TMI Tax Updates - e-Newsletter
June 11, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. ARBITRATION – LATEST JUDICIAL DECISIONS

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Union Finance Minister Holds Pre-Budget Consultation Meeting With the Representatives from Banking and Financial Institutions; Asks the Representatives of the Banks and Financial Institutions (FIs) for Joint Action to Steer the Economy in the Right Direction

2. Eleventh Meeting of the Financial Stability and Development Council (FSDC) held under the Chairmanship of the Union Finance Minister; FM Emphasized the Need for Financial Stability and for Coordinated Approach by all the Financial Sector Regulators to Achieve the Same

3. RBI Reference Rate for US $ and Euro

4. Management of Economy and Government Finances is collective resposibility of States and UTs: FM; Union Finance Minister holds Pre-Budget Consultation with the Finance Minsiters of States/UTs; States asks for revival of Economic Growth, Curbing of Inflation and creation of job oppurtunities among others

Notifications

Companies Law

1. F. No. 1/8/2013-CL-V - dated 6-6-2014 - Co. Law

Central Government appoints the 6th day of June, 2014 as the date on which the provisions of sub-sections (2) and (3) of Section 74 shall come into force.

2. F. No 1/8/2013-CL-V - dated 6-6-2014 - Co. Law

Companies (Acceptance of Deposits) Amendment Rules, 2014

Customs

3. 25/2014 - dated 9-6-2014 - ADD

Seeks to levy definitive anti-dumping duty on imports of presensitised positive offset aluminium plates originating in or exported from People's Republic of China for a further period of 5 years.

Circulars / Instructions / Orders

Customs

1. No. 14/3/91-TPD - dated 30-5-2014

Appoints the Designated Authority

Companies Law

2. 14/2014 - dated 9-6-2014

Clarifications on Rules prescribed under the Companies Act, 2013 Matters relating to appointment and qualifications of directors and Independent Directors reg.

3. F. No. 1/8/2013-CL-V - dated 6-6-2014

Companies (Removal of Difficulties) Fourth Order, 2014

Highlights / Catch Notes

Income Tax

• Court Rules Lease Termination Compensation as Capital Receipt, Not Taxable Under Income Tax Act Section 55(2)(a.

  Case-Laws - HC : Compensation for termination of lease agreement – amount received is a capital receipt and not liable to tax under Section 55(2)(a) of the Act - HC
  Visit to Get Source

  ---

• Court Rules Unaccounted Investment by Income-Less Company to Be Assessed in Assessee's Hands.

  Case-Laws - HC : Explanation of the source of investment - there being no income of the company at the relevant period when unaccounted investment was made, the same has to be assessed in the hands of the assessee - HC
  Visit to Get Source

  ---

• Assessee opts for conservative approach, excludes uncertain interest income from taxable income, no additions made.

  Case-Laws - AT : Accrual of interest - uncertainty - since the assessee was aware of the fact that it will not receive any income as interest, following conservative policy, did not recognize the interest income which is uncertain - no addition - AT
  Visit to Get Source

  ---

• Foreign Commission Payments: RBI Forex Limits Don't Affect Income Tax Allowability Under Income Tax Act.

  Case-Laws - AT : Commission paid to Non-residents – The limit provided under the RBI guidelines for remittance of commission is relevant only for the purpose of remittance in foreign exchange and is not relevant for determination of the allowability of the expenditure under the Income Tax Act - AT
  Visit to Get Source

  ---

• Compensation for Property Delivery Delays Seen as Deductible, Not Penal, Affecting Tax Treatment for Builders.

  Case-Laws - AT : Nature of expenses – builders generally offer some amount as compensation against delay in handing over the properties - the nature of payment as compensatory and not penal - AT
  Visit to Get Source

  ---

• Lessee Claims Depreciation in Finance Lease; Lessor Ineligible for Depreciation in Genuine Lease Setup.

  Case-Laws - AT : Depreciation - only the lessee can be treated as owner of the asset in case of a finance lease - No depreciation can be allowed to the lessor in such a case of a genuine finance lease - AT
  Visit to Get Source

  ---

• Cash Payments Over Limit Face Disallowance: No Immunity Under Income Tax Act's Section 40A(3) for Businesses.

  Case-Laws - AT : Disallowance u/s 40A(3) of the Act – Cash payment for business purpose – it cannot be said that the assessee has immunity from the provisions of section 40A(3) of the act - AT
  Visit to Get Source

  ---

Customs

• CBI Court finds insufficient evidence to charge Superintendent and Inspector u/s 114. No penalties imposed.

  Case-Laws - AT : Penalty u/s 114 on Superintendent and Inspector - evidences available on record were also not considered sufficient for framing charges by the CBI Court - no penalty - AT
  Visit to Get Source

  ---

Service Tax

• Simultaneous Penalties u/ss 76 & 78 for Unpaid Service Tax Before May 10, 2008, Despite Notices in 2010-2011.

  Case-Laws - AT : Penalties under both Sections 76 and 78 were imposable simultaneously on the respondents for failure to pay service tax for the period prior to 10.05.2008 although show cause notices were issued to them in the year 2010/2011 - AT
  Visit to Get Source

  ---

• Article 289: State Property Taxation Clarified-Excludes Instrumentalities Under Article 12 for Renting Immovable Property.

  Case-Laws - AT : Renting of immovable property - The property and income of the State, in Article 289, connotes the State as enumerated in the first schedule of the constitution and not every authority or body falling within the scope of an the instrumentality of the State or other authority, in Article 12 of the Constitution. - AT
  Visit to Get Source

  ---

Central Excise

• Rule 6(1) Cenvat Credit Rules: CENVAT Credit Allowed on Export of 100% Cotton Fabrics with Nil Duty Rate.

  Case-Laws - AT : Cenvat / Modvat Credit - Provisions of Rule 6(1) of Cenvat Credit Rules are not attracted in the present facts and circumstances when 100% cotton fabrics attracting nil rate of duty are exported and CENVAT Credit was not deniable to the appellants - AT
  Visit to Get Source

  ---

• Assessee Faces Prima Facie Case for Non-Compliance on Area-Based Exemption Filings in Uttaranchal.

