT in a series of earlier years judgment and is also covered in CIT vs. Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] – Decided against Revenue. Disallowance of expenses u/s 14A of the Act – Held that:- AO has nowhere commented about this working being unsatisfactory or questionable - The addition has been made by summarily applying Rule 8D which was not applicable in this year - Thus, the assessee’s working remains unchallenged in effective terms - on merits also CIT(A) has merely made some further ad hoc estimate out of director’s remuneration, administrative expense and other heads - Thus, a partial addition has been sustained not on any cogent reasons but on ad hoc estimate - the addition deserves to be deleted on both counts i.e. non recording of satisfaction and on merits also - the partial addition u/s 14A retained by the CIT(A) is deleted. Leave encashment expenses – Held that:- There was merit in the contention of the assessee that the leave encashment though pertaining to earlier year is allowable on actual payment basis in the year of payment i.e. assessment year in question - It has not been disputed that assessee has not claimed the expenditure in earlier year - the assessee is eligible for deduction of leave encashment payment u/s 43B – Decided in favour of Assessee.

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• 2014 (5) TMI 82
  Partial confirmation of addition u/s 250 of the Act – Confirmation of estimated gross profit – Held that:- There was no reason to uphold the additions on account of direct costs once the books of account has been rejected and the gross profit rate has been applied - there is no further requirement of disallowing the cost or purchases – the CIT(A) ought to have restricted the addition to the extent of estimate of gross profit when she has found that books of account are to be rejected and the trading results as a whole shown by the assessee are not reliable – Relying upon This proposition is duly supported by the decision of Gujarat High Court in CIT v/s Dheeraj R. Rungta [2014 (4) TMI 711 - GUJARAT HIGH COURT] thus, the AO is directed to apply the gross profit rate of 5% as applied by the CIT(A) on sales - The balance additions under various heads of purchases or cost against commission and AMC income cannot be interfered – Decided partly in favour of Assessee. Disallowance of expenses under various heads – Held that:- The disallowance of 1/5th portion of expenses under the heads “motorcar expenses”, “interest on car loan” and “depreciation” , it should be restricted at 1/10th, as the element of personal nature of expenses has not been rebutted - With regard to the amount disallowed under the professional charges after invoking the provisions of section 40(a)(ia), WC tax and professional tax are concerned, the order of the CIT(A) is upheld – Decided partly in favour of Assessee. Disallowance of Expenses - General expenses, travelling and conveyance expenses and advertising conference and sales promotion expenses – Held that:- The disallowance has been made on the ground that some of the expenses relates to gifts and obligations for the doctors for which there is no quantification of such expenses from the bills which were produced - the reasons for disallowance by the AO as well as the CIT(A) are justified - the major expenses which relates to advertisement, travelling and sales promotion, conveyance, wherein no such quantification has been done either by the assessee – thus, the disallowance of 10% under the heads would sustained – Decided partly in favour of Assessee.

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• 2014 (5) TMI 81
  Disallowance u/s 14A of the Act – Administrative expenses – Held that:- As decided in assessee own case for the previous assessment year, the assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made - no disallowance out of administrative expenditure can be made as there is no direct nexus –the decision in CIT vs. Catholic Syrian Bank Ltd. [2010 (10) TMI 946 - KERALA HIGH COURT] followed - there is no precise formula or proportionate disallowance, thus no disallowance can be made – Decided in favour of Assessee. Deletion of disallowance of provision for liquidated damages – Held that:- As decided in assessee own case for the previous assessment year, the issue regarding liquidated damages requires a fresh look by the AO – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in faovur of Revenue. Deletion of bad debts written off – Held that:- As decided in assessee own case for the previous assessment year, there is no reason to interfere in the order of CIT(A) - assessee has actually written off the amounts – the decision in TRF Ltd. vs. CIT [2010 (2) TMI 211 - SUPREME COURT] followed - w.e.f. 1.4.1989 in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debt in fact has become irrecoverable - It is enough if the bad debt is written off and the bad debt is irrecoverable in the account of assessee – thus, the order of the CIT(A) upheld – Decided against Revenue. Deletion of provision for warranty expenses – Held that:- As decided in assessee’s own case, the decision in Wipro Ge Medical System Ltd. vs. DCIT [2009 (10) TMI 827 - ITAT BANGALORE] followed – the assessee has to submit present value of warranty expenses - It has to be properly ascertained and discounted on accrual basis - A proper calculation on this issue will be submitted to the AO who will examine the same and allow the claim - the Revenue has not pointed out any change in the facts and circumstances of the case – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Disallowance u/s 14A of the Act – Held that:- As decided in assessee own case for the previous assessment year, the assessee had sufficient profits generated in the year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest-bearing funds, disallowance of interest cannot be made – thus, there is no reason to interfere in the order of the CIT(A) – Decided against Revenue. Disallowance of proportionate interest u/s 36(1)(iii) of the Act – Held that:- As decided in assessee own case for the previous assessment year, the assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made - The assessee had sufficient interest free fund and it had not diverted the interest bearing fund same remained unrebutted – thus, there is no reason to interfere in the order of the CIT(A) – Decided against Revenue. Disallowance of additional depreciation – Held that:- The CIT(A) has given a finding on fact that the appellant has started new line of production of manufacturing of parts which was not there earlier, therefore, there was no installed capacity as on 31.3.2002 in respect of manufacturing of parts, therefore there is 100% increase in installed capacity in respect of manufacturing of parts - CIT(A) was of the view that as the new facility of production has been established the appellant is clearly eligible for additional depreciation - there was increase in installed capacity from ‘0’ to ‘100’ – thus, there is no infirmity in the order of the CIT(A) – Decided against Revenue. Deletion of disallowance of Royalty – Held that:- CIT(A) has given a finding on fact that the assessee has not acquired any ownership rights - It has got the right of user only - Since, AY 1989-90, the user charges claimed as royalty have been allowed in the assessments, the rate of user charges is 1% of the sales during the year under consideration - TDS has been made in respect of royalty payments - As it is a recurring expenditure payable on the basis of sales and the appellant has not acquired any capital asset or permanent right, the payment of royalty is allowable as business expenditure - Revenue has not controverted the fact by placing any material on record – Decided against Revenue. Deletion on account of ALP – Sale of material to AE - Held that:- CIT(A) was of the view that the transactions considered by the AO are not substantial as compared to the volume of the transactions - it is found that in most of the transactions, the appellant has earned higher sales price and in totality the appellant has gained higher prices – Revenue has not controverted the fact by placing any material on record – Decided against Revenue. Reduction of prior period adjustment – Computation of book profits u/s 115JB of the Act – Held that:- The decision in CIT vs. The Riddhi Siddhi Gluco Boils Ltd. [2014 (4) TMI 558 - GUJARAT HIGH COURT ] followed – the AO could not have varied the Profit and Loss Account of the company duly audited and prepared in terms of the provisions contained in the Companies Act – Decided against Revenue. Non-inclusion of Various expenses - Provision for doubtful debts, Provision for warranty expenses and interest expenses – Expenses warned for computation of book profits u/s 115JB of the Act - Held that:- CIT(A) rightly held that as regards the provision for doubtful debts and provision of warranty expenses, it should be treated as ascertained liability and therefore, no addition can be made to the book profit in respect of these amounts – the decision in M/s. Essar Teleholdings Ltd. Versus The DCIT, Mumbai [2013 (5) TMI 116 - ITAT MUMBAI] followed - the provisions of section 14A cannot be imported into while computing the book profit u/s.115JB of the Act inasmuch as clause (f) of Explanation to Section 115JB refers to the amount debited to the profit & loss account which can be added back to the book profit while computing book profit u/s.115JB of the Act - So far as provision for warranty is concerned, CIT(A) has given a finding that there liabilities are ascertained, therefore book profit would not be increased – thus, the order of the CIT(A )upheld – Decided against Revenue. Deletion of Penalty u/s 271(1)(c) of the Act – Held that:- As decided in assessee’s own case for the previous assessment years, the issue raised in Revenue’s appeal with regard to disallowance of interest paid to APSEB and disallowance of u/s.14A of the Act - So far as the disallowance u/s.14A is concerned, this disallowance has been deleted – thus, the penalty levied by the AO u/s 271(1)(c) of the Act in respect of interest paid to APSEP does not survive – Decided against Revenue.

