TMI Tax Updates - e-Newsletter
June 10, 2013

Case Laws in this Newsletter:

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

Articles

1. ASSESSING RISKS IN INVESTMENT DECISIONS

   By: Dr. Sanjiv Agarwal

News

1. Revving up the Growth Engine through Financial Inclusion (Address by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India at the 32nd SKOCH Summit held at Mumbai on June 6, 2013)

2. A Standing Council of Experts Constituted to Assess and make Recommendations Regarding the International Competitiveness of the Indian Financial Sector

3. Gross Direct Tax Collections During April-May of Current Financial Year 2013-14 Up By 21.10 Percent at Rs. 63,252 Crore as Against Rs. 52,231 Crore in the Same Period Last Year

4. One Day Workshop on ‘Facilitating Small Businesses’

Highlights / Catch Notes

Income Tax

• Court Highlights Duty of Revenue Authorities to Ensure Dharmada Charges Are Used for Genuine Charitable Purposes.

  Case-Laws - HC : Dharmada charges - revenue to verify that amount collected in the name of Dharmada is actually meant for a purpose which is charitable and is in fact spent for such a charitable purpose. - HC
  Visit to Get Source

  ---

• Tax Refund Adjusted Against Demand Without Notice is Illegal per Section 245.

  Case-Laws - HC : Adjustment of refund with tax demand - provisions of section 245 - adjusting the refund without prior intimation to the petitioner is illegal and contrary to law. - HC
  Visit to Get Source

  ---

• High Court Affirms Expenditure in Foreign Exchange Must Be Excluded for Deductions u/s 80HHE of Income Tax Act.

  Case-Laws - HC : Deduction u/s 80HHE - the actual expenditure, if any, incurred in foreign exchange in providing technical services outside India should be excluded - This legal position equally applies to the other exclusion also - HC
  Visit to Get Source

  ---

• Jurisdiction of Assessing Officer cannot be challenged for the first time during a second appeal before the Tribunal.

  Case-Laws - HC : Whether the question of jurisdiction of the AO not raised before ould be raised for the first time in second appeal before the Tribunal - Held no - HC
  Visit to Get Source

  ---

• High Court: No Block Assessment Additions on Assessee Admission Without Evidence from Search or Document Requisition.

  Case-Laws - HC : Block Assessment - addition based on admission by the assessee - AO was not in possession of any evidence found as a result of search or requisition of book of accounts or other documents - no addition - HC
  Visit to Get Source

  ---

• Interest on unrecorded deposits can be disallowed, but section 37(1) may exempt interest on capital borrowed for business.

  Case-Laws - AT : Disallowance of interest paid on deposit outside the books of account - provisions of section 37(1) may not be applicable in respect of interest on the capital borrowed for business purpose. - AT
  Visit to Get Source

  ---

• Interest Income Exempt u/s 10(15) Not Subject to TDS When Paid by Assessee in India.

  Case-Laws - AT : Once the interest income is not taxable in the hands of recipient and was exempted by the Govt. of India u/s 10(15), question of TDS on the interest paid by assessee does not arise. - AT
  Visit to Get Source

  ---

• Foreign Exchange Fluctuations Must Be Adjusted in Transfer Pricing for Credible Comparables.

  Case-Laws - AT : Transfer pricing – difference due to foreign exchange rate fluctuation should be considered the said difference has to be removed and the margin thereon has to be adjusted for arriving at the credible comparable through the requisite adjustments. - AT
  Visit to Get Source

  ---

• Subsidiaries' Financials and Credit Ratings Must Align with Parent Company; Domestic Prime Lending Rate Not Applicable.

  Case-Laws - AT : Transfer pricing adjustment - The financial position and credit rating of the subsidiaries will be broadly the same as the holding company - domestic prime lending rate would have no applicability - AT
  Visit to Get Source

  ---

Central Excise

• CESTAT to Hear Appeal Challenging Chief Commissioner's Order on Offence Compounding u/s 9A, Central Excise Act 1944.

  Case-Laws - HC : Appeal before CESTAT against the order passed by the Chief Commissioner u/s 9A of Central Excise Act, 1944 - compounding the offence - Tribunal was justified in entertaining such an appeal - HC
  Visit to Get Source

  ---

• Sample Re-Test Requests Can't Be Denied Based Solely on Initial Tests by Govt-Approved Labs, Even if Reports Are Clear.

  Case-Laws - HC : Classification - re-testing the sample -The application may not be rejected on the ground that the testing was done by Government recognized independent labs, and that the test reports are clear and complete - HC
  Visit to Get Source

  ---

• High Court Exempts On-Site Fabrication of Trusses, Columns, and Roofing from Excise Duty Obligations.

  Case-Laws - HC : Fabrication (Manufacturing) at site - fabrication of trusses, columns, purlins and roofing sections - no excise duty is leviable - no excise duty is leviable - HC
  Visit to Get Source

  ---

VAT

• Court Rules Powdered Chili, Turmeric, Coriander Same as Whole for Tax Exemptions Under VAT and Sales Tax Laws.

  Case-Laws - HC : Classification - Exemption - the powder form of chilly, turmeric and coriander are no different from chilly, turmeric and coriander - HC
  Visit to Get Source

  ---

• High Court Upholds Tribunal's Decision to Increase Tax Liability u/s 11(1) Without Interference.

  Case-Laws - HC : Revision u/s 11(1) - Tribunal enhanced the tax liability by making a fresh estimation. - Tribunal is a final fact finding authority, no interference is required - HC
  Visit to Get Source

  ---

Case Laws:

• Income Tax

• 2013 (6) TMI 200
  Head office expenditure - deduction u/s 44C - held that:- Tribunal has allowed the claim of the assessee by following the decision of this Court in Assessee's own case [2003 (7) TMI 6 - BOMBAY High Court]. Moreover, the SLP filed by the revenue against the aforesaid decision of this Court has been dismissed by the Apex Court - Decided in favor of assessee.