  Case-Laws - AT : Area based exemption - State of Uttranchal - Non filing of declaration - no returns were filed regarding the goods manufactured and cleared by availing of this exemption - prima facie case is against the assessee - AT
  Visit to Get Source

  ---

Case Laws:

• Income Tax

• 2014 (6) TMI 263
  Validity of notice for reopening u/s 148 of the Act – Effect of amendment w.e.f. 1.4.2000 of explanation to sub-section (13) of section 80IA of the Act – Held that:- The AO has made a mention of the amendment brought by Finance Act, 2009 with effect from 1.4.2000 by which an explanation to sub-section (13) of section 80IA has been inserted - The requirement of law since is not fulfilled by the assessee for being the work contractor and not the developer, according to the AO, he is found not entitled to claim deduction u/s 80IA of the Act and therefore huge sum of Rs.6.40 crores claimed by way of deduction escaped the assessment – Constitutional validity of retrospective amendment through explanation below sub-section (13) of section 80IA by Finance Act, 2009 has been decided in Katira Construction Ltd. v. Union of India [2013 (3) TMI 416 - GUJARAT HIGH COURT] has upheld the validity of the same. If an explanation is added to a section of a statute for the removal of doubts, the implication is that the law was the same from the very beginning and the same is further explained by way of addition of the Explanation - it is not a case of introduction of new provision of law by retrospective operation – the assessee had disclosed all the materials regarding its activities and there was no suppression of materials - the AO gave benefit of the provision by considering the then Explanation which was substantially the same and thus, it could not be said that any income escaped assessment in accordance with the then law - the AO has now given a second thought over the same materials and according to him, as the assessee is a contractor or supplier of irrigation products, it cannot be called a developer of any new infrastructural facility. The only ground which had made the AO to initiate proceedings of reassessment is the insertion of explanation to sub-section (13) of section 80IA which substituted earlier explanation giving retrospective effect to the said provision from 1.4.2000 - Such provision being always there on the record and the AO having already scrutinized the entire issue threadbare, even though notice is issued within four years from the end of the relevant assessment year, issuance of such notice has to be held as nothing but a change of opinion on the part of the AO - assumption of jurisdiction itself is not permissible –thus, the order is set aside - Decided in favour of Assessee.

  ---

• 2014 (6) TMI 262
  Compensation for termination of lease agreement – Amount received capital in nature or not u/s 55(2)(a) of the Act – Held that:- The Mc Dowell & Co., had claimed revenue expenditure of Rs. 5.31 crores on account of lease foreclosure payment made to the assessee-company - the amount is a compensation towards the loss of source of income and also towards noncompetition fee to prevent the assessee from carrying on the similar business using the knowhow possessed by the assessee as a competitor, the amount of Rs. 5.31 crores paid was thus capital in nature - The amount is paid to prevent the assessee from carrying on a competitive business and also preventing the assessee to use the business apparatus or expertise - Accordingly the payment was a capital fee and thus it is only a capital receipt - There being no cost of acquisition, the capital gain was also not computable. Relying upon Guffic Chem (P) Ltd. & Mandalay Investment P. Ltd Versus Commissioner of Income-tax [2011 (3) TMI 6 - Supreme Court] - the compensation received for loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital in nature - the compensation has been paid for loss of source of income and also for non17 competitive fee and it is capital in nature - payment made as non-competition fee under the negative covenant is always treated as a capital receipt and not liable to pay any tax till the AY 2003-04 in view of the amendment to the Finance Act 2002 w.e.f. 1-4-2003 that the capital receipt is now made taxable u/s 28(va) - The amendment is not as the amount received by the assessee is a capital receipt - The Appellate Authority as well as the Appellate Tribunal after considering the matter in detail held that the amount received is a capital receipt and not liable to tax under Section 55(2)(a) of the Act – there was no infirmity in the order – Decided against Revenue.

  ---

• 2014 (6) TMI 261
  Capital asset as per section 2(14)(iii)(a) of the Act or not - Jurisdiction of Mangwal village Gram Panchayat – Held that:- If the agricultural land is situated outside the jurisdiction of a municipality, then no tax on any profits or gains arising from the transfer of such land will be chargeable under the head “capital gains” - under clause (b) any area within 8 kms from the local limits of any Municipality or Cantonment referred in Clause (a) or within such area as the Central Government may specify by way of a notification having regard to the extent and scope of urbanisation of that area would be within the ambit of capital asset. At no point of time the assessee had disputed that the land in question did not fall within the area of 5 kms from municipal limits of Sangrur - CIT(A) has also mentioned that the land is situated within 5 kms of Sangrur Municipal Committee - Section 2(14)(iii)(b) makes it clear that areas upto distance of 5 kms from municipal limits of Sangrur in all directions falls within the local limits of Sangrur municipality - there was no denial of the fact that the land falls within 5 kms of Sangrur Municipal Committee, CIT(A) as well as the Tribunal fell into error while ordering the deletion – Decided in favour of Revenue.

  ---

• 2014 (6) TMI 260
  Explanation of the source of investment - Whether the Tribunal was legally correct in holding that the building belonged to M/s. Hotel Ganges Ltd. and it was also responsible to explain the source of investment in its construction – Held that:- The expenses for construction were being managed by the assessee by borrowing the funds from the Hindu undivided family - expenses made by the assessee have been adopted by the company to which there can be no dispute - The Commissioner has found that the company has not even obtained the certificate of commencement of business up to January 2, 1976, and up to March 31, 1976, the company had no source of income which is a finding of fact. This is a case of assessment of unaccounted investment - The investment was done by the assessee - The Company had no income at the time when the expenditure towards construction was undertaken – thus, there is no occasion to assess the unaccounted investment at the hands of the company – CIT(A) has rightly appreciated the facts and recorded a finding that there being no income of the company at the relevant period when unaccounted investment was made, the same has to be assessed in the hands of the assessee - He has rightly affirmed the order of the Income-tax Officer assessing the unaccounted investment at the hands of the assessee – Decided in favour of Revenue.