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• 2014 (5) TMI 80
  Addition on account of fringe benefit value - Validity of clubbing of grounds – 8 grounds on FBT taken by the assessee on various expenses - Interpretation of Sections 115WA and 115WB of the Act – Whether for applying the provisions of Chapter XII-H of the Income-tax Act pertaining to bringing to the charge of tax the value of fringe benefits in the hands of the employer, employer - employee relationship is a prerequisite - Held that:- It is not possible to permit any segregation - it would be in the fitness of things if the assessees are directed to deposit the amount of Fringe Benefit Tax as per installment in a separate account to be opened and maintained with a Scheduled Nationalized Bank, subject to the condition that the amount so deposited shall not be utilized by the assessee in any manner whatsoever for any purpose, no charge shall be created nor shall the said account be used or permitted to be used as a collateral for obtaining any loan against the same. Upon such deposit being made in separate bank account and production of the necessary proof of such deposit before the Income-tax department, it shall amount to sufficient compliance qua the provisions of the Act levying Fringe Benefit Tax - the authorities below are not justified in making the addition - the order passed by the CIT(A) is not justified and also the AO was not justified in making the addition - the assessee itself has made the submission that the amount has been deposited in Escrow account in pursuance to the direction – the AO is directed to verify whether the assessee has deposited the amount and delete the addition – Decided in favour of Assessee.

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• 2014 (5) TMI 79
  Nature of Income - Income from transfer of shares - Whether or not the short term capital gain and long term capital gain on transfer of shares amount to business income – Held that:- The transaction of shares which have been assessed as “Short Term Capital Gain” and “Long Term Capital Gain” are to be treated as “Business Income” - it is evident from the period of holding of the shares under the head “Long Term Capital Gain” that they remain for substantial period and maximum period being more than ten years - In the case of “Short Term Capital Gain”, the maximum gain has been received from the transactions of shares, which were held between three months to twelve months - all the investments have been made out of own funds and no borrowed funds have been utilized - the assessee is also maintaining separate records and portfolio for the investment purpose and Security Transaction Tax (for short “STT”) has been paid in respect of the shares, on transfer of which, capital gain has been earned – the decision in The Commissioner of Income Tax Versus Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] followed – the order of the CIT(A) upheld – Decided against Revenue.

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• 2014 (5) TMI 78
  Rate of profits – Held that:- The facts have been completely ignored by the AO while applying flat rate of profit, even in a case where the net profit has to be applied, the same has to be reasonable - it shall be reasonable to apply flat net profit rate of 1.25% on the gross receipts of the assessee as against the profit rate of 4,7% applied by the AO – the AO is directed to determine the taxable income accordingly – Decided partly in favour of Assessee. Penalty u/s 271G of the Act – Quantum addition – Bonafide submissions made by assessee - Assessee did not submit any information or documentation as required under section 92D(3) of the I.T. Act - Held that:- From the Affidavit of the director of the Assessee submitted the Assessee in connection with the condonation of delay, it is seen that the Branch operations of the Assessee closed down in the month of December 2006 and no further business activities have stated to have taken place in the Branch - during the course of assessment proceedings, Assessee had submitted that it was not liable to tax in view of the provisions of section 9 of the Act and since it was not liable to tax it was also not required to maintain the documents required for Transfer Pricing - The submissions made by the Assessee appears to be bona-fide more so when the same has not been controverted by Revenue by bringing any contrary material on record - the Assessee was having a reasonable believe of not being liable to tax which has not been controverted by Revenue – thus, the Assessee is not liable for penalty u/s 271G of the Act – Decided in favour of Assessee.

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• 2014 (5) TMI 77
  Disallowance of Expenditure - Disallowance u/s 40(a)(i) of Act - TDS not deducted on payment of royalty u/s 195(1) – Held that:- Following CIT v. Dynamic Vertical Software India (P.) Ltd. [2011 (2) TMI 77 - DELHI HIGH COURT] - in case of payment towards purchase and sale of software by an assessee who acted merely as a dealer cannot be termed as royalty so as to require deduction of tax at source u/s 40(a)(i) of the Act - the assessee is required to establish the fact on record by producing supporting evidence that it was merely a distributor of software to the Indian customer by procuring from the overseas associated enterprise - The assessee is required to prove that the payment made was not for 'royalty' as defined in explanation 2 to section 9(1)(vi) read with India-US DTAA - thus, the matter is remitted back to the AO for fresh adjudication - Decided in favour of Assessee.

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• 2014 (5) TMI 76
  Confirmation of penalty u/s 271(1)(c) of the Act - Whether the assessee has furnished inaccurate particulars or not - AO was of the view that the assessee had deliberately booked losses on the sale of original units and had valued the bonus units at nil vale which otherwise had the value as the same were sold in the next year - Held that:- The assessees were issued bonus units which they valued at NIL value as they were issued free of cost and assessee had not paid any amount for receipt of the same - there is no dispute about the sale price of original units and loss incurred by the assessee on original units and also it is an undisputed fact that this loss cannot be said to be notional as assessee had actually made the sale of original units - to this extent, there does not seem to be a case of furnishing of inaccurate particulars - as far as value of bonus units is concerned, sub section (iiia) of clause (2) of sub section 55 permits the assessee to value such bonus units at NIL value - there was no loss to revenue or to assessee as claim denied during the present year has resulted into gain to assessee in succeeding year as assessee was able to adjust cost of such bonus units against sale of such units – here inaccurate particulars of income were not furnished. The provisions of section 94(8) were inserted in the statute to curb tax avoidance in such type of circumstances only which were applicable from assessment year 2005-06, the fact CIT(A) has noted in his order also - The present cases relate to assessment year 2004-05 and therefore in these years the assessee had not violated the provisions of section 94(8) and therefore had valued the bonus units as per provisions of section 55(2)(iiia) which is an accepted method though for different purposes - The AO had charged the assessee with the violation of provisions of section 94(7) which is not the fact as section 94(7) relates to the cases where an assessee earns dividend or income on such securities - the other charge of AO is that assessee had shown income from other sources as agricultural income is also not correct as CIT(A) in quantum proceedings had accepted the claim of assessee – thus, the assessee had valued the bonus units at nil value by taking one of the possible views and various courts has held that penalty under these circumstances is not leviable – Relying upon CIT v. Reliance Petroproducts Ltd. [2010 (3) TMI 80 - SUPREME COURT] - mere making a claim which is not substantiate in law by itself will not amount to furnishing of inaccurate particulars – thus, the penalties for concealment of income u/s 271(1)( c) is not imposable – Decided in favour of Assessee.