  ---

• 2013 (6) TMI 195
  Full bench order - Dharmada charges - It is submitted that as the amount collected by the assessee towards Dharmada was included as revenue receipt and assessed to tax by the AO - It is by the applicant that the decision in the case of Lilasons Breweries Pvt. Limited is not good law in the light of the pronouncement of the Apex Court in the case of Commissioner of Income Tax vs. Bijli Cotton Mills (P) Limited, [1978 (11) TMI 1 - SUPREME Court] - held that:- a mere statement to that effect on the part of the assessee is not sufficient and the revenue authorities, if so required, are entitled to ascertain on the basis of the facts of each individual case as to whether the amount collected in the name of Dharmada is actually meant for a purpose which is charitable and is in fact spent for such a charitable purpose. This aspect has been clarified by the Supreme Court itself in a subsequent decision in the case of Commissioner of Income Tax (Central), Ludhiana and Others vs. Amritsar Transport Company Private Limited and Another (1993 (3) TMI 318 - SUPREME COURT). after taking into consideration the decision in the case of Bijli Cotton Mills (1978 (11) TMI 1 - SUPREME Court). The decision of the Division Bench of this Court in the case of Lilasons Breweries Pvt. Limited dated 16.7.1996 cannot be said to be bad law and the reference made to this Full Bench is uncalled for. - Decided against the assessee.

  ---

• 2013 (6) TMI 194
  Adjustment of refund with tax demand - provisions of section 245 - prior intimation - 100% EOU - held that:- in view of the decision in Fosroc Chemicals (India) Ltd vs. Commissioner of Income tax and another [2000 (11) TMI 100 - KARNATAKA High Court], the impugned communication adjusting the refund without prior intimation to the petitioner is illegal and contrary to law. Therefore, the impugned communication at Annexure-A1 in so far is it relates to adjusting of refund is to be set-aside. The matter is required to be remanded to the first respondent to follow the procedure laid down under Section 245 of the Income Tax Act by providing an opportunity to the petitioner and to pass an order in accordance with law. - Decided in favor of assessee.

  ---

• 2013 (6) TMI 193
  Deduction u/s 80HHE - exclusion of the foreign exchange expenditure - held that:- while theoretically speaking, if the activity relates to the first part of sub-section (1) of Section 80HHE of the Act, it is one of export of computer software, whether actual or in deemed basis, by an on site development and delivery of software in a foreign location, the provisions of clause-(c) of the explanation to the section does say so, the difficulty we find in answering the questions is that such a finding of the tribunal is a finding not based on the actual position which the assessee had made good before the tribunal, either in terms of the actual transaction, which had produced the foreign exchange remittance, or by production of an agreement entered into at the relevant point of time, with its customer from whom remittance/payment had been received in foreign exchange. Tribunal in proceeding to allow the appeals and to reverse the finding of the appellate commissioner, had not really based its finding on any available and relevant material for giving its finding on the question as to whether the activity related to the first part of sub-section (1) of Section 80HHE or second part thereof and in the absence of the same, directing exclusion of the expenses becomes a hypothetical situation for excluding and it is because of this position Not agreed with the view that the deduction as claimed by the assessee under Section 80HHE of the Act should have been allowed without excluding the foreign exchange expenditure incurred by the assessee during the current assessment year. It is open to the assessee to place the materials relevant for the period related to the assessment year in question and the assessing officer to examine the same and to record a finding as to the nature of the activity keeping in view the legal position as we discussed above and answer the question related to exclusion of expenses strictly keeping in view the kind of amounts sought to be excluded in the case of export turnover being attributable to export of computer software, in which event, the exclusion being only freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India and if it is the case of providing technical services outside India in connection with development of computer software, then the actual expenditure, if any, incurred in foreign exchange in providing technical services outside India should be excluded. This legal position equally applies to the other exclusion also and has to be strictly in conformity with the exclusion as provided for in clause (c) and (e) to the explanation to the Section 80HHE of the Act. - Matter remanded back with direction - Decided in favor of revenue.

  ---

• 2013 (6) TMI 192
  Assessment of Agricultural income - AO has estimated the agriculture income at Rs.50,000/- and the remaining amount of Rs.1,70,000/- as income from undisclosed sources as no evidence was produced - Held that:- As it appears that on 16.11.1992, a certificate of the Tehsildar was issued, which is not relevant for the assessment year under consideration i.e. 1997-98. Further, the assessee should maintain the accounts pertaining to entire agriculture activity which was not adhered by assessee. The addition was restricted on the basis of estimationwhich is a question of facts as per Sudarshan Silks vs. CIT ( 2008 (4) TMI 5 - Supreme Court). Income derived from the house property as rent - A.L.V. i.e. rental income - assessee is the owner of two residential units. Allahabad property is jointly owned by one Smt. Ansuya Devi as per the Court Decree. A.L.V. was considered at Rs.90,000/-. 1/5th was deducted for the house repair etc. Thus, the A.L.V. comes at Rs.72,000/-. Being 50% owner, it comes to Rs.36,000/-. Regarding Lucknow property, the A.L.V. @ 9,000/- per month which comes to Rs.1,18,800/-. 1/5th repair was deducted i.e. Rs.23,760/-. Thus, the net rental income for Lucknow property comes to Rs.95,040/- - deduction u/s 23(1) denied for both the properties as the properties were less than 5 years old - Held that:- The assessee could not substantiate her claim by producing any documentary evidence pertaining to co-ownership for the Lucknow property. So, the entire income from this property was rightly assessed in the hands of the assessee. Moreover, in the absence of documents, A.L.V. is to be estimated and the same is the question of facts. No question of law emerges from the impugned order.

