TMI Tax Updates - e-Newsletter
June 13, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. TRANSFER OF RIGHT TO USE AND SOFTWARE LICENSING

   By: Srikanth Rao

2. Disallowance of input tax credit on the ground that seller is bogus or cancelled dealer

   By: AMIT BAJAJ ADVOCATE

News

1. Amendment to Rule 6 of the Companies Act

2. RBI Reference Rate for US $ and Euro

3. India and World Bank Sign Agreement for DPL Loan of US $ 100 Million to Himachal Pradesh for Promoting Inclusive Green Growth and Sustainable Development

Notifications

Income Tax

1. 31/2014 - dated 11-6-2014 - IT

Amendment in Notification Number S.O. 709(E), dated the 20th August, 1998.

2. 30/2014 - dated 6-6-2014 - IT

Agreement Between the Government of The Republic of India and The Government of The Principality of Liechtenstein for The Exchange of Information with Respect to Taxes.

Circulars / Instructions / Orders

FEMA

1. 142 - dated 12-6-2014

Transfer of assets of Liaison Office (LO) / Branch Office (BO) / Project Office (PO) of a foreign entity either to its Wholly Owned Subsidiary (WOS) / Joint Venture (JV) / Others in India– Delegation of powers to AD Banks.

Companies Law

2. 19/2014 - dated 12-6-2014

Clarifications on Rules prescribed under the Companies Act, 2013 - Matters relating to share capital and debentures- reg.

3. 17/2014 - dated 11-6-2014

Filling of MGT-10- clarification-regarding

4. 18/2014 - dated 11-6-2014

Clarification for filing of form No. INC-27 for conversion of company from public to private under the provisions of Companies Act, 2013-reg.

5. F. No. 2/6/2014-CL-V - S.O. 1406 (E) - dated 27-5-2014

CORRIGENDUM - Notification S.O. 1177(E), dated the 29th April, 2014.

Highlights / Catch Notes

Income Tax

• Court Rules Out Hybrid Accounting Method for Assessing Income from Deep Discount Bonds and Non-Convertible Debentures.

  Case-Laws - AT : The income of the assessee cannot be assessed on the basis of hybrid method of accounting by following mercantile method for assessing income in respect of DDBs/NCD and the remaining income on the basis of cash method of accounting - AT
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• Interest-Free Loan to Director Not Added as Income Due to Sufficient Company Funds u/s 2(24)(vi.

  Case-Laws - AT : Deletion of perquisite u/s 2(24)(vi) - interest free loan to director - interest free money in the form of entrance fee and membership fee available with the company was more than the advance received by the assessee from the said company - No addition - AT
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• Charitable or educational institutions can claim Section 11 exemption without university or board affiliation.

  Case-Laws - AT : Exemption u/s 11 – Charitable / educational institution - It is not necessary that in order to claim the exemption, the institution should be affiliated to any university or board. - AT
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• Section 12A Registration Upheld: Organizing Seminars Deemed Charitable, Not Commercial Activity for Trusts.

  Case-Laws - AT : Cancellation of registration u/s 12A of the Act – Activity charitable or not – Holding of seminars cannot be termed a commercial or business activity, as the trust was established for the specific purpose - AT
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• Prior Period Expenses Allowed if Bills Received Later; Follow Accounting Standard 5 for Proper Treatment in Accounts.

  Case-Laws - AT : Disallowance of prior paid expenses - prior period expenses can be allowed if bills are received in subsequent year - AS-5 stipulates that such expenditure should be given a particular treatment in the accounts - AT
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• Officer Allocates Director Salary by Company Turnover, Resulting in Disallowed Salary and Commission Expenses.

  Case-Laws - AT : Disallowance out of salary and commission paid – AO was right in proportionate allocation of salary paid to the directors on the basis of turnover of both the companies - AT
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• Appellant society's transfer fee receipts for 2004-05 not taxable under mutuality; no violation of model bye-laws.