  ---

• 2014 (6) TMI 259
  Conversion of granite boulders into small pieces of different sizes - Activity amounts to manufacture or not – Held that:- Following CIT v. Mysore Minerals Ltd. [1999 (9) TMI 10 - KARNATAKA High Court] - extraction and processing of iron ore did not amount to manufacture - after extraction of iron ore, various processes involve production within the meaning of section 32A(2)(b)(iii) of the Act, thus, the assessee is allowed to have the benefit of investment allowance u/s 32A - the word "production" is wider in ambit and it has a wider connotation than the word "manufacture" - while every manufacture can constitute production, every production need not amount to manufacture. The commercial identity of the boulder which is used as raw-material to bring into existence altogether a different product, i.e., rubbles (crushed metal granite) and also "M Sand" of different sizes - in the commercial world, products are quite different in terms of trade though both the materials could be used in the construction activity - The products manufactured by the assessee have distinct and different utility- the identity is also different - If boulder could be used for the purpose of foundation, M Sand and crushed metal granite, cannot be used for the same purpose for which boulders are used - all the products are different though come from the same raw-material - both processes are present, i.e., manufacture and also production – the Tribunal was justified in confirming the orders of the CIT(A). Entitlement for deduction u/s 80HH and 80I of the Act – Held that:- Following CIT v. Mandideep Eng. and Pkg. Ind. P. Ltd. [2006 (4) TMI 75 - SUPREME Court] - if various deductions are independent in nature available to an assessee under different circumstances, they all have to be allowed if they come within the application of a particular provision of law – in terms of sections 80HH, 80-I and 80-IB, if claims are made for deductions by the assessee in the same year at the same time, if it is found relevant for the purpose of giving deductions, all are to be extended - It does not depend upon the existence of other provision - if the benefit is extended under one provision, the assessee cannot be denied the benefit of other provision which is altogether for a different purpose – Decided against Revenue.

  ---

• 2014 (6) TMI 258
  Deletion of penalty u/s 271(1)(c) of the Act – Claim of deduction u/s 80IB of the Act –Addition in quantum appeal set aside - Held that:- Following Kamleshkumar Gandalal Shah C/o. Mehta Lodha & Company Versus ITO, Ward-9(2) Ahmedabad [2013 (11) TMI 726 - ITAT AHMEDABAD] - CIT(A) observed that the assessee has not properly utilized the area of the land and has not developed the area of land, because, as per permissible FSI, more number of residential units in multistoried buildings could have been constructed – Relying upon CIT Vs. Radhe Developers [2011 (12) TMI 248 - GUJARAT HIGH COURT] - lower authorities were not justified in disallowing the claim of deduction u/s 80IB of the Act – the AO is directed to allow deduction u/s 80IB(10) of the Act - in the quantum appeal the addition has been deleted, thus, the penalty does not survive – Decided against Revenue.

  ---

• 2014 (6) TMI 257
  Accrual of interest - uncertainty - Addition of notional interest and brokerage - Held that:- The addition on account on account of notional interest was not justified as the assessee had not earned any income as M/s DEIL had already expressed its inability to pay the interest - the assessee was following mercantile system of accounting and under normal circumstances it had to provide for interest income receivable from M/s DEIL but since the assessee was aware of the fact that it will not receive any income as interest, thus, following conservative policy of not taking into account any income which is uncertain did not make any provision for interest income and CIT(A) had rightly appreciated the facts - assessee had about Rs.12.77 crores of share capital and reserve at the close of the AY 2002-03 whereas the loan to Unitech Ltd. is only to the extent of Rs.8.05 crores - CIT(A) has rightly appreciated about surplus funds available with the assessee and has rightly deleted the addition - Regarding the addition of brokerage there was no force in the argument of revenue and CIT(A) has rightly appreciated the facts and allowed the relief – Decided against Revenue.

  ---

• 2014 (6) TMI 256
  Admission of additional evidence under Rule 46A – Addition of LTCG on sale on immovable property – Held that:- In absence of any documentary evidence with regard to the claim of exemption u/s 54 of the Act, the AO added the amount to the income of the assessee - in the remand report, the AO observed that the assessee had failed to furnish the required sale deed in support of investment made qualifying the deduction u/s 54 of Act – CIT(A) observed that no comments were offered by the AO on the merits of the evidence - the remand report says that the claim was allowable as per Income-tax Act, 1961 - The CIT (A) granted the relief by admitting the additional evidence – as the remand report says that the claim of the assessee is allowable as per Income-tax Act, 1961, thus, there is no merits in the appeal of the revenue – Decided against Revenue.

  ---

• 2014 (6) TMI 255
  Deletion of addition u/s 40(a)(ia) of the Act - Commission paid to Non-residents – Applicability of benefit of circular - CIT(A) not appreciated the fact that Circular No. 786 has been withdrawn by the Circular No. 7 of 2009 dated 22.10.2009 – Availability of benefit of DTAA - Held that:- No such question was either raised by the AO or by CIT(A), there was no occasion for the assessee to produce such certificate before the authorities – at this stage in the absence of any record to prove the contrary the mere contention of the revenue cannot be accepted – there was no error or illegality in the order of CIT(A) whereby it has been held that the Explanation in question is not applicable in the case of the assessee - The limit provided under the RBI guidelines for remittance of commission is relevant only for the purpose of remittance in foreign exchange and is not relevant for determination of the allowability of the expenditure under the Income Tax Act - Once the remittance was allowed even more than limit provided by the RBI guidelines the same becomes irrelevant for the purpose of allowability of the expenditure under the Income Tax Act. So far as the withdrawal of Circular No. 786 by a subsequent Circular 7/2009 dated 22.10.2009 is concerned, it has been decided in CIT Vs. Angelique International Ltd. [2013 (10) TMI 17 - DELHI HIGH COURT] that the Circular no. 7 of 2009 whereby the Circular No. 789 has been withdrawn did not have retrospective effect - even otherwise at the time of remittance of the amount in question the Circular No. 786 was very much inforce and existence, the assessee cannot be expected to deduct tax at source on the commission paid to the non-resident agent – the order of the CIT(A) is upheld – Decided against Revenue.

  ---

• 2014 (6) TMI 254
  Admission of fresh evidences under Rule 46A of the Rules – Matter not remitted to AO - Violation of principle of audi alterem partem - Held that:- CIT (A) while admitting and using the additional evidence filed by the assessee, did not give any opportunity of hearing to the AO - No remand report was called for - Nor was the AO asked to verify the contents of the additional evidence filed by the assessee - The action of the CIT (A) is in violation of the settled natural justice principle of audi alterem partem – thus. the matter is remitted back to the AO for fresh adjudication on considering the additional evidence filed by the assessee before the CIT(A) – Decided in favour of Revenue.