  ---

• 2013 (6) TMI 191
  Reopening of assessment - whether the question of jurisdiction of the Assessing Authority not raised before could be raised for the first time in second appeal before the Tribunal - Held that:- The contention that no opportunity of hearing was given before transferring raised for the first time before the Tribunal could not be substantiated by producing any evidence. The assessee was the appellant before the Tribunal and it was for him to establish that before transferring the cases, no opportunity of hearing was given and in which he failed. Mere raising the argument which requires determination of fact in absence of any supporting material is liable to be ignored. Decided in favour of the department by holding that the question of jurisdiction of the Assessing Authority in view of Section 124 could not have been raised by the assessee before the Tribunal and the Tribunal is not the competent authority to adjudicate upon when it was not raised in terms of Section 124 before the Assessing Authority. Whether the reasons for reopening are sufficient to hold that there was no nexus between reasonable belief and escapement of assessee's income - Held that:- A feeble attempt was made by the assessee that the Tribunal has decided the appeal on merits also but on consideration it is find that the Tribunal itself has noted that the findings recorded by it are only prima facie findings. Therefore, argument of assessee in this regard is not acceptable. Thus the order of the Tribunal cannot be allowed to stand. All the questions of law are decided in favour of the department and the matter is restored back to the ITAT to revisit and redecide the appeals filed by the assessee.

  ---

• 2013 (6) TMI 190
  Deduction under Section 80HHC - export of marble blocks which were not polished - Held that:- As decided in Arihant Tiles and Marbles Pvt. Ltd case [2013 (6) TMI 45 - RAJASTHAN HIGH COURT] the assessee-respondents are eligible for deduction under section 80HHC of the Act for export of marble blocks, which were cut and polished. This findings are, indisputably, binding on, this court in view of the law laid down in the case of Sudarshan Silks and Sarees v. CIT [2008 (4) TMI 5 - Supreme Court] - in favour of the assessee.

  ---

• 2013 (6) TMI 189
  Block Assessment - addition - admission by the assessee versus material evidence - Held that:- except for the admission of the assessee qua the undisclosed cash of Rs. 2,99,740/-, the AO was not in possession of any evidence found as a result of search or requisition of book of accounts or other documents so as to make the additions as made by him in the assessment order dated 31.7.1998. The reliance placed by the Revenue in Rajendra Kumar Lahoty v. Deputy Commissioner of Income Tax (2003 (4) TMI 24 - RAJASTHAN High Court) has no application to the present case as the said case turned on its own facts and no principle of law has been laid down in the said judgment. - Decided in favor of assessee

  ---

• 2013 (6) TMI 188
  Head office expenditure - deduction u/s 44A - effect of amendment - review petition - held that:- during Assessment Year 1994-95, Section 44C of the said Act as applicable would be one existing as on 28th June, 1984 and not as existing during the subject assessment year. This is because the preamended Section 44C of the said Act allowed more deduction to head office expenses then the amended Section 44C of the said Act. Consequently, the issue as raised before the Tribunal and this Court would continue to be governed for the subject assessment year by the order of this Court in the matter of Deutsche Bank AG (2003 (7) TMI 6 - BOMBAY High Court). It is clear that the order dated 20th November, 2012 [2013 (6) TMI 200 - BOMBAY HIGH COURT] was passed being conscious of the amendment to Section 44C of the Act. In these circumstances, Review Petition is dismissed with no order as to costs.

  ---

• 2013 (6) TMI 187
  Disallowance of interest paid on deposit outside the books of account - whether the provisions of section 37(1) are applicable? - Held that:- No doubt, section 37(1) is not applicable in respect of expenditure which falls within sections 30 to 36. In this case, the taxpayer admittedly borrowed funds for enhancing the working capital for the purpose of money lending business. Interest on capital borrowed for the purpose of business falls within the provisions of section 36(1)(iii). Therefore, any interest paid on the capital borrowed for the purpose of business or profession has to be allowed as deduction u/s 36(1)(iii) of the Act. In view of the above, provisions of section 37(1) may not be applicable in respect of interest on the capital borrowed for business purpose. The taxpayer claims that the funds were borrowed in the personal capacity and not in the name of business concern - Held that:- The payment of interest on the borrowed capital falls within section 36(1)(iii and hence the provisions of section 37(1) may not be applicable. Therefore, it may be immaterial whether the money was borrowed in personal capacity or not?