  Case-Laws - AT : Taxability of transfer fee receipts – it cannot be said that the appellant society violated the model bye laws in the previous year relevant to AY 2004-05 by not adopting the new model bye laws - not taxable on the ground of Principles of mutuality - AT
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• Keyman Insurance Policy Transfer Before Three-Year Mark Sparks Debate on Tax Evasion and Investment Intent.

  Case-Laws - AT : Keyman Insurance Policy or is an investment policy – transfer of the policy two day before completion of three years in favor of key partner - It is a colourful method adopted to evade tax - AT
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• TDS Defaults Order u/ss 201(1) or 201(1A) Not Barred by Limitation if Issued Within 4 or 6 Years.

  Case-Laws - AT : Time limit for passing an Order - TDS default - order passed u/s 201(1) or 201(1A) cannot be held as barred by limitation if it is passed within 4 years from the end of the relevant AYs or 6 years as the case may be - AT
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Customs

• Court Requantifies Redemption Fine for Imported Car Tires; Re-export Condition Deemed Excessively Harsh.

  Case-Laws - AT : Requantification of redemption fine - import of new Passenger Car Radial Tyres of mixed sizes - Redemption with the condition of re-export is very harsh penalty. - AT
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• CVD on intravenous fluid set at 5% ad valorem, per Notification No. 2/2011-C.E., overrides the 1% rate claim.

  Case-Laws - AT : CVD is leviable on Intravenous fluid @ 5% ad valorem under Notification No. 2/2011-C.E., dated 1-3-2011 and not @ 1% ad valorem under Notification No. 1/2011-C.E., dated 1-3-2011 as claimed by the appellant - AT
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Service Tax

• Court Rules Facility Leasing Doesn't Qualify as Storage and Warehousing Service; Impacts Dealer Transactions.

  Case-Laws - AT : Appellant only owns and leases facilities to the dealers for their use. Keeping in view the nature of transaction the service provided cannot be considered as storage and warehousing service provided by the appellant - AT
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Central Excise

• Supreme Court Grants Tax Exemption for Goods Supplied to Indian Navy Warships, Confirmed by End User Certificate.

  Case-Laws - SC : Goods supplied to Indian Navy - The End User Certificate leaves no manner of doubt that the subject goods were purchased by Material Organisation exclusively for the consumption on board warships of the Indian Navy. - exemption allowed - SC
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• Company's Closure Leads to Approved Refund of Unutilized Cenvat Credit Due to Factory Shutdown and Ceased Operations.

  Case-Laws - AT : Refund of accumulated unutilized Cenvat Credit - closure of the factory - surrender of central excise registration - refund allowed - AT
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• Alovit Cream's Classification Review: Is It a Medicinal Product? Impacts on Tax and Regulatory Compliance Explained.

  Case-Laws - AT : Classification of ‘Alovit Cream’ consisting of ‘Aloe extract 10% w/w, Tocopheryl Acetate I.P. 0.5% w/w and Moisturising cream base - the product manufactured by them is a medicine - AT
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• Court Rules Dealer's Ad Expenses Don't Affect Goods' Excise Value; Reimbursements Don't Alter Assessable Value.

  Case-Laws - AT : Valuation of goods - publicity and advertisement was borne by the dealer at his choice to promote sale that does not mean that assessable value shall be hiked by the extent of reimbursement of part of above expenditure - AT
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• Court Rules Wrapper Weight Counts in Paper Product Quantity for Duty Demand Calculations.

  Case-Laws - AT : Duty demand - determination of quantities of quantity of paper and paper products - whether the weight of wrapper (packing paper and paper board) shall be taken into account to determine the quantity cleared in a financial year - held yes - AT
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Case Laws:

• Income Tax

• 2014 (6) TMI 357
  Claim of exemption u/s 11 of the Act –Educational institution – Held that:- Following The ADIT(Exemptions)-III Versus M/s Vasavi Academy of Education, Hyderabad [2010 (1) TMI 1094 - ITAT HYDERABAD] - if donations are received compulsorily for the admission of students, by whatever name it may be called, i.e. donation, building fund, auditorium fund, etc. over and above the prescribed fee, from the students, the assessee would not be entitled for exemption either under S.10(23C) or under S.11 of the Act – also in T.M.A. Pai Foundations and others Vs. State of Karnataka & Others [2002 (10) TMI 739 - SUPREME COURT] it has been held that the institution which are collecting capitation fees for admission of students over and above the fees prescribed cannot be construed as charitable/education institution - the fees collected over and above the prescribed fee for admission of the student has to be constructed as capitation fee - lower authorities have not examined the collection of capitation fee – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Claim of depreciation – Held that:- Following Jaipur Stock Exchange. Versus Assistant Commissioner Of Income-Tax [2006 (6) TMI 153 - ITAT JAIPUR-A] - depreciation on fixed assets is an allowable deduction, which is necessary to arrive at the income available for application to charitable purpose – thus, the matter is remitted back to the AO for fresh adjudication and he is directed to verify in respect of each asset on which depreciation claimed, whether the value of such asset was in fact allowed u/s 11, and if it was so allowed, the depreciation would not be allowed in respect of such asset – Decided in favour of Revenue. Disallowance of provision for doubtful debts – Held that:- No material is placed by either party regarding the nature of the claim of the assessee - If it is a Balance Sheet item as claimed by the assessee, there cannot be any disallowance on this count - The assessment year order also silent about this, as the addition has been simply made on this account without much discussion – thus, the AO is directed to make any addition, if it is only a Balance Sheet item relating to financial year 2002-03, relevant to AY 2003-04 – Decided in favour of Revenue.

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• 2014 (6) TMI 353
  Disallowance u/s 14A r.w. rule 8D of the Act - Administrative and managerial expenses towards investment activity for earning exempt income – Held that:- Making disallowance at 2% of the exempt income of Rs. 15,76,758/- will meet both ends of justice of the facts – Decided partly in favour of assessee. Disallowance made u/s 40(a)(ia) of the Act - Market support service expenses – Fee for Technical Services (FTS)/Royalty – Held that:- There was no nexus of the expenditure to the clientele of the company who received the payment, qua the services rendered by the employees/contract workers of the company as the case may be – thus, the matter is remitted back to the AO and the AO is directed to examine not only the nature of employment of the persons whose names appear on the tax invoices and the nature of services rendered by them to the so called company – Decided in favour of Assessee. Disallowance made u/s 37 of the Act - Mutual fund scheme expenses – Whether the expenses in excess of 6% can be booked to the accounts of the assessee – Held that:- Section 52 provides and enables the AMC like the present assessee to bear the expenditure in excess of the said 6% limitation - the relief granted by CIT(A) does not call for any interference – Decided against Revenue. Disallowance of foreign travel expenses – Held that:- As decided in assessee’s own case for the previous assessment year, it has rightly been held by the CIT(A) that the disallowance made by the AO on account of foreign traveling expenses and expenses incidental to foreign travel are set aside where no specific adverse material is not in possession of the AO – Decided against Revenue. Disallowance of nontechnical expenses – Held that:- Following Amway India Enterprises Versus Union of India And Another [2003 (5) TMI 55 - KERALA High Court] - there is no specific discussion appearing in the orders of the lower authorities - the orders of the lower authorities cannot be described as speaking order on each of such grounds - the AO is directed to allow the claim of the assessee after due verification of the genuineness and business nexus and also in accordance with the provisions of section 37 of the Act – Decided partly in favour of Assessee.