  ---

• 2014 (6) TMI 253
  Maintainability of addition u/s 41(1) of the Act – Trade credits reflected as liabilities in the books of account – Held that:- There could be genuine and valid reasons obtaining in a particular case, so that a credit though outstanding in the books for long, represents a genuine liability - it could be that the liability remains to be recovered for want of time or resources with the creditor, i.e., to pursue the legal recourse - If so, the recalcitrant debtor stands benefited to that extent - the matter is primarily and essentially factual. Relying upon CIT vs. Chipsoft Technology (P.) Ltd. [2012 (8) TMI 154 - DELHI HIGH COURT] - The interpretation of law, particularly fiscal and commercial legislation, is to be based on pragmatic realities - an omission to pay could give rise to the legal inference of cessation of liability - the assessee failed to furnish confirmations from the two creditors - the basis of relief to the assessee by the CIT(A) was an absence of any material with the Revenue to exhibit a remission or cessation of the liability - The primary onus to prove its return, and the claims preferred is only on the assessee – assessee have furnished a certificate with regard to the account statements being furnished before the assessing authority as well as the CIT(A), and which could be false only at the risk of perjury and the confirmation of the additions being adjudicated – thus, the matter is required to be remitted back to the AO for verification of the Assessee claim – Decided in favour of Revenue.

  ---

• 2014 (6) TMI 252
  Deletion made u/s 68 of the Act – Unexplained unsecured loan – Onus to prove - Held that:- Following Commissioner of Income-Tax, Orissa Versus Orissa Corporation Pvt. Limited [1986 (3) TMI 3 - SUPREME Court] - merely because the assessee could not produce the creditors, adverse inference cannot be drawn against the assessee - there was no effort made to pursue the so called alleged creditors - the assessee not only produced the confirmation of the creditors, their permanent account numbers but also the copy of their assessment order and bank accounts - there were certain fresh evidences furnished before the CIT(A), he called for the remand report from the Assessing Officer. The assessee produced the confirmation, copy of bank account, copy of income tax return of the creditors and, on verification by the AO by calling the information u/s 133(6) and also through the Inspector of Income-tax, no adverse material was found - merely because the creditors were not produced by the assessee, it cannot be said that the assessee was not able to discharge the onus of proving the cash credit which lay upon him - the assessee has discharged the initial onus of proving the cash credit which lay upon him – Decided against Revenue.

  ---

• 2014 (6) TMI 251
  Nature of expenses – Amount being compensatory in nature and not penal – Payment made for delay in handing over of possession of properties – Held that:- The payment made to its customers was in the form of compensation which was paid to its customers for delay in handing over the possession of properties - The liability to pay such compensation arose in the course of business of assessee - This type of compensation is generally prevalent in the industries and builders generally offer some amount as compensation against delay in handing over the properties - CIT(A) has very rightly held the nature of payment as compensatory and not penal - Relying upon CIT v. Jaya Ram Metal Industries [2006 (7) TMI 135 - KARNATAKA High Court] – the order of the CIT(A) is upheld – Decided against Revenue.

  ---

• 2014 (6) TMI 250
  Applicability of section 40A(2)(b) of the Act - Partial deletion of discount forwarded – excessive or unreasonable expenses – Held that:- The assessee did not furnish any details as to how much commission he received on these plots/properties in the name of his family members against which he paid heavy discount and the assessee can only be allowed to pay maximum discount to the extent of commission received by him on these plots/properties from BPTP - In absence of any details, discount as indicated in the show cause notice @ 50,000/- on each plot/ property totaling Rs. 2,00,000/ - for four properties/plots in the name of his family members has been allowed by treating them at par with other customers - the AO has erred in estimating the quantum of discount forwarded by the appellant - the installments have been paid towards the cost of said plot including late payment interest also - the AO has erroneously referred to the said payments in the nature of discount forwarded for one plot only which is impossible looking to the maximum amount of discount even allowed by the BPTP - there is no effective yardstick for comparison and having regards to the above discussion, it would be deem it fair and reasonable to disallow 25% of discount forwarded to Shri Ashish and Smt. Urvashi as excessive – Decided against Revenue. Deletion of discount forwarded – Amount has been added twice but not reflected in ledger accounts - When BPTP Ltd. has given the commission to the assessee and has itself recovered part of the commission through raising debit notes, the genuineness of the discount forwarded cannot be doubted unless it is established that the discount forwarded to BPTP Ltd. was received back by the appellant in some other form – the AO has either not looked into the ledger account narrations properly or has drawn his adverse conclusion due to short time available for passing the order - the AO has also not given any adverse finding on this issue in the remand report – the order of the CIT(A) is upheld – Decided against Revenue.

  ---

• 2014 (6) TMI 249
  Addition made u/s 68 of the Act - Genuineness and credit worthiness of the person not established – Unsecured loan and share application money - Held that:- The amount received from Mr.Piyush Kanthilal Kadiwar, was repaid - assessee has submitted that Mr.Piyush Kanthilal Kadiwar was a person residing in Goa and as the time given for producing evidences by the AO was insufficient, application for admission of additional evidence under Rule 46A was filed before the CIT(A), who admitted the same – the FAA was right in deleting the addition as cash credit u/s 68 of the Act - on the addition of unexplained share application money, the findings of the CIT(A) is not controverted - The identity, capacity and genuineness of the transaction had been demonstrated by the assessee – Decided against Revenue.

  ---

• 2014 (6) TMI 248
  Validity of reopening of assessment u/s 148 of the Act – Mere change of opinion - Held that:- The AO noticed from the statement of income, the assessee has offered income on sale of land at Gachibowli after claiming land cost though the land was sold - the assessee has sold the property along with 3 other co-owners for a consideration of Rs. 2 crores - The AO while framing assessment u/s 143(3) accepted the assessee's contention and completed the assessment and there being no tangible fresh material assessment cannot be reopened - Relying upon Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - the AO has no power to review, he has the power to reassess - reassessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, then, in the garb of reopening the assessment, review would take place - there must be some new facts which come to light in the course of assessment for the subsequent assessment year which emerge in the order of the assessment - otherwise, a mere change of opinion on the part of the AO in the course of assessment for a subsequent assessment year would not by itself legitimise reopening of assessment for an earlier year – thus, the order of the reassessment made by the AO u/s 147 of the Act is set aside – Decided in favour of assessee.