  ---

• 2013 (6) TMI 186
  Setting up expenses relating to another division - Expenses incurred on HRC division included in the capital work -in- progress - CIT(A) deleted the addition - Disallowance of fees paid to financial institution for loan, Floating Rate Note (FRN) restructuring expenses and HBI Plant repairs and maintenance - Held that:- It is a settled legal position that whether two businesses are one and the same business will not depend upon the nature of business or the product but on the fact whether there is unity of control and integration of the two businesses by common management, administration and finance etc. This view is supported by the judgment of Prithvi Insurance Co. Ltd. (1966 (10) TMI 49 - SUPREME Court) and in case of Veecumsees (1996 (4) TMI 6 - SUPREME Court) which have been relied upon by the CIT(A). In this case, there is clear finding by the CIT(A) that there was integration, interlacing, interdependence and dovetailing of the two division which has not been controverted before us. Therefore we have to hold that HRC project has to be taken as part of the existing business. In view of the above position all expenditure incurred in connection with new project which is of revenue in nature has to be allowed. Debenture issue expenses - CIT(A) confirmed the disallowance on the ground that the debentures were convertible in shares and thus expenditure was for expanding the capital base - Held that:- As out of total expenditure of Rs. 16,48,90,000/- only Rs. 2,64,34,555/- which related to optionally convertible debentures. In the present case the debentures are not compulsorily convertible into shares. These were optionally convertible and therefore the conversion would depend upon option if any exercised by the debenture holders. Therefore it could not be said that intention was clearly to issue shares. Obviously the intention was to raise loan which could be converted into shares in future if any option was exercised. Therefore the debenture issue expenses considering the judgments of Secure Meters Ltd. case [2008 (11) TMI 66 - HIGH COURT RAJASTHAN] and South India Corporation (2006 (8) TMI 153 - MADRAS High Court) have to be allowed. Respectfully following the decision uphold the order of the CIT(A). Disallowance made on account of lease rent for equipment - CIT(A) deleted the addition - Held that:- The lease rent is allowable fully for the year as in the earlier years relating to same assets. There is no revaluation done for purpose of deduction of same under IT Act. The change in the method of treatment of entries in the books will not alter the character of revenue expenditure. Moreover, this change in the method of treatment has not resulted in excess allowance than normally allowable. Therefore, no prejudice is caused to revenue. During the A.Y 1995-96, the entire lease rent was allowed by the Assessing Officer thus direction to delete the addition holding that appellant’s treatment of deferred payment will not alter the character of the expenditure. Interest payable on external borrowings - AO has disallowed the same u/s 40(a)(ia) stating that no TDS has been made from this interest - Assessee has submitted that the interest on the above loan was exempted under section 10(15)(iv)(c) thus no TDS was required to be made - CIT(A) deleted the addition - Held that:- Where the utilization is for purchase outside India of raw material, components or Plant & Machinery, so long as exemption granted is valid, the interest received by the other party is not covered by the IT Act and by virtue of exemption granted by the Central Govt., the question of TDS on the above amount does not arise at all. Since there is no requirement of TDS, question of disallowance under section 40(a)(ia) for non deduction of tax also does not arise. Moreover, as seen from the correspondence with the Ministry of Finance by the assessee company way back in December, 1996 and February, 1997 it can be noticed that the CBDT also insisted on verifying the deployment of funds and assessee vide the letter enclosed the Auditor’s certificate certifying the attached statement showing the deployment of funds equivalent to USD 40.22 million and corresponding invoices for import of capital goods for the hot rolled coils project of the company out of Euro Convertible Bonds issue of USD 75.00 million. Also approval of the RBI for the purpose of financing the Put Option under Euro Convertible Bonds issue of USD 75 Million. After examining the relevant certificates the CBDT Foreign Tax Division granted the approval under section 10(15)(iv)(c). Thus the issue of utilization of the funds was already examined by the CBDT at the time of granting exemption. As already stated once the interest income is not taxable in the hands of recipient and was exempted by the Govt. of India, question of TDS on the interest paid by assessee does not arise. Therefore, the ground has no merit and accordingly rejected. Disallowance of depreciation by reducing the WDV by the amount of principal loan waived - CIT(A) held it to be unjustified - Held that:- As decided in Akzo Nobel Coatings India (P.) Ltd. case [2013 (1) TMI 311 - ITAT BANGALORE] only way by which the written down value on which depreciation is to be allowed as per the provisions of section 32(1)(ii) can be altered is as per the situation referred to in section 43(6)(c)(i) A and B. Neither was there purchase of the relevant assets during the previous year nor was there sale, discarding or demolishing or destruction of those assets during the previous year. Thus, the recourse by the revenue to those provisions on the facts and circumstances of the instant case, it is held, cannot be sustained. Appeal of revenue dismissed.

  ---

• 2013 (6) TMI 185
  India-Japan DTAA - taxability of a sum received from onshore activities to tax in India - assessee did not offer to tax income from offshore supply and offshore services by claiming that it did not accrue or arise in India - Held that:- As decided in assessee's own case [2007 (1) TMI 91 - SUPREME COURT] & [2013 (1) TMI 214 - BOMBAY HIGH COURT] that apart from non-applicability of section 9(1) in the present case, Article 7 of the DTAA is also applicable and hence the income arising on account of offshore services would not be taxable. Section 90(2) provides that where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, under sub-section (1) for granting relief of tax avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. As decided in CIT v. P.V.A.L. Kulandagan Chettiar [2004 (5) TMI 8 - SUPREME Court] the provisions of sections 4 and 5 are subject to the contrary provision, if any, in DTA. The crux of the matter is that the provision of the Act or of the DTA, whichever is more beneficial to the assessee, shall apply. Thus overturning the impugned order on this issue by holding that the income from offshore services, albeit chargeable u/s 9(1)(vii) but exempt under the DTAA, cannot be charged to tax in the light of section 90(2) as discussed above. The impugned order is, therefore, set aside to this extent. Short granting of tax deducted at source - Held that:- AO is directed to examine this aspect of the matter and thereafter, decide it as per law after allowing a reasonable opportunity of being heard to the assessee. Interest u/s 234B and 234C - Held that:- The issue of charging of interest u/s 234B in the present case is no more res integra in view of the judgment of Director of Income-tax (International Taxation) v. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] wherein held that when the duty is cast on the payer to deduct tax at source, on failure of the payer to do so, no interest can be charged from the payee assessee u/s 234B. Also see DIT (IT) v. Krupp UDHE GmbH [2010 (3) TMI 287 - BOMBAY HIGH COURT]. As the assessee in this case is a non-resident, naturally any amount payable to it which is chargeable to tax under the Act, is otherwise liable for deduction of tax at source, thus no interest can be charged u/s 234B and 234C. In favour of assessee.