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• 2014 (5) TMI 75
  Revenue loss or capital loss - Loss on account of assignment of debt - Nature of sum advanced - Letting or leasing out of premises - Whether the sum advanced by the assessee was toward a fixed or capital asset of its business or a current asset – Held that:- Letting would only involve placing the property in possession of another for a defined (specified) period and user for a charge, and nothing more - to even suggest that in giving a property on rent, there is a change of its masters, or that, therefore, the property becomes a circulating capital of its owner, and no longer a capital asset, is ludicrous – Relying upon CIT vs. Khimline Pumps Ltd. [2002 (9) TMI 94 - BOMBAY High Court] - the payment of lease premium as toward the capital cost thereof, i.e., a capital expenditure. The argument that the loss not on its write off is irrecoverable, but on its transfer to another would be to no effect, as it would not alter the character of the loss incurred, which would continue to be in the capital field - it is not known if the original agreement contains a right to transfer the sub-lease, which would need consent of the principal leaseholder as well, and for all we know the arrangement sought to be entered into may have failed for that reason - there is no assignment deed, bearing reference to the relevant clause of the agreement (or the proposed agreement), i.e., where-under the advance was made - as far as the assessee is concerned, the advance was made to acquire a capital asset - If anything, it puts the assessee's claim of the loss as a revenue loss on an even weaker footing – thus, there is no infirmity in the Revenue's action in disallowing the loss as a capital loss, and not a loss arising to the assessee in the ordinary course of and in carrying out its business - the loss as only on capital account and not on revenue account – thus, it was rightly disallowed in computing the assessee's business income u/s 28 of the Act – Decided against Assessee.

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• 2014 (5) TMI 74
  Non-assessment of losses incurred in the business of share trading – Speculation loss under Explanaition to 73 of the Act - Revision u/s 263 - Order prejudicial to the interest of the revenue - The assessee itself had shown the whole of its business income as non-speculative in nature - No part of the income was considered by the assessee as arising out of any speculative business - AO had at no point of time gone through the nature of business of the assessee so as to ascertain whether Explanation to section 73 stood attracted - there is much strength in the argument that derivative trading, though it fell out of the scope of speculative transaction by virtue of section 43(5) of the Act was still good enough to be considered as a speculative loss for applying Explanation to section 73 of the Act - There can be no doubt whatsoever that trading in Units did not result in any speculation loss – Relying upon Apollo Tyres Ltd. Versus Commissioner of Income Tax [2002 (5) TMI 5 - SUPREME Court] Units could not be construed as equivalent to shares and Explanation to section 73 applied only to shares. Treatment of different classes of income falling within the same head, as speculative or non-speculative has wide ramification - It has got a spillover effect to other years as well - Once income from speculative trading was available for a set off then nothing whatsoever of the share trading loss would be left - Even if whole of the business is considered to be falling within the purview of section 73, still total income was positive, and there could be no tax loss - treatment of speculative business income as normal business income and/or normal income as speculative income, goes to root of administration of tax laws - Non-adherence to the provisions of the statute do render the order prejudicial to the interests of the revenue. The treatment of income as claimed by the assessee, if accepted would definitely be prejudicial to the interest of the revenue - Prejudicial to the interest of the revenue cannot be interpreted in a restricted manner but has to be given in a wide meaning - the AO had not applied his mind at all during the course of original assessment proceedings - Assessee itself had failed to bifurcate its classes of income appropriately, though some of it pertained to speculative business – Relying upon CIT v. Hastings Proportion [2001 (8) TMI 64 - CALCUTTA High Court] - there was no reason to interfere with the order of CIT – Decided against Assessee.

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• 2014 (5) TMI 73
  Transfer pricing adjustment – Determination of ALP of International License Revenue - Cost of international rights – Held that:- What is the exact amount which is payable to the BCCI in the relevant financial year because this is the only basis of the two adjustments - the assessee had acquired the media rights in respect of BCCI cricket events for a period from the year 2006 to 2010 under a contract with the BCCI on 28th February 2006 - the amount which is payable to the BCCI is dependent upon the tournament and the matches which were to be conducted for which the media rights were assigned to the assessee. The assessee has given the details of the matches conducted in the year - the assessee could have furnished a confirmation from the BCCI - If, for any reasons, the assessee was unable to file such confirmation, then it was the duty of the TPO to ascertain this information directly from the BCCI by carrying out enquiry under section 133(6) instead of making the transfer pricing adjustment on presumption and estimate - Once the correct amount can be ascertained, then there is no requirement of drawing any hypothetical inference for making any huge adjustment / addition - The very premise on which the adjustments have been made is based on indicative value given in the contract, which cannot be sustained, as the same can be ascertained on the basis of actual cricketing events and information from the BCCI which can be sought by either party – thus, the matter is remitted back to the TPO for adjudication – Decided in favour of Assessee. Determination of mark-up from the A.E - Exploitation of international rights – Held that:- Neither the assessee nor the TPO have bench marked by applying any proper method or carrying out any comparability analysis vis-a-vis any comparables - no proper analysis of CUP has been done as to how the minimum guarantee amount and the amount actually received will amount to CUP - The CUP has to be seen if an uncontrolled price is the price agreed between unconnected parties for the transfer of goods or services and if this transfer in all material aspect is comparable to the transfers between two related parties then only the price becomes comparable uncontrolled price - no uncontrolled conditions have been analysed - Even the TPO has also not bench marked the mark-up by analyzing from any comparables but has gone on the premise that margin on exploitation of media rights ranges from 5% to 15% - neither the approach of the assessee nor of the TPO can be sustained - The basic premise for determining the ALP under the transfer pricing mechanism is that a controlled transaction has to be bench marked by analyzing the comparable uncontrolled transactions – thus, the matter is remitted back to the TPO for adjudication – Decided in favour of Assessee. Notional interest on loans and advances given to AE – Adjustment of notional interest on outstanding debit balance - Held that:- The assessee rightly contended that it has also received various advances on which no interest is payable - This plea has not been taken either before the TPO or the before DRP – thus, the matter of the adjustment on account of notional interest on loans and advances given to the AE needs to be remitted back for verification - As decided in assessee’s own case for the previous year, the comparable has to be dues recoverable from a debtor and not a borrower - the TPO had adopted interest @ 2.19% LIBOR on balances which exceeded 30 days, but LIBOR rate was relevant only in the case of lending or borrowing of funds and not in the case of commercial over dues - even if the continuing debit balances of Associated Enterprises could be treated as 'international transactions' u/s 92-B, the right course of applying the CUP method, in the case of non-charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee had charged interest on overdues with independent enterprises (internal CUP) or with the cases in which other enterprises had charged interest in respect of overdues in respect of similar business transactions with independent enterprises (external CUP) – thus, the adjustment on account of notional interest is set aside – Decided partly in favour of Assessee. Notional guarantee commission charges – Guarantee extended to the AE – Held that:- The Tribunal has restricted the T.P. adjustment on the score by re-computing the commission for the guarantee given by the assessee to its A.Es at 0.5% considering it to be at ALP - the AO/ TPO is directed to restrict the TP adjustment by re-computing the commission for guarantee given by the assessee to its A.E. at 0.5% as the basis for ALP – Decided in favour of Assessee. Determination of ALP on consultancy revenue – Held that:- The segmental account filed before the TPO that the assessee has also included the revenue of media rights fee and licence fee - media rights fee and licence fee should be removed so as to arrive at correct profit margin – the calculation has been given for the first time – thus, the matter is required to be remitted back to the AO/TPO for verification – Decided in favour of Assessee. Addition of payment made to BCCI - Acquisition of sports rights – Held that:- The assessee has made the payment to the BCCI for acquisition of sports rights to the BCCI in respect of three matches - Such a payment is a revenue expenditure which is allowable u/s 37(1) - Just because the assessee has deferred the expenditure for three years in the ratio of 80% (+) 10% (+) 10%, it cannot be held that the AO is justified in putting his own apportionment in the ratio of 60%:20%:20% - Once the expenditure has been incurred in the year which is allowable as revenue expenditure, the same should be allowed in the year only – thus, the AO is directed to allow the entire claim of the assessee in the year only – Decided in favour of Assessee. Addition of website development expenses – Expenses treated as capital expenses – Held that:- The website is meant for dissemination of various information and in case of the assessee it is one of the very important factor in carrying out its business operation as the assessee is mainly engaged in media and entertainment business - Updating of website is the most essential part for running of day-to-day business - such an expenditure for updating the website is no enduring benefit but essential for day-to-day business and it is allowable as revenue expenditure – the decision in Empire Jute Co. Ltd. v. CIT [1980 (5) TMI 1 - SUPREME Court] followed - the expenditure is to be allowed as revenue expenditure – Decided in favour of Assessee. Addition u/s 14A of the Act – Held that:- The assessee has funds of sums in the form of zero coupon fully convertible debenture on which there was no interest cost - the assessee also had a huge reserve and surplus - Once the assessee had sufficient interest free funds, then it can be held that the disallowance on account of interest cost cannot be made – Relying upon CIT v. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] – thus, the matter is remitted back to the AO for re-working the disallowance u/s 14A after applying the provisions of rule 8D after removing the component of interest paid as the assessee had sufficient interest free funds and workout the disallowance for the administrative and other expenditure – Decided in favour of Assessee.