  ---

• 2014 (6) TMI 247
  Disallowance of depreciation on leased assets – Finance lease or operating lease - Held that:- Following M/s. IndusInd Bank Limited Versus The Addl. Commissioner of Income-tax [2012 (3) TMI 212 - ITAT MUMBAI] - Finance lease is for a fixed period & non-cancellable - Lessee uses the asset for its entire economic life & all risks and rewards incidental to ownership are transferred to the lessee even though title may or may not be eventually transferred to him - There is a fixed obligation on the lessee for payment of lease money - the assessee’s lease agreement had all the characteristics of a finance lease - Further, RBI Circular No.FSCBC 18/24-01- 001/93-94 dated 14.02.1994 states that equipment leasing activity should be treated by banks “on par with loans and advances” - thus, the lease agreement is that of finance lease and not operating lease - only the lessee can be treated as owner of the asset in case of a finance lease - No depreciation can be allowed to the lessor in such a case of a genuine finance lease – Decided against Assessee. Addition of reworking of lease rentals – Held that:- The transactions of the assessee are finance lease transactions – thus, the assessee is not entitled for depreciation and, consequently, the entire lease income has to be considered as gross income of the assessee – the AO is directed to determine the income of the assessee in accordance with law – Decided partly in favour of Assessee. Disallowance u/s 40(a)(ia) of interest payments to HP Financial Services (P) Ltd. - TDS u/s 194A – Held that:- Following Asst. Commissioner of Income Tax Versus M/s. R. Balarami Reddy & Co. [2014 (4) TMI 904 - ITAT HYDERABAD] - the payment made by the assessee on account of hire purchase transaction and payment of finance charges/hire charges cannot be construed as interest so as to deduct TDS u/s 194A of the IT Act - the payment made to HP Financial Services Pvt. Ltd. towards hire charges cannot be considered as interest so as to disallow u/s 40(a)(ia) of the Act – Decided against Revenue.

  ---

• 2014 (6) TMI 246
  Rectification of mistake apparent on record – Disallowance of deduction – Extra amount paid for rescission of sale agreement – Held that:- Tribunal upheld the order of the CIT(A) that as per the A.O. Sh. Vijay Kumar Umat, CA has absolutely denied of entering into any such agreement with the assessee - he has received in advance earnest money of Rs. 45 lacks from S/Sh. Vijay Kumar Umat and Kanwar Jagdip Sing of Amritsar and non-maturity of sale agreement whereas Rs. 40 lacs having been repaid on 27.11.2007, another instalment of repayment of Rs.40 lakh in cash has further been paid on 02.04.2008 and Rs. 10 lakh has been brought in cash for repayment in full and final settlement of the Howra/agreement - the second sale transaction remained unmatured/unmaterialized – Decided against Assessee. Facts not properly appreciated – Held that:- The order of the CIT(A) is upheld, as the additional ground under Rule 46A of the I.T. Rules,1962 not admitted - all the documents were fresh which were not furnished before the AO and were not rightly admitted and entertained - all the documents are not registered with the Land Revenue Authorities - No sufficient cause has been established for not submitting them before the AO – Decided against Assessee.

  ---

• 2014 (6) TMI 245
  Disallowance u/s 40A(3) of the Act – Cash payment for business purpose – Held that:- Rule 6DD of the Rules clearly lays down the conditions or exceptions under which the rigor of the provisions of section 40A(3) of the Act may be relaxed and there is no discretion on either of the parties to extend the condition or relax the condition at will - Even the existence, demand or necessity or business expediency does not fall under the provisions of Rule 6DD of the Rules - it cannot be said that the assessee has immunity from the provisions of section 40A(3) of the act - the lower authorities have rightly invoked the provisions of section 40A(3) of the Act and made the disallowance – Decided against Assessee. Disallowance of 50% of business expenses - Subscription & Donations – Held that:- The assessee has debited a sum under the head “Subscription & Donations” - the payment was made keeping in view the specific nature of business of the assessee, which involves buying and selling of land which is scattered over various areas – there is different from other stock in trade which can safely be stored, according to assessee the said payment would constitute necessary expenditure u/s 37 of the Act – the assessee has made the payment to different persons to safeguard its business assets, the payments are allowable - the AO has disallowed 50% of this expenditure and allowed 50% - The AO made disallowance on ad-hoc basis without any reasons - CIT(A) has also confirmed the same – the expenditure is required keeping in view the specific nature of the business of assessee – Decided in favour of Assessee.

  ---

• Customs

• 2014 (6) TMI 267
  Duty demand - Mis declaration of export goods - claim of fraudulent duty drawback - Held that:- there was a misdeclaration of both quality and quantity of goods. There is in fact an admission on the part of the appellant that the goods which were presented for export were not as per declaration made in the Shipping Bill. Thus denial of duty drawback can hardly be faulted. Learned counsel for the appellant also sought to canvass before us that certain grounds raised were not dealt with by the Tribunal. If it was so, it was the duty of the appellant to have gone back to the Tribunal to invite a finding on the grounds which were urged according to it though not considered. The fact that the appellant failed to do so makes it clear that the findings were in fact given by the Tribunal in respect of the grounds urged. We may also note that the impugned order contains pure findings of fact. There is no question of law involved - Decided against assessee. Condonation of delay - Held that:- the petitioner is not an uneducated person, a pardanasheen lady or a person hailing from a socially or economically weaker section of the society. The petitioner is a limited company seeking to claim duty drawback in respect of exports which has been denied to the petitioner on account of misdeclaration both in respect of ‘quality’ and ‘quantity’ of goods. - here is no ground whatsoever for condonation of delay of this inordinately long period of time. - though delay is not condonable, tribunal choose to hear the case on merit - on merit case decided against the assessee.