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• 2014 (6) TMI 352
  LTCG treated as STCG – Sale of deep discount bonds – Claim of deduction u/s 54EC of the Act not allowed - Held that:- The holding period has to be counted form the date of allotment till the date of sale and if the same is more than 12 months then, it has to be accepted that it is a LTCG and the assessee is entitled to deduction u/s 54EC also - the period of holding was more than 12 months from the date of allotment i.e. 23.09.2000 till the date of sale i.e. 18.03.2002, the resulting gain has to be assessed as LTCG and the assessee should be held as eligible for deduction u/s 54EC also because there is no other objection of the revenue regarding allowability of deduction u/s 54EC except that the income in question is not a LTCG – Decided in favour of Assessee. LTCG treated as STCG - Sale of principal strip - Claim of deduction u/s 54EC of the Act not allowed – Held that:- Board’s Circular dated 15.02.2002 is applicable only to DDBs acquired on or after 15.05.2002 and since Judicial Member was also having the same view, the matter was decided in favour of the assessee without referring the same to the Third Member although the Accountant Member was having some reservations about the view of the Judicial Member on some other aspects - Board’s Circular No.2 dated 15.02.2002 is applicable only on those bonds which were acquired on or after 15.02.2002 - the strip of TATA Finance Ltd. were acquired by the assessee on 23.03.2000 i.e. much prior to 15.02.2002, it has to be accepted that the board’s Circular No.2 dated 15.02.2002 is not applicable - the gain has to be assessed as LTCG and the assessee has to be allowed deduction u/s 54EC – Decided in favour of Assessee. Method of accounting – Use of Cash System instead of Mercantile system – Held that:- The method of accounting being followed by the assessee is cash and not mercantile - As per sub-section (1) of Section 145, the assessee can follow either cash or mercantile system of accounting regularly in respect of determination of income chargeable under the head 'profits & gains of the business and profession' or 'income from other sources' - the assessee can very much follow cash method of accounting for the purpose of declaring income in respect of DDBs/NCD if the assessee is regularly following cash method of accounting - No Board's circular can override the provisions of the Act and the Board's circular is not an accounting standard notified by the Central Government in the official gazette as required u/s 145(2) of the Income tax Act, 1961 to make out an exception in respect of Section 145(1) - the assessee is following cash method of accounting - the income of the assessee cannot be assessed on the basis of hybrid method of accounting by following mercantile method for assessing income in respect of DDBs/NCD and the remaining income on the basis of cash method of accounting – Decided in favour of Assessee. Addition of notional accrued interest – Optionally fully convertible premium notes – Held that:- The assessee is following cash system of accounting, the additional ground raised by the assessee has to be allowed because once it is held that the assessee is following cash system of accounting, no income on account of interest of OFCPNs can be taxed in the present year on accrual basis and this is admitted fact that no such interest income was received by the assessee in the present year - the rider that the interest income should be taxed in the year in which the same is received by the assessee - Decided partly in favour of Assessee. Addition of accrued interest – Investment in bonds of Rural electrification corporation – Held that:- In the computation of income, it is specifically stated by the assessee as per note that assessee is following cash method of accounting - From the audited accounts and computation of income filed by the assessee along with the return of income, the method of accounting being followed by the assessee is cash and not mercantile - No Board’s circular can override the provisions of the Act and since the Board’s circular is not an accounting standard notified by the Central Government in the official gazette as required u/s 145(2) of the Income tax Act, 1961 to make out an exception in respect of Section 145(1) – there was no merit in the contention of the AO that even if the assessee is following cash method of accounting, the assessee is bound to follow mercantile method of accounting for the purpose of declaring income from DDBs/NCD - assessee is following cash method of accounting – Decided in favour of Assessee.

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• 2014 (6) TMI 351
  Deletion of perquisite u/s 2(24)(vi) - interest free loan to director - assessee is a Director in Chennai Corporate Club Private Ltd. - Revenue contended that the payment of interest by the assessee to the company was an afterthought and therefore should be ignored. – Held that:- Following VM Salgaocar And Bros. Pvt. Ltd. Versus Commissioner of Income-Tax [2000 (4) TMI 2 - SUPREME Court] - There was no specific error in the findings of the CIT(A) could be pointed out by the Revenue - the interest was actually paid by the assessee in respect of advances received by it from the company for the year under consideration – Revenue only contended that as the interest was paid in subsequent year, so it was an afterthought and therefore should be ignored – the fact that interest was paid on the advance received by the assessee was not denied – thus, there was no error in the findings of the CIT(A) that the loan received by the assessee from the company in question was not interest-free loan, but the same was interest bearing loan - no material could be brought on record by the Revenue to show that any interest expenditure was actually incurred by the company in question for or on behalf of the assessee - interest free money in the form of entrance fee and membership fee available with the company was more than the advance received by the assessee from the said company – thus, there was no reason to interfere with the order of the CIT(A) – Decided against Revenue.