  ---

• 2013 (6) TMI 184
  Transfer pricing Adjustment - international transaction of import of parts and capital goods by disregarding the transfer pricing methodology adopted by the appellant for benchmarking its international transactions average exchange rate of Thai Bhat - Held that:- As decided in UCB India (P) Ltd. vs ACIT [ 2009 (2) TMI 237 - ITAT BOMBAY-L ] under transfer pricing regulations, comparison is to made of the profitability of the international transactions on a stand alone basis and entity level comparison is to be resorted to, only when such stand alone comparison is otherwise not feasible and justified. In the case in hand, admittedly, the average exchange rate of Thai Bhat during October, 2005 to March 2006 was 100 Thai Bhat equivalent to INR 110 and after consideration of said average exchange rate, price of sale of goods had to be agreed upon with the customers. DR has not disputed the point that during April 2006 to September 2006 at the time of purchase, the exchange rate of Thai Bhat was substantially increased and the average exchange rate of Thai Bhatt was increased to 100 Thai Bhat = INR 119. Accordingly, we can not rule out and ignore this factual matrix emerged from the fluctuation of foreign exchange rates that while prices of purchases and import made by the appellant have increased, the sale price of exported goods remained on the lower side which is an important element to materially affect the price in the open market. In this situation, we are inclined to hold that the authorities below should have considered the said difference due to foreign exchange rate fluctuation in favour of Thai Bhat and against the INR and the said difference has to be removed and the margin thereon has to be adjusted for arriving at the credible comparable through the requisite adjustments. We observe that the authorities below have not considered the element of abnormal and huge fluctuation in the foreign exchange favouring Thai Bhat and against the Indian currency. Accordingly, in view of the observations made hereinabove, ground no. 2.7 and 2.8 are allowed with a direction to the Assessing Officer that necessary adjustments pertaining to the huge and abnormal fluctuation in the foreign exchange may be allowed to the assessee in determining the ALP of the international transaction undertaken by the appellant. Depreciation on computer peripherals at 15% as against 60% claimed by the appellant Held that:- The issue of depreciation of computer peripherals has been settled in the case of CIT vs BSES Rajdhani Bench Ltd.[ 2010 (8) TMI 58 - DELHI HIGH COURT] and accordingly allowed in favour of the assessee. Levying of interest u/s 234B and 234C - assessee submitted that since the assessee was a non-resident company and entire tax was to be deducted at source on payment made by the payee to the assessee and there was no question of advance tax by the assessee, therefore, AO erred on facts and law in levying interest u/s 234B and 234C Held that:- In the judgment of Jacabs Civil Incorporated/Mitsubishi Corpn. [ 2010 (8) TMI 37 - DELHI HIGH COURT] the order of ITAT Delhi Bench in favour of the assessee and dismissing the revenue s appeal, it has been held that once it is found that the liability was that of the payer and the said payer has defaulted in deducting the tax at source, the Department is not remedy-less and therefore can take action against the payer under the provisions of Section 201 of the Income Tax Act and compute the amount accordingly. No doubt, if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the non-resident is not absolved from payment of taxes thereupon. However, in such a case, the non-resident is liable to pay tax and the question of payment of advance tax would not arise. This would be clear from the reading of Section 191 of the Act along with Section 209 (1) (d) of the Act. For this reason, it would not be permissible for the Revenue to charge any interest under Section 234B of the Act.

  ---

• 2013 (6) TMI 174
  Transfer pricing adjustment - whether DRP has erred in determining reasonable interest rate at 13.25% as against 4% determined and levied by the assessee in respect of loan advanced by it in US Dollar to its subsidiary company in U.S.A. - DRP ignored the contention of the appellant that the interest rate in respect of international transaction in foreign currency has to be in accordance with LIBOR - Held that:- CUP method is the most appropriate method in order to ascertain arms length price of the international transaction as that of the assessee. Thus agree with the assessee’s contention that where the transaction was of lending money in foreign currency to its foreign subsidiaries the comparable transactions, therefore, was of foreign currency lended by unrelated parties. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company. In such a situation, domestic prime lending rate would have no applicability and the international rate fixed being LIBOR should be taken as the benchmark rate for international transactions. As decided in Siva Industries and Holding Ltd. vs. ACIT [2011 (5) TMI 451 - ITAT, CHENNAI] that the assessee had given the loan to the associate enterprise in U.S. dollars, and in such a situation when the transaction was in foreign currency, and the transaction was an international transactions, then the transaction would have to be looked upon by applying the commercial principles in regard to international transactions. In such a situation domestic prime lending would have no applicability and the international rate fixed being LIBOR rate would have to be adopted. Also see M/s Four Soft Ltd., Hyderabad vs. DCIT Supra [2011 (9) TMI 634 - ITAT, Mumbai], Dy. C.I.T. vs. Tech. Mahindra [2011 (6) TMI 140 - ITAT, MUMBAI], Tata Autocomp Systems vs. ACIT [2012 (5) TMI 45 - ITAT MUMBAI]. As the assessee has arrangement, for loan with Citi Bank, for less than 4%. However, for loan provided to its AE’s it has charged 4% p.a. interest. Hence, adjustment suggested by the TPO is not warranted. As assessee’s profits are exempt u/s. 10B, hence, there is no case that assessee would benefit by shifting profits outside India as relying on Philips Software Centre P Ltd. vs. ACIT [2008 (9) TMI 466 - ITAT BANGALORE-B] and Mumbai Tribunal in the case of I.T.O. vs. Zydus Altana Health Care P Ltd. [2010 (4) TMI 883 - ITAT MUMBAI]. As in the present case the loan agreement was for fixed rate of interest. The LIBOR to be accepted as the most suitable bench mark for judging Arms’ length price in case for foreign currency loan. Hence, adjustment as made by the TPO is not warranted. The rate of interest charged by the assessee for the loans transactions with the AE was Arms Length Price. Hence, no transfer pricing adjustment is called for. Assessee’s appeal is allowed.