  ---

• 2014 (6) TMI 266
  Penalty u/s 114 on Superintendent and Inspector - examination and physical stuffing of consignments - Held that:- Only a statement of the co-accused cannot be said to have established that Shri Khem Singh Lalas was present during the examination and stuffing of the cargo in the containers which were subsequently found to contain red sander logs. It is relevant to note that the evidences available on record were also not considered sufficient for framing charges against Shri Khem Singh Lalas by the jurisdictional Special Judge CBI in Special Criminal No.12/2011. In view of these observations, no penalty can be imposed upon this appellant under Section 114(i) of Customs Act, 1962 and the order passed by the adjudicating authority to that extent is required to be set aside. In the absence of any other corroborative evidences, no penalty can be imposed upon this appellant under Section 114 of Customs Act, 1962 in view of the case laws relied upon by the appellant. For negligence in discharging duties, this appellant has been served with a separate charge-sheet by the Department for which the law can take its course. Accordingly, it is held that no penalty is imposable upon Shri Mukhalesh Jain and the appeal filed by him is required to be allowed.e - Decided in favour of assessees.

  ---

• 2014 (6) TMI 265
  Valuation of goods - whether the transaction price can be accepted for assessment of customs duty inasmuch as the supplier and buyer are related, and whether the cost plus method adopted for determination of price can be accepted or not - Held that:- On the basis of evidence before him, the assessing officer has come to the conclusion that VIO price adopted by the appellant are based on cost plus method and the price is sole consideration for sale. Accordingly, he has ordered for assessment of the goods on the basis of the invoice price declared by the appellant. Thus, the order of the assessing officer in the instant case has been done in accordance with law and after appreciating the evidence available on record with regard to costing - The cost plus method takes into account raw materials cost, manufacturing cost, administrative and sales overhead, packing cost, dealer’s cost, overhead and profit based on annual forecast. Thus the price declared by the appellant based on cost plus method is also supported by the documentary evidence by way of original invoices and other related documents. Therefore, we do not find any infirmity in the order passed by the assessing authority in the matter - there is no allegation of any flow-back or payment of any additional consideration by the appellant to the foreign supplier. In the absence of such positive evidence adduced by the Revenue, the argument that the transaction value cannot be accepted lacks merit and the same is rejected - Decided in favour of assessee.

  ---

• 2014 (6) TMI 264
  Remission of customs duty under Section 23(1) of the Customs Act - Damage of goods - warehousing of imported bulk drugs - Review of own order - Held that:- order of remission of customs duty for an amount of Rs. 41,83,281/- was passed vide Order-in-Original No. 211/Remission/2007-08, dated 31-3-2008 pursuant to an Order-in-Appeal dated 28-11-2007. Both these orders have not been challenged by the department at any point of time and therefore, they have become final. Therefore, the issue of remission of duty granted to the appellant vide order dated 31-3-2008 cannot be re-opened by the Department, that too, after a lapse of 3 years. - The Asstt. Commissioner, after having granted remission, cannot review his own order and direct for recovery of the amount remitted and such an order is bad in law. In case of CCE & Cus. v. Welspun Terri Towels [2001 (11) TMI 200 - CEGAT, MUMBAI] it was held that, the insurance covers risk and is governed by separate enactments. We cannot mix up the provisions of the Customs Act with Insurance Act to deny the benefit specifically provided under Customs Act, 1962 - goods were destroyed by rain and floods and became unfit for human consumption and had to be destroyed as per law. Accordingly, the appellant was entitled for remission of duty as the goods were bonded. - Decided in favour of assessee.

  ---

• Service Tax

• 2014 (6) TMI 277
  CENVAT Credit - Whether CENVAT Credit of service tax paid by the appellant on repair of internal roads of the appellant’s factory was admissible to the appellant - Held that:- Lower appellate authority after going through the relevant invoice and agreement with the service provider, namely SMPS Consultants, Ahmedabad, found that work undertaken by the service provider was Carpet Seal Coat and Patch Work of internal and outside Bituminous Road of appellant’s project at Lab-Detergent Complex Alindra, and that the payment advice note dated 25.08.2008 also confirmed the same. Lower appellate authority, therefore, rejected the appellant’s appeal on this issue on the ground that the appellant had not been able to establish that the entire credit pertained to repairing of road inside the factory premises. Appellant had now produced copy of Certificate dated 06/12/2012, issued by the service provider - M/s Patel Engineers - to the effect that only internal roads of the appellant’s factory were repaired by them against appellants Work Order No. 8001005DO080400002/L dated 17/04/2008. As these papers were not produced before the adjudicating authority, therefore, the issue requires to be examined afresh to ascertain the factual position. - Decided in favour of assessee. Whether CENVAT Credit of service tax paid by the appellant on maintenance and repair of the security vehicle used within the factory premises by the Security Agency was admissible to the appellant - Held that:- As per rule 9(1) (f) of the CENVAT Credit Rules, 2004, a manufacturer of dutiable goods can take CENVAT Credit of service tax paid on any input service on the basis of invoice issued by service provider if the input service is actually received and used, whether directly or indirectly, in or in relation to the manufacture of dutiable final products as defined in Rule 2(l) of the CENVAT Credit Rules, 2004. In the present case the appellant has two invoices date 13/10/2007, issued by Security Agency, for the years 2004 to 2006 evidencing payment of service tax on maintenance & repair of the security vehicle and reimbursement of petrol expenses, but there is nothing on record to show that the Security Agency actually carried out any maintenance or repair of the appellant’s security vehicle, as repair or maintenance of vehicles is generally undertaken by workshops/ service stations and not by a Security Agency - Decided in favour of assessee.

  ---

• 2014 (6) TMI 276
  Levy of penalty simultaneously under Section 76 and as well as under Section 78 - amendment in Section 78 by way of insertion of the proviso with effect from 10.05.2008 - Held that:- Section 78 of the Act has been amended by the Finance Act, 2008 and the amendment provides that in case where penalty for suppressing the value of taxable service under Section 78 is imposed, the penalty for failure to pay service tax under Section 76 shall not apply. With this amendment the legal position now is that simultaneous penalties under both Section 76 and 78 of the Act would not be levied. However, since this amendment has come into force w.e.f. 16th May, 2008, it cannot have retrospective operation in the absence of any specific stipulation to this effect. Going by the nature of the amendment, it also cannot be said that this amendment is only clarificatory in nature. - penalties under both Sections 76 and 78 were imposable simultaneously on the respondents for failure to pay service tax for the period prior to 10.05.2008 although show cause notices were issued to them in the year 2010/2011. - Decided in favor of revenue. Regarding monetary limit for filing appeal - Held that:- Amount of service tax evasion in each case is less than the monetary limit of five lac rupees. Appeals in these four cases were filed by the Revenue on 05.12.2012 when the CBEC Circular F. No. 390/ Misc./ 163/ 2010-JC dated 17.08.2011 was in force, which directed the field formations not to file appeals before the CESTAT where the amount involved is up to five lac rupees. Obviously, the Revenue should not have filed any appeal against these four persons, as the directions contained in CBEC circulars are binding on Departmental Officers - Decided against the revenue.