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• 2014 (5) TMI 72
  Restriction of depreciation on windmills – Disallowance of claim of higher depreciation – Held that:- The decision in KKSK Leather Processors (P.) Ltd. v. ITO [2009 (11) TMI 556 - ITAT MADRAS-D] followed - filing of audit report within the due date amounts to exercising option as required under the second proviso to Rule 5(1A) of Income-tax Rules for claiming higher depreciation - when there is no specific form or method prescribed for exercising the said option for claiming higher depreciation, then the claim made in the return of income as well as reflected in the books of account and audit report filed along with the return of income is more than the exercise of option as required under the second proviso to Rule 5(1A) of Income Tax Rules - exercising option by filing audit report before the due date for filing of return for claiming higher depreciation on the windmills, the assessee is entitled for higher depreciation even though the return was filed belatedly – thus, the matter is remitted back to the AO for verification - Decided in faovur of Assessee.

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• 2014 (5) TMI 71
  Validity of re-assessment proceedings u/s 147/148 of the Act - full value of consideration u/s 50C of the Act - Held that:- There is no material available with the AO to form his opinion that income has escaped assessment - All material evidences were available at the stage of original assessment proceedings and the AO merely following the provisions of section 50C, as was not considered in the original assessment proceedings, reopened the assessment order - The assessee has disclosed all the facts which were known all along to the Revenue - Section 50C is not final determination to prove that it is a case of escapement of income - The report of approved valuer may give estimated figure on the basis of facts of each case - on mere applicability of section 50C would not disclose any escapement of income. Relying upon Commissioner of Income Tax Versus Kelvinator Of India Limited. [2002 (4) TMI 37 - DELHI High Court], Circular no.549 of CBDT has been followed and held that on mere change of opinion of AO cannot be a ground for re-assessment and that amendment of sec. 147 w.e.f. 1.4.89 has not altered the position - The AO at the original assessment stage considered all the documents and material produced before him and has accepted the cost of property as was declared by the assessee - on mere change of opinion, the AO was not justified in reopening the assessment - CIT(A) on proper appreciation of facts and law correctly quashed the reassessment proceedings – Decided against Revenue.

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• 2014 (5) TMI 70
  Validity of proceedings u/s 263 of the Act – Withdrawal of deduction u/s 80IB(10) of the Act – Applicability of section 80AC of the Act – Held that:- The provisions of section 263 of the Income-tax Act, 1961 cannot be invoked only when the order of the AO is erroneous as well as prejudicial to the interest of revenue – Relying upon Malabar Industrial Co. Ltd. vs. CIT [2000 (2) TMI 10 - SUPREME Court] and CIT vs. Contimeters Electricals P. Ltd. [2008 (12) TMI 4 - HIGH COURT DELHI] - The order of Assessing Officer is dated 30.12.2009 - For the purpose of revision u/s 263 of the Act, the legal position at the time of passing the order by the AO is to be considered and not the legal position at the time of filing the return of income or after the finalization of assessment - at the time of passing the assessment order, two views were possible with regard to the claim of deduction u/s 80IB in view of provisions of section 80AC - The AO has adopted one of the courses permissible in law at the relevant time - where two views were possible and AO had taken one view and if CIT do not agree with it then he cannot invoke provisions of section 263 of the Act to revise the AO’s order – thus, the CIT was not justified in invoking the provisions of section 263 of the Act – Decided in favour of Assessee.

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• 2014 (5) TMI 69
  Transfer pricing adjustment - Manufacturing assembling of automotive seating systems and interior, and in the design and development of automotive seating systems and interiors – Held that:- As decided in assessee’s own case for the previous year, the respective stand and the material available on record qua the cost allocation issue which is the only issue in 2005-06 and 2006-07 assessment year set aside - The issue as such is restored back to the TPO with the direction to decide the same afresh in accordance with law – there was merit in the arguments advanced that the transfer pricing issues being still new as such not only qua the representation but even qua the orders there is scope of tremendous improvement - The issue which is a continuous issue arising in every year because of the nature of the transaction to our minds cannot be allowed to be glossed over for want of representation - Being a continuous issue over the years full and correct facts need to be taken into consideration - The order has ignored significant material findings of the TPO – the matter is remitted back to TPO for fresh adjudication – Decided against Revenue. Cost allocation – Held that:- While admitting the fresh evidence sought to be relied upon, the issue of merit of the evidence sought to be placed on record open to the TPO for his consideration is left open – thus, the matter is remitted back to the TPO for fresh admission of the evidences as it is necessary to consider the relevance and impact of the same for deciding the issue – Decided in favour of Revenue. Cost recharges – Held that:- The appeal for the year has been segregated as it is stay granted appeal accordingly paying heed to the stand of the CIT - the issue is restored to the TPO with the direction to decide the same in accordance with the view taken in 2007-08 assessment year – Decided in favour of Revenue. Disallowance of claim as revenue expenses – Case law applied without appreciating the facts - Held that:- The DRP without discussing the facts has decided the issue relying upon judgments which proceed on a specific set of facts - the approach followed by the DRP cannot be upheld - Before applying the case law it is first primarily and necessarily important to set out the full and correct facts which necessarily require the marshalling of relevant facts - From the facts on record it is necessary to address whether the project ultimately translated into a unit being setup or was the project abandoned - On this aspect there is no discussion in the orders nor has the assessee considered it necessary to address this aspect - the ratio of judgements applies to a given set of facts and without setting out the material facts the principles laid down on the issue by various Courts would have no meaning or relevance - As each judgements operates on the facts of its case – thus, the matter is remitted back to the AO for re-adjudication – Decided in favour of Assessee.