  ---

• Customs

• 2013 (6) TMI 183
  Delay in filing an appeal - condonation of delay - held that:- the conduct of the appellant in the Tribunal as well as in firstly filing the writ petition against the order of the Tribunal and thereafter by filing appeal with delay of 213 days is not sufficient to explain the delay. Initially on seizure of the goods the petitioner had filed a writ petition in Gujarat High Court and obtained an order for release of the goods on 23.12.2005 imposing condition of bank guarantee. The department filed Special Leave Petition No.2705 of 2006 in the Supreme Court. The Asstt. Commissioner of Customs, Kandla by order dated 12.1.2006 had communicated the order of the provisional assessment. The petitioner withdrew the petition before the Gujarat High Court on 30.1.2006. The Commissioner of Customs has also recorded finding that the caustic soda imported by the petitioner was never used for manufacture of soap and that customers to whom the soap was alleged to be sold, were all found to be fictitious. The appellant has unsuccessfully tried to justify the facts of manufacture and sale of soap by submitting copy of the sales tax return on comparison the figures of sales as reflected on the sales tax return. - no sufficient cause - delay condonation application rejected. - decided against the assessee.

  ---

• 2013 (6) TMI 182
  CHA - suspension or revocation - whether the Chief Commissioner of Customs can interfere with a quasi-judicial exercise of power on Administrative side. - held that:- authority is not conferred upon the Chief Commissioner when a quasi judicial order is passed under Regulation No. 20 r/w. Regulation 22 by a Commissioner. The Chief Commissioner could have interfered with it only if he had an express authority due to a particular Regulation or a provision of law. Unless such provision or Regulation of law is pointed out to this Court, the order dated 12-10-2010 cannot be said to have any judicial existence and it cannot be implemented.

  ---

• Corporate Laws

• 2013 (6) TMI 181
  Demerger - order was passed on 8th May, 2007 restraining the appellant from making any representation in the name or on behalf of the company. - Contempt application - The consistent case is that the signatures were forged. - held that:- Having considered the submissions of the parties the application filed by the respondents was under Regulations 44 and 47 of the 1991 Regulation and although the application was not treated under Regulation 47 but the same was treated under Regulation 44 of the 1991 Regulation and order passed on 5.2.2009. An interim order was passed on 8.5.2007 whereby the MKA group was restrained from representing the Company. During the subsistence of the said order the letter was issued and therefore the CLB was entitled to pass the said order. Admittedly the said order was passed after giving an opportunity of hearing to the parties, but while passing the order no reason has been recorded and it is only for non-recording of reason the same is set-aside - This will however not prevent the Tribunal if so entitled to pass an order after hearing the parties and passing a reasoned order. In fact the order passed is an interim order and after filing of affidavits the application be disposed off in accordance with law.

  ---

• Service Tax

• 2013 (6) TMI 205
  Non compliance of stay order with direct to predeposit - appeal dismissed for non-compliance with Section 35F.

  ---

• 2013 (6) TMI 204
  Non compliance of stay order directing predeposit - no representation for the appellant - on a perusal of the records, we have come across miscellaneous application No. 596/2012 which was filed by the appellant on 25.10.2012 and seeking further time of three months for making the deposit. - the period of three months mentioned in this application has already elapsed. The appellant must be aware of this. In the circumstances, it appears, the appellant is not interested in depositing the amount. - Appeal dismissed.

  ---

• 2013 (6) TMI 203
  Penalty - service tax was paid during investigation with interest - reverse charge on GTA Service - The proposal to impose penalties on the assessee under Sections 76, 77 and 78 of the Act, as contained in the original show-cause notice dated 04.09.2008, was dropped by the original authority. In revisionary proceedings, the Commissioner has imposed a penalty of Rs. 1,03,009/- on the assessee under Section 76 of the Act, ordered appropriation of the late fee of Rs. 14,000/- towards penalty under Section 77 of the Act, and dropped the proposal for imposition of penalty under Section 78 of the Act. Held that:- the department’s allegation that they had suppressed the value of the taxable service with intention to evade payment of service tax was tacitly accepted by the assessee. It is indisputable that the same constitutes one of the grounds for imposition of penalty under Section 78 of the Act. Therefore, the Commissioner’s decision to drop this penalty on the premise that the assessee did not have any intention to evade payment of service tax cannot be sustained. In so far as the amount of service tax + cesses paid by them for the normal period is concerned, there can be no corresponding penalty under Section 78 of the Act. In this scenario, the quantification of penalty under Section 78 of the Act in the instant case will be left to the original authority. - Decided partly in favor of revenue.

  ---

• 2013 (6) TMI 202
  Refund - rejection of refund claim on the ground that amount received was treated as cum-duty value as per alternative plea in the appeal - payment of service tax under protest during investigation - held that:- When the Service Tax has been paid under protest and as per invoice raised by the appellant shows that no Service Tax has been collected from their foreign clients, the appellant is entitled for refund of entire Service Tax paid by them under protest. The issue of taxability of Service Tax have been settled in favour of the appellant holding the appellant is not required to pay Service Tax. - Therefore, considering the alternate plea taken at the time of issue taxability of service has no relation while considering refund claim. Therefore, considering the alternate plea taken at the time of issue taxability of service has no relation while considering refund claim. The invoices produced before me clearly show that the appellant has not collected any Service Tax. - Refund allowed - Decided in favor of assessee.