  ---

• 2014 (6) TMI 275
  Waiver of pre-deposit - Mandap Keeper services - Sale of space or time for advertisement service - renting of immovable property service - Held that:- the income or property of the State which is immune to federal taxation under the provision of article 289 of the Constitution does not accommodate the property of a body create by a statute, such as the appellant. The property and income of the State, in Article 289, connotes the State as enumerated in the first schedule of the constitution and not every authority or body falling within the scope of an the instrumentality of the State or other authority, in Article 12 of the Constitution. In respect of renting of immovable property, a sub-theme of the petitioners defence was also that portion of its properties were given on lease to the Director General Special Protection Force; the A.P. Women’s Commission and to the State Election Commission and these not being for or in furtherance of Commerce of Business are outside the purview of the definition of renting of immovable property in Section 65(105)(zzzz) of the Act. Clearly the enumeration of the taxable service of renting of immovable property restricts the taxable service only where such service is provided for use in the course of or furtherance of, business of commerce. With respect to the quantum of Service Tax assessed for the petitioner having provided Mandap Keeper Service we find no prima facie case in favour of the petitioner. There is strong prima-facie case in favour of the petitioner to the extent service tax liability is assessed for providing sale of time or space for advertisement. Entire service tax and interest liable to be pre-deposited in respect of activities which are liable to service tax - adjudicating authority to recompute the liability - stay granted partly.

  ---

• 2014 (6) TMI 274
  Demand of service tax - Management Consultancy nor Technical Assistance Service - Held that:- Providing of enlisted service is object of the definition clause in the law. None of the authorities have looked into basic ingredients of law to come to their conclusion - In absence of any finding, contrary to the claim of the appellant, it cannot be brought to charge of providing Management Consultancy Services - Decided in favour of assessee.

  ---

• 2014 (6) TMI 273
  Waiver of pre deposit - Demand of service tax - C & F Agency services - Held that:- Original Adjudicating Authority having dropped the demand, the appellant would be entitled to stay on the above point. Nothing has been shown to us indicating that the appellants were acting as C & F Agent for the principal. On the other hand, we find that the appellants were buying and selling the goods on the basis of the invoices issued by the principal and the sales invoices/cash memos issued by them. As such, at this prima facie stage, we are of the view that the appellant has been able to make out a good case in their favour so as to allow the stay petition unconditionally - Stay granted.

  ---

• Central Excise

• 2014 (6) TMI 272
  Cenvat Credit - excise duty paid on excisable capital goods - Merger of two companies - availing credit by the second company after merger where capital assets were procured by the first company - Difference of opinion - Majority order - Held that:- On perusal of the lease agreement, it is seen that the Lessor (SISCOL) requested to the Lessee (JSWPL) to set up a power plant in the premises of the Lessor (SISCOL) to take care of the power generation of the Lessor to which Lessee has agreed. The lease of the immovable property is determined for a limited period conditionally on the happenings of some events. The tenure of the lease agreement depends upon the happenings of the future events. In the instant case, it is a conditional transfer of the property with an interest created on a transfer of the property and dependent upon the fulfillment of the condition. Thus, it is clearly evident that M/s.SISCOL had provided their land to M/s.JSWPL with a condition to set up a power plant and the electricity generated would be consumed in manufacturing activities of M/s.SISCOL. An agreement should also be examined with actual state of affairs and its implementation from the records. In the present case, it may be seen from the documents and records that in 2004, M/s.SISCOL was declared as sick unit under SICA, 1985. CDR Cell report would show that SJG came forward for financing the sick unit M/s.SISCOL, as finance acts as an engine of growth. It appears from the Show Cause Notices that M/s.JSWPL, one of the companies of SJG, have expertise in constructing and operating Power Plants and M/s.JSW Steel Ltd. another company of SJG, is one of the purchasers of the final product of M/s.SISCOL. It is recorded in the CDR Cell report that there was proposal of merger of M/s.SISCOL with SJG, which is corroborated by Director's report dt. 26.4.2005 of JSWPL balance sheet. It is mentioned in "Unit III Debentures Trust Deed" dated 22.9.2005 of M/s.JSWPL that with a view to finance its 2 x 30 MW plant at SISCOL, the company has approached the Debenture holders. JSWPL declared to TNEB by letter dated 6.1.2005 that Captive Power Plant is installed inside the SISCOL premises to meet the present and future power requirements of SISCOL. Further, TNEB approved as SISCOL Captive Power Plant located in the company's premises. Even prior to 31.8.2006, it was a Captive Power Plant of M/s.SISCOL as approved by TNEB under the Electricity Act. SISCOL was a sick unit. They entered into lease agreement with M/s.JSWPL, a relationship had already been developed prior to October 2005, as evident from CDR Cell report, JSWPL balance sheet etc., for financial accommodation to get loan from UTI Bank Ltd. for setting up C.P.P. and one of the considerations is that electricity would be supplied to M/s.SISCOL, which is an integral part of manufacturing activities of M/s.SISCOL - it is proper to allow cenvat credit to M/s.SISCOL from October 2005 on capital goods used in setting up Power Plant for generation of electricity, which was captively consumed within the factory of M/s.SISCOL for manufacturing of their final product - Decided in favour of assessee.