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• 2014 (6) TMI 350
  Allowability of exemption u/s 11 of the Act – Charitable institution - Scope of section 2(15) of the Act – Held that:- The assessee trust has conducted two types of courses which could be broadly classified into two types i.e. one set of courses duly approved and recognized by DG Shipping and the other set of courses which are not approved and recognized by the DG Shipping – Following Commissioner Of Income-Tax, West Bengal VII Calcutta Versus Doon Foundation [1985 (1) TMI 36 - CALCUTTA High Court] - if a society primarily engages itself in educational activities or runs a school or college, it is entitled to claim exemption 10(22) - It is not necessary that in order to claim the exemption, the institution should be affiliated to any university or board. The assessee institution imparting education of banking subjects by conducting tutorial classes, supplying study material, conducting programmes and holding exhibition was an educational institution entitled to exemption u/s 10(22) – the assessee is giving training in the area of Pre Sea and Post Sea to sea men - merely because the courses are not approved by the DG Shipping or merely because there is huge surplus in the non-approved courses than the approved courses cannot be a ground for denial of exemption u/s 11 as long as the Trust is imparting education as per the objects of the Trust – thus, there was no infirmity in the order of the CIT(A) – Decided against Revenue.

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• 2014 (6) TMI 349
  Unutilized CENVAT credit balance – A.O. has treated it as revenue receipt - Held that:- Following CIT Vs Unique Industries [2008 (5) TMI 238 - GUJARAT HIGH COURT] - The assessee treated it as an advance payment of excise duty paid on purchases of raw materials, consumables and capital goods - AO has treated it as revenue receipt but the issue is now fully covered in favour of the assessee - when the purchases are accounted for and debited to P & L account net of such excise duty paid on purchases, MODVAT/CENVAT credit received by the assessee already stand included in the profits of the assessee by way of reduction in purchase price debited to P & L account, thus, it cannot be added again – the order of the CIT(A) cannot be interfered – Decided against Revenue. Deletion of penalty u/s 271(1)(c) of the Act – Disallowance of excess claim of depreciation - Held that:- Penalty was also deleted by CIT(A) the disallowance of deduction u/s 10B which was deleted – Revenue could not point out as to how it is not applicable to the facts of the present case – thus, there was no reason to interfere in the order of CIT(A) in respect of deletion of penalty in respect of any of these three additions/disallowances - on the date of filing of return of income for AY 2005-06, there was no disallowance or addition in AY 2004-05 and the same has happened on 24.12.2006 due to which the brought forward depreciation was reduced – the claim of assessee for brought forward unabsorbed depreciation from the AY 2004- 05, penalty is not justified – thus, there was no infirmity in the order of CIT(A) – Decided against Revenue.

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• 2014 (6) TMI 334
  Cancellation of registration u/s 12A of the Act – Activity charitable or not – Holding of seminars - Held that:- Following Agra Development Authority Versus Commissioner of Income-tax-1 [2013 (8) TMI 549 - ITAT AGRA] because of amendment to section 2(15)w. e. f. 01. 04. 2009 certain changes have been brought about the trusts and in the definition of the phrase charitable activities - certain changes had occurred in the statute when power was given to the departmental authorities to cancel the registration as per the provisions of section 12AA(3)of the Act - DIT(E) can cancel the registration granted to a trust if the activities of the trust or institution are found to be non-genuine or its activities are not in accordance with the objects for which such trust or institution was established. DIT(E) has not given specific finding - Holding of seminars cannot be termed a commercial or business activity, as the trust was established for the specific purpose - DIT(E)has ignored the fact the trust had suffered loss by arranging seminars - Circular issued by the CBDT on 06. 04. 2011 clearly mentions that amendment would be applicable from the AY. 2011-12 and subsequent assessment years - before 01. 06. 2010 registration can be cancelled only on those cases where the registration has been granted under section 12AA(1)(b) of the Act - Before 01. 06. 2010 this section 12AA(3) nowhere empowers the CIT to cancel or withdraw registration u/s 12A of the Act - In absence of such power, the registration granted u/s 12A cannot be withdrawn or cancelled before 1. 6. 2010 - The power of cancellation of registration u/s 12A of the Act came to be incorporated by way of amendment introduced by Finance Act 2010 w. e. f. 01. 06. 2010 - registration was granted in 2004 and was withdrawn for the AY. 2009-10 i. e. before the AY. 2011-12 - as the cancellation is against the provisions of law, it cannot be endorsed – Decided in favour of Assessee.