  ---

• 2013 (6) TMI 201
  GTA Service - Exemption - declaration for non availing cenvat credit by the transporters - Held that:- In absence of any particular format prescribed under the respective notifications, the department insisting for declaration, on each consignment note for allowing the abatement under the said Notifications is unsustainable in law. In these circumstances, the declarations filed by the goods transport agencies (GTA) in their letter-heads or in the respective payment bills certifying that they have not availed Cenvat credit on inputs or capital goods nor availed the benefit of exemption Notification 12/2003-S.T., dated 20-6-2003 should have been accepted by the department in extending the benefit of Notification No. 32/2003-S.T. and 1/2006-S.T. - Decided in favor of assessee.

  ---

• Central Excise

• 2013 (6) TMI 180
  Requirement to pay duty only through PLA when facility to pay the duty under fortnightly basis not available during the forfeiture period - Held that:- A combined reading of the order passed by CESTAT and Elson Packaging Pvt. Limited, [2004 (4) TMI 137 - CESTAT, MUMBAI] clearly convey that during the forfeiture period duty had to be paid only through Account Current (PLA) and any default on that aspect will make the goods cleared as a case of clearance without payment of duty and other consequences and penalties as provided in the Central Excise Rules shall follow. The consequences of goods cleared without payment of duty on the said defaults will mean discharge of duty along with interest and also a liability to face penalty. Therefore, confirmation of demand and interest have been correctly made by Commissioner (Appeals) in his order in appeal. There is no doubt that appellant will be entitled to the credit what he has utilised in payment of Central Excise duty earlier when the entire default period duty and interest is paid in cash or through PLA. Equivalent penalty imposed - Held that:- Penalty is imposable under Rule 173Q (1) of Central Excise Rules, 1944 or Rule 25(1) of the Central Excise Rules 2001 because appellant's conduct has led to an act which is deemed to be clearances without payment of duty and also the act on the part of the appellant is liable to penalty. However, it is not obligatory to impose penalty equivalent to the duty demanded under Rule 173Q of the Central Excise Rules. As all the transactions were properly recorded by the appellant, therefore, a penalty of Rs.One lakh upon the appellant will meet the ends of justice as reduced from Rs.5,57,138/-.

  ---

• 2013 (6) TMI 179
  Appeal before CESTAT against the order passed by the Chief Commissioner u/s 9A of Central Excise Act, 1944 - compounding the offence - held that:- The “Adjudicating Authority” has been defined in Section 2(a) - The words “any order or decision under the Act” used in Section 2(a) of the Central Excise Act, 1944, defining the term, “Adjudicating authority”, must take in its fold an order deciding the lis of a party and would not include merely an administrative order. In the present case, however, the Commissioner’s order does decide the question of compoundability of an offence of the applicant concerned and would therefore, in our view, satisfy the description of any order or decision passed by him under this Act. Appeal against any such order would lie before the Tribunal in terms of Clause (a) of sub-section (1) of Section 35B of the Central Excise Act. The Tribunal thus, was justified in entertaining such an appeal. - Decided against the revenue.

  ---

• 2013 (6) TMI 178
  Cenvat Credit on inputs, viz. furnace oil, used as fuel for the generation of electricity - captive consumption - reversal of credit - Rule 6 - held that:- Tribunal below rightly applied the above decision of the Supreme Court in the case of Maruti Suzuki Ltd. [2009 (8) TMI 14 - SUPREME COURT] to the facts of the present case as the assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which it is using the produced electricity within its factory which is registered for that purpose but not to the extent supplied to a factory which is registered for a different unit. The factory of the Plastic Division of the appellant cannot be said to be the factory of the present unit which is registered separately from that unit. - Decided against the assessee.

  ---

• 2013 (6) TMI 177
  Rebate / refund - export - correlation of the consignment of sugar exported with the goods which were cleared from the factory on payment of duty - held that:- The Revisional Authority has noted that the railway receipt and transport documents submitted by the assessee in support of its contention show that the consignment of sugar was transported directly from the factory to the port premises. Moreover, the Range Superintendent had confirmed the payment of duty of the goods by the relevant Central Excise invoice. The Revisional Authority has also decided that though the sugar had been cleared for sale in the open market at the relevant time, the clarification issued by DGFT on 16 March 2006 did not contain any restriction on export since sugar was freely exportable. - rebate allowed - decided against the revenue.

  ---

• 2013 (6) TMI 175
  Fabrication (Manufacturing) at site - fabrication of trusses, columns, purlins and roofing sections - whether or not amount to manufacture of any standard product which was marketable. - held that:- It is not in dispute that the contract for fabrication of power project has been awarded by the petitioner-company to M/s. Amarnath Aggarwal Construction (Pvt.) Limited, Panchkula. The petitioner-company had provided steel, trusses, angles, channels and other raw material. The contractor has carried out the fabrication job on job charge basis. The fabrication was carried out by the contractor at site under the supervision of Site Manager (Erection) of the petitioner-company. The job work undertaken by the contractor does not fit in the term “manufacture” which is normally associated with movables, i.e. articles and goods and is never connected with the fabrication of the structure embedded in earth. There has, thus, not been any manufacture or production at the site except fabrication carried out by the contractor. In other words, the petitioner- company is not manufacturing any item and is not covered under Section 2(f) of 1944 Act which defines ‘manufacture’. Therefore, no excise duty is leviable under Section 3 of the 1944 Act. - Show Cause notice quashed - decided in favor of assessee.