  ---

• 2014 (6) TMI 271
  Cenvat / Modvat Credit - export of exempted cotton fabrics - Simultaneous availment of exemption under Notification No.29/2004-CE and 30/2004-CE both dated 09.07.2004 - Whether it is the choice of the assessee to select any notification and pay duty or avail exemption when two notifications, one granting absolute unconditional exemption to excisable goods and the other granting unconditional partial exemption to the said goods, are operative simultaneously and whether Section 5A(1A) of the Central Excise Act, 1944 would be applicable - Held that:- when two exemption notifications, one granting absolute unconditional exemption to excisable goods and the other granting unconditional partial exemption to the said goods, are operative simultaneously, it is the choice of the appellant to opt for that notification which is more beneficial to him. In the present facts and circumstances of these appeals, provisions of Section 5A(1A) of the Central Excise Act, 1944 are not applicable. Provisions of sub-rule 57C(1) are satisfied as stipulated under Rule 57C(2) as well as Rule 57CC(6)1 and there was no need to comply with the provisions of rule 57CC1). Therefore, it is clear that an amount of 8% of the price of the goods exported is not required to be paid irrespective of whether the exported goods are exempted or otherwise - Even though Rule 6(1) of the Cenvat Credit Rules, 2004 provides that no Cenvat credit will be available in respect of the inputs used in the manufacture of exempted products, Rule 6(6)(v) of the Cenvat Credit Rules creates an exemption inter alia in respect of the excisable goods removed without payment of duty for export under bond in terms of Central Excise Rules, 2002. Considering the language of Rule 6(6)(v) of the Cenvat Credit Rules, 2004 the petitioners are entitled to avail Cenvat credit in respect of the inputs used in the manufacture of the final products being exported irrespective of the fact that the final products are otherwise exempt. Provisions of Rule 6(1) of Cenvat Credit Rules are not attracted in the present facts and circumstances when 100% cotton fabrics attracting nil rate of duty are exported and CENVAT Credit was not deniable to the appellants - Decided in favour of assessee.

  ---

• 2014 (6) TMI 270
  SSI Exemption - Job-work Exemption - benefit of notification 83/94 - manufacture of Sand Cores - Penalty u/s 11AC - Held that:- regarding demand based on statement, there is no retraction, it is based upon panchnama Even during hearing, nobody has disputed the fact that there was no factory of appellant No. 2/3. This case law is of no help to the appellants in the present case. The fifth case law quoted by ld. Advocate is CCE, Mumbai-V v. Panetrical Engineering Pvt. Ltd. reported in [2006 (3) TMI 170 - HIGH COURT OF JUDICATURE AT BOMBAY]. In this case Bombay High Court has held that whether unit can be treated as manufacturing unit/job worker without having any manufacturing activity and/or any machineries and/or any labourers is a question of fact and there is no question of law involved in this case. In our case undisputedly there is no factory and hence benefit of notification 83/94 cannot be extended to goods produced by appellant No. 1. Appellant Nos. 2 & 3 had no factory and goods were manufactured from raw-material stage and sent to purchasers directly, claiming the goods to be job worked goods, we have no hesitation in our mind that proviso to Section 11A is invokable. Interest under Section 11AB and penalty under 11AC are also upheld for the same reasons - Decided against assessee.

  ---

• 2014 (6) TMI 269
  Area based exemption - State of Uttranchal - Non filing of declaration - exemption under Notification No. 50/2003-C.E. - Held that:- The Notification No. 50/2003-C.E. exempts the goods specified in the first and second Schedule to the Central Excise Tariff Act, 1985, other than those specified in Annexure-I to this notification and manufactured in the industrial areas specified in Annexure-II to the notification from the whole of the duty of excise leviable under Section 3(1) of Central Excise Act, 1944 and the whole of the Additional Duty of Excise leviable under Additional Duty of Excise (Goods of Special Importance) Act, 1957 and also under the Additional Duty of Excise (Textiles and Textile Articles) Act, 1978 - there is no dispute about the fact that till 13-3-2008 there was absolutely no intimation from the appellant company to the Central Excise authorities about their activity. Though they had started making clearances since May 2006 by availing full duty exemption under this notification, no returns were filed regarding the goods manufactured and cleared by availing of this exemption. Had at least such returns been filed, the department would have been in a position to know about their activity. In view of this, we are of prima facie view that the appellant’s plea that they had acted bona fide is difficult to accept. In any case, the question of limitation being a mixed question of fact and the law can be examined in depth only at the time of final disposal. - Conditional stay granted.

  ---

• 2014 (6) TMI 268
  Evasion of duty - Clandestine clearance of goods in the name of closed unit - manufacture of printing and writing paper as well as news print - Exemption Notification No. 6/2001-C.E., dated 1-3-2001 - Held that:- Both the units are situated in adjoining plots. It is also not in dispute that at the time of visit to the factory of M/s. Sikka and M/s. Shamli on 24-4-2003, it is only the M/s. Sikka which was found to be functioning and the unit of M/s. Shamli was found to be totally closed and from its appearance, it appeared that it was not functioning since long. There is no dispute about the fact that M/s. Shamli did not have electricity connection since 3-7-1998. Though M/s. Shamli claim to be manufacturing paper by using the power using diesel generating sets, out of two DG sets each of 380 KVA, only one DG set was found to be functioned, in respect of this also no evidence of purchase of diesel by M/s. Shamli for running of the DG set. The communication dated 18-9-2001 of M/s. Shamli to Assistant Labour Commissioner shows that they had intimated the Assistant Labour Commissioner regarding closure of their unit in September, 2001. After this communication of September, 2001 there is no further communication, which shows that the unit remained closed since September, 2001. It is also seen that M/s. Shamli had deposited their contributions towards employees provident fund in the office of Provident Fund Commissioner only upto February, 2001. It is difficult to believe their claim that their factory was still functioning by hiring contract labour. When no evidence of contract labour having been engaged by them have been produced. Even if the claim regarding supply of waste paper from M/s. Raghav Enterprises is accepted, it cannot be concluded that this waste paper was used by M/s. Shamli, when all other evidence indicate that the same was closed - obviously the waste paper, if any, supplied by M/s. Raghav Enterprises must have been used in the factory of M/s. Sikka. Taking into account the totality of the evidence against M/s. Shamli, we are of the view that the claim that M/s. Shamli was functioning during the period of dispute is difficult to believe, more so, in view of the fact that at the time of officer’s visit to the factory on 24-4-2003 from the condition of the plant it appeared that the factory is closed since long and also there was neither any power connection since July, 1998 no any evidence of purchase of diesel for running DG set or engaging contract labour. Goods which are shown to have been cleared under the invoices of M/s. Shamli, had actually been manufactured by M/s. Sikka and this has been done by M/s. Sikka to wrongly avail of the exemption under Notification No. 6/2001-C.E. Since from the records it is seen that it is Shri Vinay Bansal who was running both the units and it is he who is the brain behind this duty evasion, the penalty has been rightly imposed on him - Decided against assessee.

  ---