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• Customs

• 2014 (5) TMI 89
  Imposition of Penalty & Fine - Confiscation of ‘lace without visible background’ – Mis-declaration - Wrongly consigned goods to Indian importer - Held that:- Neither side has disputed about the merit of the case, that is, the correctness of the classification and applicable rate of duty relating to the 5332.800kgs imported goods which were declared in the Bill of entry as ‘embellishment for garments’ but later found on examination as ‘lace without visible background’ - Though Revenue has accepted contention of the overseas supplier in the letter dt.15.03.2010 for arriving at the correct classification, however made a sincere attempt to argue that the said letter dt.12.03.2010 issued by the overseas supplied is an after-thought and procured to cover up the mis-declaration but could not produce any evidence to show the positive involvement of the importer in the importation of the 5332.800 kgs. of ‘lace without visible back ground’ instead of ‘embellishment for garments(undyed)’ as declared in the Bill of Entry – While reducing penalty and fine, Commissioner(A) has recorded reasons in the impugned order. No merit is found in the contention of the Revenue that the reduction of fine and penalty is incorrect, in absence of cogent evidences rebutting the contention of the letter dated 15.03.2010 issued by the over-seas supplier stating clearly that the goods were wrongly consigned to the importer in India - Simultaneously, it also cannot be denied by the importer-assessee that there occurred a mis-declaration and mis-classification of the good imported into India, which they have readily accepted on the basis of letter dt.12.03.2010, waived the issuance of Show Cause Notice and participated in the adjudication proceeding - Relying upon Chemical Suppliers Versus COLLECTOR OF CUSTOMS [1992 (9) TMI 111 - SUPREME COURT OF INDIA] - There is violation of Sec. 111(m) of the Customs Act,1962, hence the goods are liable for confiscation and consequently, imposition of penalty is also warranted u/s 112 - This Court do not agree with the contention of counsel for importer that confiscation and penalty cannot be visited as the violation is held to be technical in nature. Penalty and fine imposed by Commissioner(A) is reasonable - Also, there is no force in the contention of assessee that the goods are not liable for confiscation and consequently no penalty is imposable - In the result the Order of Commissioner(A) is upheld to the extent of confirmation of fine and penalty and Appeals filed by Revenue as well as assessee are rejected – At this stage the Ld. Advocate for assessee submits that the bank guarantee submitted with the department is pending - Since Appeals of Revenue as well as assessee are disposed of, consequential relief, if any, as per law, flows from Order, be allowed – Decided against assesse.

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• 2014 (5) TMI 88
  Smuggling of IC - Proceeds of Smuggled silver - No Evidence - Whether Indian currency caught is sale proceeds of smuggled silver - Section 121 of the Customs Act - Held that:- There is virtually no evidence on record to establish that the Indian currency in question is sale proceeds of the smuggled silver as alleged by the Revenue - The entire case is based upon the seizure by the police and the initial statement of Shri Hem Raj, which are also contradictory in nature - He has named different person at different points of time as recorded in the impugned order - During adjudication appellants have taken a stand that the money in question was given to him by various persons for the purchase of the agriculture land - The said persons who have given their affidavits do not stand examined by the adjudicating authorities, who have simplicitor rejected the said affidavits by observing that the same is an afterthought. In any case Section 121 stands examined by the various Courts and it is well settled that the onus to prove that the Indian currency and the sale proceeds of smuggled goods is on the Revenue - There is nothing on record to show as to which silver stands sold by the appellant and who are the buyers of the same - Whether the said silver, even if sold, was smuggled or not - In the absence of an answer to all these questions, the confiscation of the Indian currency and the imposition of penalty is on the appellants is not justified - Accordingly, the impugned orders are set aside – Decided in favour of appellant.

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• 2014 (5) TMI 87
  Alternate Remedy of Appeal – Assessee agitating bona fide -Duty free imports under advance licence – Non-Furnishment of bank guarantee – Section 128 of Customs Act, 1962 – Held that: - Officer lower in rank than Commissioner has a right of appeal to Commissioner (A) within 60 days from the date of receipt of communication of the order, however, can be extended for another 30 days if sufficient cause for not presenting the appeal is shown - Assessee should avail of the statutory remedy of appeal - Considering the nature of the disputes involved, this court is not inclined to entertain the petition directly - Since assessee was pursuing the remedy before this Court under bona fide belief Commissioner(A), if assesse files such an appeal latest by 31.12.2012, shall hear and decide the same on merits - Assessee is agitating the grievances about not being able to make imports without furnishing bank guarantee, Commissioner shall hear such appeal expeditiously – Decided in favour of Assessee.

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• 2014 (5) TMI 86
  Provisional release of the goods - Absence of issuance of valid show cause notice – Bar of Limitation - Seizure of imported Fabrics - Refund of Pre-deposit - Interpretation of Sections 110(2) and 124 of Customs Act - Return of two containers and goods seized – Held that:- The object of enacting Section 110(2) is that the officer of Customs department may not deprive the right to property for indefinite period to the person from whose possession the goods are seized u/s 110(1) - Relying upon The Hon’ble Apex Court in Chaganlal Gainmull v. Collector of Central Excise [1989 (11) TMI 59 - SUPREME COURT OF INDIA] - If no action by way of issue of a show cause notice is initiated u/s 124(a) within the period of six months, stipulated u/s 110(2) the effect would be that the person from whom the goods were seized would become entitled to their return. A combined reading of Sections 110(2), 124 and 110A spells out that any order for provisional release shall not take away the right of assessee u/s 110(2) r/w Section 124 - However, where no action is initiated by way of issuance of show cause notice u/s 124(a) within six months or extended period stipulated u/s 110(2) the person from whose possession the goods were seized becomes entitled to their return - The remedy of provisional release is independent of remedy of claiming unconditional release in the absence of issuance of any valid show cause notice during the period of limitation or extended limitation prescribed u/s 110(2) – The counsel for the petitioner had not pressed for release of Rs. 2 crores as noticed thus, while partially accepting the prayer of the petitioner for release of the goods belonging to the petitioner unconditionally, it is directed that the amount of Rs. 2 crores shall be adjusted against liability that might be determined while adjudicating the matter - Decided in partly in favour of assessee.

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• 2014 (5) TMI 85
  Seizure of foreign made alcohol - Excess of registered stock - 79,000 bottles of different foreign made liquor – Allowance to Private Ware house to store alcoholic beverages without payment of duty – Whether the suspension of licence of the petitioner is required to be continued or not – Held that:- AC & DC of Customs has power to suspend the licence pending enquiry whether such licence should be cancelled on the ground envisaged under clause (b) of subsection (2) of Section 58, namely, that the licensee has contravened any provision of the Act or the Rules or Regulations or committed breach of any of the conditions of the licence - It is not even the case of Assessee that if stock far in excess of the registered stock is found from the warehouse, the same may not be amounting to breach of conditions of the license – This Court is not at this stage required to comment on any possible action that the customs authorities may finally take in terms of Section 58(2). In view of major discrepancy in the registered stock and the physical stock prima–facie found by the customs authorities during the early investigation, the competent authority had every right to suspend the licence of assessee in terms of Section 58 (3) - Customs authorities must also complete the investigation so as to put an end to the ongoing suspense – Matter is remanded back to the authorities for fresh decision – Decided in favour of assesse.