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• 2014 (6) TMI 333
  Disallowance of claim of unrealized foreign exchange loss – Held that:- Following CIT Versus M/s Woodward Governor India P. Ltd. & M/s Honda Siel Power Products Ltd. [2009 (4) TMI 4 - SUPREME COURT] – loss suffered by the Assessee in respect of a revenue liability, on account of exchange difference as on the date of Balance Sheet, is an item of expenditure allowable u/s 37(1) in the year of accrual - the assessee has been following the accounting system consistently and the same is in accordance with the AS-11 issued by the ICAI – thus, there is no reason to interfere with the order of the CIT(A) – Decided against Revenue. Disallowance of interest u/s 14A of the Act – Held that:- Following CIT Vs. Deepak Mittal [2013 (9) TMI 764 - PUNJAB & HARYANA HIGH COURT] - the onus is placed upon the assessee to prove the quantum of expenditure incurred on earning of tax free income of dividend - as per the provisions of sub. sec (2) of sec. 14A of the Act, the AO is required to examine the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income and if he is not satisfied with the correctness of claim only, he can proceed to determine the amount of expenditure in terms of sec. 14A(2) of the Act - the AO is required to proceed further to collect materials or evidence to determine expenditure, if any, incurred by the assessee – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of Assessee.

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• 2014 (6) TMI 332
  Confirmation of penalty u/s 271(1)(c) of the Act – Adjustment made to returned income - Disallowance of provision on completed/uncompleted contracts – Held that:- What all the assessee is required to demonstrate, more so in the penalty proceedings, is that the estimates are valid and no more, i.e., are sound, based on cogent material – it should be admissible as a cost, on the basis of the percentage of the work completed - the assessee stating to be following the method, as also agree with the matching cost principle – Relying upon Bharat Earth Moers vs. CIT [2000 (8) TMI 4 - SUPREME Court] - the matter cannot be decided on generalized statements or assumptions, but would need to be factually determined, separately qua each provision, even as was done by the tribunal in the quantum proceedings – thus, the matter is required to be CIT(A). Disallowance of software expenses and disallowance of deduction u/s.80-HHB – Held that:- There is no question of any penalty in view of the order by the tribunal in the quantum proceedings deleting the disallowance -even where challenged by the Revenue, i.e., assuming so, its acceptance by the tribunal - the matter posing mixed question of fact and law, would exclude penalty – Decided partly in favour of Revenue.

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• 2014 (6) TMI 331
  Rectification of mistake - Assessee treated as share trader – Held that:- Following Tata Communication Ltd V/s JCIT [2009 (7) TMI 169 - ITAT BOMBAY-G] - when the question was pending before the High Court, it was not right for the assessee to agitate the same or part thereof before the Tribunal by way of Misc. Application – thus, the present Misc. Application filed by the assessee is liable to be rejected – Decided against Assessee.