  ---

• CST, VAT & Sales Tax

• 2013 (6) TMI 199
  Exemption on the sale of "coriander powder" and "turmeric powder" in view of Notification in G.O.Ms.No.36, CT & R (B1) dated 1.4.2008 - taxability - as per assessee by virtue of G.O.(D) No.383, Commercial Taxes Department, dated 22.10.1998 and the clarification dated 9.12.2002 issued under Section 28-A of the TNGST Act, the goods continued to enjoy the exemption & would continue even under Act 32/2006 - Held that:- Intention of the legislature was to replace the Old Serial No.18 of Part-B of Fourth Schedule with New Serial No.18 to have effect for the period 1.1.2007 and 31.3.2008. The understanding of the department prior to coming into force of Act 32/2006 and from 1.4.2008, the date of coming into force of Act 32/2008, to state the obvious, is that the powder form of chilly, turmeric and coriander continues to be exempted goods for all purposes. If during the interregnum period, namely from 1.1.2007 to 31.3.2008, there appears to be an omission, that omission is sought to be corrected by way of substitution. This Court clearly holds that substitution has the effect of replacing the old Serial No.18 of Part B of Fourth Schedule of Act 32/2006 and the substitution will therefore entail goods described in Serial No.18 of Part-B of Fourth Schedule of Amending Act 32/2008 the benefit of exemption as is applicable from the inception of Act 32/2006. The new replaces the old and that is substitution and as a consequence, exemption becomes inevitable. The department's plea that the exemption will not apply to the period from 1.1.2007 to 31.3.2008 cannot be accepted, as substitution in this case will have to relate back to 1.1.2007 itself, when Act 32/2006 came into force. It needs no further clarification to state that even in terms of the decision Namputhiris Pickle Industries v. State of Kerala and another [1998 (3) TMI 594 - SUPREME COURT OF INDIA] the powder form of chilly continues to be one and the same item. This statement is made only to amplify that despite substitution by way of Act 32/2008, the petitioners are entitled to exemption in respect of the powder form of chilly, turmeric and coriander on the mere entry in Serial No.18 of Part-B of Fourth Schedule to Act 32/2006. When there is no differentiation between the two forms of the goods, the substitution is more in the nature of clarification of a pre-existing right which has accrued to the petitioners, that is to say that the powder form of chilly, turmeric and coriander are no different from chilly, turmeric and coriander. It is evident that the intention of the legislature under the TNGST Act as well as the Act 32/2008 is to treat chilly and chilly powder, coriander and coriander powder, and turmeric and turmeric powder as one and the same goods & continue to enjoy the benefit of exemption despite their being a specific omission of the powder form 1.1.2007 to 31.3.2008. The benefit of exemption granted based on returns filed is in order. Thus in view of the finding of this Court that the coriander and turmeric are one and the same as their powder form, the understanding of the Government in G.O.(D) No.383, Commercial Taxes Department, dated 22.10.1998 the clarification issued on 9.12.2002 under Section 28-A of the TNGST Act and the reasoning of this Court on substitution, it is clear that exemption remained even during the period in question, namely from 1.1.2007 to 31.3.2008. This Court has no hesitation to hold that the proceedings under Section 27 of Act 32/2006, which are under challenge, are without jurisdiction and contrary to law. The said proceedings deserve to be set aside. - In favour of assessee.

  ---

• 2013 (6) TMI 198
  Revision u/s 11(1) - Conduction of surveys - Discrepancies were found in the books of account – AO made additions which was reduced by the first appellate authority to some extent - Held that:- In the absence of the books of accounts, the A.O. was having no option except to made the addition on estimate basis. The First Appellate Authority has also made the addition on estimate basis and reduced the Tax liability but the Tribunal again enhanced the tax liability by making a fresh estimation. Tribunal is a final fact finding authority as per the ratio laid down in the case of Kamla Ganpati vs. Controller of Estate Duty, [2001 (2) TMI 132 - Supreme Court] Thus, it is clear that no question of law is emerging from the impugned order passed by Tribunal. Hence, no interference is required in the impugned order passed by the Tribunal. Order is hereby sustained.

  ---

• 2013 (6) TMI 197
  Tax on entry of goods into the local area from outside the local area - Assessment under U.P. Tax on Entry of Goods Act, 2000 being contested as barred by time - Held that:- The statutory requirement is the date of receipt of the order by the Assessing Authority concerned and not mere knowledge of the order. The petitioner could not refer any iota of evidence to show on what date the judgment of writ court was received by the Assessing Authority. He wants this Court to draw inference about the date of the service of judgment which is not possible. What it mean to say is that complicated and disputed question of fact with regard to the date of communication of the judgment of Writ Court is involved. This can more properly be examined and addressed by the authority having the complete record including the assessment file and the receipt register etc. As decided in Satyawati Tandon case [2010 (7) TMI 829 - SUPREME COURT] that before exercise of jurisdiction under Article 226 of the Constitution of India, the Court should have recorded as to whether adjudication of writ petition involves any complicated and disputed question of fact and whether they can satisfactorily be resolved. On the facts of the present case,it is not in a position to arrive at a definite conclusion or finding in terms of section 21(6) of the U.P. Trade Tax Act to uphold the submission of the petitioner. Having regard view of the fact that the disputed questions of fact are involved and statutory forum by way of appeal is available to the petitioner, thus court declines to interfere in the present writ petition. When the question of limitation is dependent upon the adjudication of certain facts, then, it cannot be said that it is related to the jurisdiction of the authority or is a jurisdictional issue, as in the present case. The factual aspect of the case should be decided by the statutory forum first, in such matters. Writ petition dismissed on the ground of availability of alternative remedy of appeal.

  ---

• Indian Laws

• 2013 (6) TMI 196
  Petitioner challenged the orders dated 21.03.2011 and 16.07.2011 attaching certain amount from the petitioner. According to the petitioner, the said orders are passed notwithstanding that no further amount is due to 2nd respondent, the entire amount due having already been paid and full satisfaction recorded in the execution petition. - Held that:- If petitioner has raised the objection that the entire amount due to the 2nd respondent has already been paid, certainly that objection has to be considered and appropriate decision entered by the executing court before the amount is disbursed to the 2nd respondent. - Execution court to matter.

  ---