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• Corporate Laws

• 2014 (5) TMI 84
  Maintainability of appeal - Winding up of company - Company Judge allowed winding up of company - Division Bench allowed the appeal - However, Division Bench pointed out that in the revision petition that Division Bench had only questioned the procedure adopted by the learned Company Judge in passing a rolled-up order and had even granted liberty to the company to make an application within 7 days for dispensing with the requirement of advertisement of the citation and having regard to the tenor of the judgment of the Division Bench, the setting aside of the entire order of the learned Company Judge was not appropriate and that part of the order of the learned Company Judge admitting the petition for winding up should be sustained - whether the respondent can raise arguments now against the admission of the winding up petition. Held that:- it is not open to the respondent-company to raise arguments now against the admission of the winding up petition. This is because of the order passed by the Division Bench on 5.4.2013 in the review petition No. 116/2013 filed by the petitioners. In this order the Division Bench clarified the final direction contained in paragraph 8 of its earlier order passed on 7th January, 2013 in Company Appeal No. 19/2009. In the order passed on the review petition it was clarified that the objection against the order passed by the learned Company Judge on 16.2.2009 was to the rolled-up procedure adopted by him in discussing the merits of the case and the direction for winding up without advertising the proceedings. It was further clarified that the Division Bench did not comment upon or decide the merits of the observations of the learned Single Judge which "undoubtedly point to the fact that the winding up petition needed to be admitted". In this view of the matter, the only modification directed by the Division Bench to its earlier order was to clarify that the judgment dated 16.2.2009 of the Company Judge "to the extent it records findings - prima facie observations warranting admission of the petition would stand". The allegation in the present application filed by the respondent-company that the petitioner No.1 made a false statement in the affidavit that he did not sign the board resolution dated 01.10.1999 regarding disposal of Nangloi property appears to me to be an afterthought. The respondent-company states in the application that the petitioner No.1 himself admitted and identified his signature in the board resolution before the ROC on 26.05.2005. If that is so, nothing prevented the respondent-company from raising this point in its counter affidavit dated 13.01.2006 filed in response to the company petition or in its reply affidavit dated 26.09.2006. The allegation in the present application that there were discrepancies in the percentage of the shareholding of the petitioner No.1 in the respondent-company, which is said to be reflected in the order dated 17.10.2011 passed by the disciplinary committee of the ICAI is inconsequential and does not seem to have affected the outcome of the winding-up proceedings nor is it of much relevance to those proceedings. It has made the same or substantially the same allegations which it made in the winding-up proceedings resulting in the admission order passed on 16.02.2009. No such pleas or allegations were made in the appeal filed against the admission order dated 16.02.2009 which appeal in any case was only against the rolled up procedure followed by the learned Company Judge, and which did not question the admission order on merits. The order of the Division Bench dated 05.04.2013 passed in the review petition filed by the petitioners attained finality; this Court clarified that the admission order made by the learned Company Judge would remain undisturbed and it was only the question of appointing the provisional liquidator and advertisement of the winding-up proceedings that will have to be decided by the learned Company Judge. Thus even after the merits of the admission order became final, the respondent-company is making a last ditch or desperate attempt to stall the proceedings by making the present application seeking to enforce the attendance of petitioner No. 1, taking advantage of some orders passed by the disciplinary committee of the ICAI in the case of the petitioner No. 1. Such a conduct on the part of the respondent-company cannot be countenanced - Decided against appellant.

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• Service Tax

• 2014 (5) TMI 106
  Demand of service tax - switching over from "Commercial or Industrial Construction Service" and "Construction of complex service" to "Works contract service" for those projects which were already under execution as on 1.6.20 - Partial payment of service tax - benefit of payment of service tax at concessional rate of 2% w.e.f. 1.6.2007 (4% from 28.2.2008) under "Work Contract (Composition scheme of payment of Service Tax) Rules, 2007 - Tribunal remanded matter back to Commissioner - Held that:- when the Tribunal has merely remanded the proceedings for fresh consideration for the reasons noted, we are not inclined to interfere. At this stage, we are not making any conclusive observations that if the proposal of the department to tax the assessee on the basis that the assessee provided commercial or industrial construction services or complex services fails, benefit of composite tax could or could not be denied. The same would depend on very minute reading of the show cause notice and in one of the cases, the addendum issued by the department. We may recall that the Commissioner in his order dated 29.10.10, raised both the issues. First issue pertains to appropriate classification of the service provided by the assessee. Second issue pertains to the availability of the benefit of paying at concessional rate after 1.6.2007 under the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 on the ongoing projects of the assessee. The latter question framed has thus a direct bearing on the issue of availability of composition of tax. However, as noted above, the Tribunal having remanded the proceedings for fresh consideration, we do not see any question of law arising. All contentions, including that looking to the contents of the show cause notice it is not open to deny such benefits, are kept open to be raised before the Commissioner - Decided against assessee.

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• 2014 (5) TMI 105
  Export of service or not - Technical Inspection and Certification Agency Service - Technical Testing and Analysis Agency Service at different places in India in respect of goods imported by their customers located abroad - Consideration received in convertible foreign exchange - Held that:- respondent is a testing agency. The contract of service was with the overseas purchaser of goods. Thus, the privity of contract of the respondent is with the buyers of the goods who are located or situated outside India. Further, the argument was that this is a contract based tax. The contract is of services. There is no contract in this case with the manufacturer of goods in India. Further, there is no contract and no privity between the respondent and the exporter of the goods who is stated to be based in India. It is in these circumstances that the exemption notification though required to be strictly construed has rightly been construed in favour of the respondent assessee before us. If one refers to the allegations in the show cause cum demand notice, it is apparent that the same refers to the testing charges received by the respondent in convertible foreign currency in respect of services rendered by it in India to its foreign clients. Though the show cause notice refers to the circulars, what is apparent from the judgment of the Hon'ble Supreme Court in the case of All India Federation of Tax Practitioners Vs. Union of India, [2007 (8) TMI 1 - Supreme Court] that service tax is a tax on each activity. When it comes to a service tax on professions, the services rendered are of advise and hence, the Hon'ble Supreme Court with regard to the nature of the tax concluded that it is rendered by a Chartered Accountant, for example when he advises his client or audits his account. Similarly, a cost accountant charges his client for advise as well as doing his work of costing. Tribunal has found that the assessee like the respondent rendered services, but they were consumed abroad. The clients of the respondents used the services of the respondent in inspection/test analysis of the goods which the clients located abroad intended to import from India. In other words, the clients abroad were desirous of confirming the fact as to whether the goods imported complied with requisite specifications and standards. Thus, client of the respondent located abroad engaged the services of the respondent for inspection and testing the goods. The goods were tested by the respondents in India. The goods were available or their samples were drawn for such testing and analysis in India. However, the report of such tests and analysis was sent abroad. The clients of the respondent were foreign clients, paid the respondent for such services rendered, in foreign convertible currency. It is in that sense that the Tribunal holds that the benefit of the services accrued to the foreign clients outside India. This is termed as 'export of service'. In these circumstances, the Tribunal takes a view that if services were rendered to such foreign clients located abroad, then, the act can be termed as 'export of service'. Such an act does not invite a service tax liability. The view taken by the Tribunal therefore, cannot be said to be perverse or vitiated by an error of law apparent on the face of the record. If the emphasis is on consumption of service then, the order passed by the Tribunal does not raise any substantial question of law - No substantial question of law arises - Decided against Revenue.