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• 2014 (6) TMI 330
  Disallowance of depreciation on intangible asset – Goodwill payment made – Held that:- Following India Capital Markets (P.) Ltd. Versus Deputy Commissioner of Income-tax. Range 4(2) Mumbai [2013 (1) TMI 646 - ITAT MUMBAI] - Purchase of the clientele business by the assessee from M/s. AFC is a right which can be used as a tool to carry on the business – Relying upon CIT vs. Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] - goodwill is an asset eligible for depreciation – thus, the assessee is entitled for depreciation on payment @ 25% as claimed by the assessee – thus, the AO is directed to allow the claim made by it for depreciation on intangible asset – Decided in favour of assessee. Disallowance u/s 40(a)(ia) of the Act - Bloomberg terminal charges – Held that:- Following India Capital Markets (P.) Ltd. Versus Deputy Commissioner of Income-tax. Range 4(2) Mumbai [2013 (1) TMI 646 - ITAT MUMBAI] - assessee made the payment for terminal charges for on line information and data base access and retrieval services and therefore, no TDS was required to be deducted as the payment was for a subscription of financial e-magazin - Revenue could not bring any distinguishing facts which can suggest that the payment was liable for TDS - the payment is nothing but a subscription for e-magazine/journal – thus, there was no infirmity in the finding of the CIT(A) – Decided in favour of Assessee. Disallowance u/s 14A r.w Rule 8D of the Rules – Held that:-The Tribunal has restored back the matter of 14A disallowance to the AO for fresh adjudication -the assessee had not maintained separate accounts for exempt and taxable investments, that commons funds were used for making investments, that it had earned exempt income and the provisions of section 14A and rule 8D were applicable in the year - it had sufficient own fund for making investment - But, it was position as on 31st March of the year under appeal and the investments were not made on that day – Relying upon The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - assessee had interest free funds – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee. Disallowance of prior paid expenses – Held that:- If the expenditure incurred in particular year are crystallised in a subsequent year because of certain reasons, same cannot be disallowed only on the ground that assessee is following Mercantile system of Accounting - If assessee is following a particular system of accounting and it is not distorting income, treatment of prior period expenses loses its importance - The allowability of such expenditure in a particular year has to be decided in pragmatic manner – Relying upon COMMISSIONER OF INCOME-TAX Versus KHAITAN CHEMICALS AND FERTILIZERS LTD. [2008 (9) TMI 89 - DELHI HIGH COURT] - from the details of the expenses that certain expenses related to the fees paid to the experts, out of pocket expenses incurred by the consultation firm and discharge of liability on account of demurrage claimed by the port authorities - prior period expenses can be allowed if bills are received in subsequent year - AS-5 stipulates that such expenditure should be given a particular treatment in the accounts - In the audit report, fact of prior period expenses was mentioned as required by the AS-5 - the expenditure incurred by the assessee for the earlier year is an allowable expenditure for the current year – thus, the order of the FAA is reversed – Decided in favour of Assessee.

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• 2014 (6) TMI 329
  Sale of investment in shares – Business income OR STCG – Assessee being as trader or investor - Held that:- The assessee is a partner in M/s. Kamdar & Co., M/s. Mahek Investments, K. Amishkumar & Co., and M/s. Hamsa Trading Co., from where he is deriving share of profit and interest on capital – Relying upon P.M. Mohammed Meerakhan (P.M.) v/s CIT [1969 (2) TMI 4 - SUPREME Court] - it was not possible to evolve any single test or formula which could be applied in determining the transaction as adventure in nature of trade or not - The distinction between the two types of transaction is not always easy to make - Whether the transaction is of one kind or the other depends on the question whether the excess is an enhancement of the value by realizing the security or a gain in an operation of profit making. The assessee might have invested capital in shares with an intention to resale these if in future their sale brings in a higher price - Such an investment though motivated by a possibility of enhancement value, did not necessarily render the investment a transaction in the nature of trade – there was no reason as to why the profit should not be taxed under the head Short term capital gain as returned by the assessee – thus, the order of the CIT(A) is set aside and the AO is directed to tax the profit arising from the sale of shares under the head ‘Short term capital gain’ as shown by the assessee – Decided in favour of Assessee. Disallowance u/s 14A r.w. Rule 8D of the Act – Held that:- The assessee has own capital of Rs. 6.31 crores - Computation of income of the assessee show that the assessee has earned interest at Rs. 44.20 lakhs out of which interest paid claimed as deduction at Rs. 21.36 lakhs - Dividend income received by the assessee is Rs. 7.19 lakhs - Long Term Capital gain is at Rs. 9.19 lakhs and share of profit from firms is at Rs. 36.85 lakhs - These incomes have been claimed to be exempt from tax - Rule 8D is applicable from A.Y. 2008-09 as it has already been decided in Godrej & Boycee Manufacturing Co. Ltd. Vs DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] – thus, the AO is directed to disallowance of 5% of the exempt income – Decided partly in favour of Assessee.