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• 2014 (5) TMI 104
  Waiver of pre deposit - Demand of service tax - Commercial or Industrial Construction Services - Held that:- The principle behind the issuance of the show-cause notice is not only to make aware the person against whom the action is intended to be taken but it must contain the language in precision which on reading thereof, make the person understand, the case which he has to defend. The show-cause notice is the foundation of an action and, therefore, a plea, which is not taken, shall not be permitted, as the person did not have an opportunity to meet the same. In the instant case, the showcause notice was issued on the plea of non-deposit of the service tax for the services rendered under the “Commercial or Industrial Construction Services” as a Sub-Contractor amounting to the deliberate suppression. There is no whisper in the said show-cause notice that the services rendered by the petitioner under the “Manpower Recruitment and Supply Agency Services” or under the supply of “Tangible Good Services” or under the “Cleaning Activity”. The Cleaning Activity Service was introduced with effect from 16.06.2005 and the demand was confirmed even for a period prior thereto There is no absolute bar in entertaining the writ petition under Article 226 of the Constitution despite existence of an alternative efficacious remedy. This Court finds that there has been a manifest injustice apparent on the face of the record. This Court does not feel that the jurisdiction under Article 226 of the Constitution is completely ousted. Since a strong prima facie case is made out by the petitioner, the deposit of 25% of the demand would certainly cause an undue hardship. Simultaneously, this Court also finds that the petitioner have been found guilty of suppressing the facts and have not paid the service tax under the category in which the registration is obtained. The interest of the revenue would be safeguarded if the petitioner is directed to deposit 10% of the demand confirmed in the impugned order within eight weeks from the date of the order. - observations and/or findings made in this order is prima facie and tentative one, the tribunal shall decide the appeal independently without being swayed by such observations or findings. In the event, the deposit is made within the time indicated herein above, the tribunal shall decide the appeal within six months from the date of the communications of this order - Decided conditionally in favour of assessee.

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• 2014 (5) TMI 103
  Waiver of pre deposit - Financial hardship - Tribunal raised pre deposit demand to hear appeal - Held that:- observations and/or findings made in this order is prima facie and tentative one, the tribunal shall decide the appeal independently without being swayed by such observations or findings. In the event, the deposit is made within the time indicated herein above, the tribunal shall decide the appeal within six months from the date of the communications of this order - Decided against assessee.

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• 2014 (5) TMI 102
  Demand of service tax - Disallowance of CENVAT Credit - Earlier passed in favour of assessee by Tribunal - Commissioner (Appeals) without taking note of the order of the Tribunal Mumbai Bench, still directed the petitioner to pay the entire amount of service tax - Held that:- order of the Commissioner (Appeals) impugned herein dt.27.01.2014 is not legally sustainable and the petitioner is entitled to get the protection as already being considered by the Tribunal Mumbai Bench pending appeal - Decided in favour of assessee.

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• 2014 (5) TMI 101
  Demand of service tax - renting - premises have been rented by a Municipal Corporation in discharge of its statutory duty - Held that:- Assessee contends that even if Service Tax is leviable on the premises rented, but if the premises have been rented by a Municipal Corporation in discharge of its statutory duty, then Service Tax is not liable to be fixed. - If that be so, this is a ground which is to be raised by the petitioner before the assessing authority, who have issued the show cause notice and it would be for the assessing authority to consider this objection at the first instance and take a decision. Thereafter, the order of the assessing authority is subject to appeal and further appeal and revision before the appellate authority and Tribunal and, therefore, at this stage interference into the same merely because a notice for assessment and recovery of Service Tax has been issued, is not proper - Accordingly, it is directed that on the petitioner’s showing cause before the competent authority, the competent authority shall take note of the objections raised by the petitioner, thereafter pass an appropriate order with regard to liability of assessment of the petitioner, and the said order shall be further subject to statutory appeal and revision, available to the petitioner - Decided in favour of assessee.

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• 2014 (5) TMI 100
  Denial of refund claim - Whether the Hon’ble CESTAT, WZB, Ahmedabad is right in holding that the services in dispute were used in the authorized operations by a unit situated in SEZ, even though the “authorized operations” as mentioned in the Letter of Approval of Development Commissioner, KASEZ meant “manufacturing” and in its letter dated 2/7/2010 Dy.Collector, KASEZ had asked the said assessee to commence commercial production during the validity period i.e. 28/6/2012 which shows that authorized operations were not started by the said assessee during the currency of the period in issue - Held that:- Considering the facts and decision of this Court in the case of Cadila Healthcare Ltd. (2013 (1) TMI 304 - GUJARAT HIGH COURT), no error has been committed by the learned tribunal in holding that the respondent shall be entitled to refund as claimed. No question of law much less any substantial question of law arise in the present appeal - Decided against Revenue.

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• 2014 (5) TMI 92
  Maintainability of appeal - Appeal dismissed for non compliance of pre deposit order - Held that:- Submission of parties basically relate to the merits of the appeal and have been considered by the Appellate Tribunal while disposing of the stay/waiver application filed by the appellant before the Tribunal. We do not wish to express any opinion at this stage as all these contentions will be examined by the Tribunal when it proceeds to decide the Appeal. However, as the Bharat Sanchar Nigam Ltd. is a Corporation which is owned and controlled by the Central Government and the appeal has been dismissed by the Appellate Tribunal as a consequent of a default in deposit of the amount directed by the Tribunal by the order dated 17 September 2013, it is considered appropriate, in the facts and circumstances of the case, that in the event the appellant now deposits half of the amount indicated by the Appellate Tribunal in its order dated 17 September 2013 within a period of eight weeks - Conditional stay granted.

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• Central Excise

• 2014 (5) TMI 95
  Validity of Section 11D - Duty demand - Held that:- three conditions are necessary before Section 11D could apply :- (1) There must be a liability to pay excise duty in respect of the goods manufactured by the petitioner; (2) an amount in excess of the duty assessed/determined ought to have been collected by the petitioner; and (3) the collection of the excess amount should be representative of the duty of excise. In this context Mr Tripathi submitted that the petitioner manufactures aluminium. Excise duty is a duty on manufacture. Therefore, the excise duty liability of the petitioner would be the excise duty payable on aluminium . Insofar as the aluminium manufactured by the petitioner is concerned, the duty that was payable by the petitioner has been paid and there is no issue with regard to this. As such the petitioner has not collected any excise duty which the petitioner was liable to pay in excess of what the petitioner was assessed on in respect of the aluminium produced by it. Therefore, there is no question of the applicability of Section 11D. Conditions precedent for invoking Section 11D have not been satisfied. Section 11D( 1) has specific reference to a person who is liable to pay duty under the Act. In the present case it is Hindalco which is that person. Hindalco's liability to pay duty is in respect of the aluminium manufactured by it inasmuch as a duty of excise is a duty on manufacture and not on the sale of any product. Insofar as aluminium is concerned the price charged for it is by virtue of the Aluminium Control Order. The duty leviable on aluminium based on such price has been collected and paid by Hindalco . There is no excess on this account. Therefore, the question of invoking Section 11D would not arise - Decided in favour of assessee.

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• 2014 (5) TMI 93
  Maintainability of appeal - Alternative remedy - Writ Petition or appeal - Appeal u/s 35F - whether the order seeking dispensation of the deposit of the demand duty can be assailed in a writ jurisdiction. - Held that:- Though every order passed by the Tribunal, in a pending appeal is amenable to be challenged in an appeal but such appeal is entertainable, if the remedy of appeal is somehow restricted, the same cannot be said to be an efficacious remedy and, therefore, the jurisdiction of the High Court under Article 226 of the Constitution cannot be taken away - There is no absolute bar against the invocation of power of judicial review under Article 226 of the Constitution, even if, there is an alternative remedy available to the aggrieved person. It is not a rule of exhaustion of the remedy but a rule of convenience and discretion. - This Court, therefore, does not find the writ jurisdiction is completely taken away because of the existence of an alternative remedy by way of an appeal under Section 35 F of the Central Excise Act. Whether the disparity in consumption of electricity can be a sole factor in arriving at the conclusion that the person has suppressed the actual production of the final product which attracts the excise duty in absence of any other corroborative evidence - Held that:- The law is well settled that the electricity consumption cannot be the only factor or basis for determining the duty liability that too on imaginary basis especially when Rule 173E mandatorily requires the Commissioner to prescribe/fix norm for electricity consumption first and notify the same to the manufacturers and thereafter ascertain the reasons for deviations, if any, taking also into account the consumption or various inputs, requirements of labour, material, power supply and the conditions for running the plant together with the attendant facts and circumstances. Therefore, there can be no generalzation nor any uniform norm of 1046 units as sought to be adopted by the Revenue especially when there is no norm fixed under Rule 173E till date by the Revenue and notified by it. The electricity consumption varies from one unit to another and from one date to another and even form one heat to another within the same date. There is, therefore, no universal and uniformly acceptable standard of electricity consumption, which can be adopted for determining the excise duty liability that too on the basis of imaginary production assumed by the Revenue with no other supporting record, evidence or document to justify its allegations - Strangely enough, the Tribunal records that there was no other report available on the record except the report of Dr. Batra. This shows the non-application of mind by the Tribunal in disposing of the said application. Furthermore, when the Tribunal or the Court have interpreted the statutory provisions, the Tribunal cannot take a contrary view but are bound by the same. - Decided in favour of assessee.

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• 2014 (5) TMI 91
  Benefit of Notification No.202/88-CE dated 20.5.1988 - Whether the benefit of Notification No.202/88-CE dated 20.5.1988 can be denied when Railways have paid duty on the auctioned old rails while purchasing the same and the same has been sold to the applicant as such - Burden to proof - Held that:- burden of establishing that the inputs were non-duty paid and the petitioners were, therefore, not entitled to the benefit of the notification as aforesaid shall be on the Department failing which their duty paid character shall be presumed or deemed to be inputs on which the duty has already been paid - onus was on the Department to prove that the goods have not suffered duty or that the same are recognizable being non-duty paid. Mere auctioning by the railway the discarded rails etc. would not automatically lead to the inference that the same were clearly recognizable as deemed non-duty paid-The authorities misdirected themselves in holding that since the railway was not registered with the Central Excise Department, the sale by it through auction cannot lead to the inference that the goods auctioned were duty paid. The benefit of Notification was wrongly denied to the petitioners - Following decision of Laxmi Rolling Mills & Others versus CEGAT , New Delhi [2001 (12) TMI 85 - HIGH COURT OF JUDICATURE AT ALLAHABAD] - Decided in favour of assessee.

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• 2014 (5) TMI 90
  Maintainability of appeal - Pre deposit order - Held that:- requiring the petitioners to deposit the entire principal sum of duty with interest even at the first appellate stage by way of predeposit would be harsh. We have considered the prima facie nature of the petitioners’ case, the amount involved and the amount already deposited by the petitioners so far. - Decided conditionally in favour of assessee.

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• CST, VAT & Sales Tax

• 2014 (5) TMI 99
  Stay application – 50% accrued tax liability - Interest, penalty and furnishing bank guarantees under U.P. Tax on Entry of Goods into Local Areas Act, 2007 – Held that:- Both the parties have produced their computations with accruals and details of deposits and bank guarantees furnished by them of the admitted and disputed liability of entry tax - The deposits made are in compliance with the orders by SC - The matter is remitted back to the AA for final computation of deposits – Decided in favour of assessee.

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• 2014 (5) TMI 98
  Disallowance of Input Tax Credit - charging of interest u/s 22, 18 and 55(4) of the Rajasthan Value Added Tax, 2003 – Held that:- U/s 18 of the Act ITC is allowed for purchase of any taxable goods made within the State from a registered dealer for the purpose of being used as raw material except those as may be notified by the State Government in the manufacture of goods, for sale within the State or in the course of inter-state trade or commerce – u/s 18(1)(e) only the 'exempted goods', have been taken out of the purview of ITC and not person or class of persons or sale or purchases for promoting Special Economic Zones or exports u/s 8(3), (3A) or (4), the use of words 'other than exempted goods', therefore, necessarily means the goods specified in the Schedule-I under Section 8(1) of the Act. The intention of the legislature in incorporating Section 18 (1)(e) of the Act is apparently clear, which takes away the exempted goods from the purview of ITC and not the person or class of persons exempt u/s 8(3) as nothing prevented the legislature from including besides exempted goods, exempted persons also under Section 18(1)(e) of the Act - goods and dealers are treated separately u/s 5 of the Act - in view of express language of Section 18(1)(e) of the Act, Notifications S.O.371, S.O.372 and S.O.377, the petitioner is entitled to avail ITC and the authorities below were not justified in denying Input Tax Credit to the petitioner -Revision petitions are allowed - Decided in favour of assessee.

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• 2014 (5) TMI 97
  Whether supply of cooked food in the restaurant are covered under Uttarakhand VAT Act, 2005 – Held that:- VAT can be imposed on sale of goods and not on service - Service can be taxed by Service Tax Laws - The authority competent to impose service tax has also assumed competence to declare what is service - The State has not challenged the same - Therefore, where element of service has been so declared and brought under Service Tax vide Government of India notification dated 06.06.2012 (i.e. 40% of bill amount to customers having food or beverage in the restaurant was made liable to service tax) no VAT can be imposed thereon - Commissioner erred in rejecting the application of the revisionist - Thus, the revision is allowed - Judgments of Tribunal as well as of the Commissioner, Commercial Tax are set aside – Matter remitted back to Commissioner for afresh order – Decided in favour of Assessee.

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• 2014 (5) TMI 96
  Tax liability - Brick Klin – Applicability of Compounding scheme to Transferee firm - Whether transfer of stock by assessee to M/s Rajvir Brick Field could have been treated to be a sale and excluded from compounding admitted by assessee as also the transferee firm, for both seasons, namely, 1999-2000 and 2000-01 - During season 1999-2000 (01.10.1999 to 31.09.2000) assessee was under compounding scheme for which order was passed on 30.09.2000 - The subsequent firm M/s Rajvir Brick Field was also in compounding for the reason 2000-2001 (01.10.2000 to 30.09.2001). Question has to be answered against assesse - A compounding scheme is always applicable to individual firm and stock thereunder is not transferable unless treated to be sale - Admittedly, the assessee accepted compounding in season 1999-2000 and for season 2000-01 it claims that business was taken by M/s Rajvir Brick Field, which also accepted compounding for next seasons, i.e., 2000-01 - However, the stock which remained with assessee after completion of season 1999-2000 and passed on to next season, in respect thereof it was incumbent upon assessee to go for compounding or to show the same in his records properly but taking advantage of compounding accepted by a different firm, tax liability in respect of such stock could not have been denied - The Revenue has rightly treated transfer of stock to M/s Rajvir as sale on the part of assessee in an assessment year when there was no compounding admitted by assessee and, therefore, it has rightly been taxed - Decided against assessee.

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• 2014 (5) TMI 94
  Cancellation of license - Discrepancy in stock register - Held that:- It is evident that in the Stock Register maintained by petitioner for the year 2010-11, he had shown 'Nil' stock in respect to Country Made Liquor. Copy of Stock Register has also been filed by petitioner for the period March 2010-11 on page 46 and for April 2011-12 on page 50. Page 46 and 47 show that on 31.3.2010 the stock was 'Zero' and page 50 shows that on 26.4.2011 the Stock was 207 quarters of Country made Liquor. The checking was actually made and bottles of Country Liquor were seized by Checking Staff is a fact, admitted by petitioner in his reply and affidavit, placed on record on page 68 to the writ petition. Therein he has stated that entire liquor, which was ceased, pertained to excise year 2011-12 and not for the year 2010-11. However, in the Stock Register of 2011-12, balance was only 207, hence availability of 1397 quarters which was seized, could not be explained. In these facts and circumstances, it is clear that unauthorized liquor was available and seized on checking. That is how Collector has passed order of cancellation - Decided against assessee.

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