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• 2014 (6) TMI 328
  Validity of CIT(A)’s order –Remand report not supplied - Confirmation of addition of operative and non-operative finance – Addition on the basis of estimates – Held that:- CIT(A) has not supplied the remand report to the assessee - CIT(A) ought to have supplied the remand report to the assessee and after reviewing the comments from the assessee should have decided the appeals – thus, the matter is to be remitted back to the CIT(A) for passing of fresh order – Decided in favour of Assessee.

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• 2014 (6) TMI 327
  Eligibility for exemption - Approval u/s 10(23C) of the Act could not produce – Educational institution – Held that:- The order of the CIT(A) in granting exemption to the assessee in respect of its income under S.10(23C) of the Act is based on her decision in assessee’s own case - during the course of appellate proceedings for that year, the assessee has filed before the CIT(A), copy of the approval obtained by it from the prescribed authority u/s 10(23C) of the Act, and based on such approval, exemption was granted to the assessee for that year - no material has been brought on record to substantiate the contention – thus, there was no infirmity in the order of the CIT(A) – Decided against Revenue. Validity of reopening of assessment - Proceedings initiated after four years – Held that:- Assessee contended that reopening could be held to be valid, only if it is found to be for the failure on the part of the assessee to disclose the fully and truly all the material relevant for completion of the assessment - reopening of assessment has been done, as it came to notice from the AIR information that the assessee has acquired RBI Bonds worth Rs.2 crores - But for this reason stated in the notice of reopening of assessment, there is no discussion whatsoever in that regard in the assessment order, much less any addition made in that behalf - there is no new material which has come to the hands of the AO, so as to initiate the proceedings for reopening of the assessment - Relying upon CIT V/s. Kelvinator India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - the decision has no application to the facts of the present case – thus, the order of the CIT(A) is set aside and reopening of the assessment in the case is neither legal nor valid – Decided in favour of Assessee.

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• 2014 (6) TMI 326
  Treatment of income - Receipt from property given on rent – Claim of expenses - Held that:- There is no evidence of any commercial activity carried on by the assessee - the company merely received rent in its capacity as owner of the property - it cannot be said that letting out would amount to commercial exploitation of the property - the income received by the assessee is assessable under the head “Property Income” – thus, there was no infirmity in the order passed by the CIT(A) with regard to treatment of the income - there is no other activity carried on by the assessee and no intention is shown by the assessee to carry on any business - the fresh claim does not deserve any favourable consideration – thus, the order of the CIT(A) is upheld – Decided against Assessee.

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• 2014 (6) TMI 325
  Disallowance out of salary and commission paid – services provided by the Directors to two companies - Expenses only for the purpose of business – Held that:- The defence taken by the assessee company with regard to the disallowance was that the salary and commission given to the directors were within the limit prescribed under the Companies Act i.e. u/s 309 - the salary is disallowed by the AO on the basis that such expenditure was not debited to profit and loss account of its sister concern and is excessive or unreasonable while comparing with the assessee company and thus erred in adopting Premier Hollowers as yardstick. The rendering of has not been denied at any stage - the directors were also incurring the travelling expenditure to travel between the assessee company and M/s Premier Hollowers Pvt ‘s office - it is a matter of fact that the directors have rendered the services to M/s Premier Hollowers Pvt Ltd. and also no salary has been debited on account of remuneration payable to these directors in the books of account of M/s Premier Hollowers Pvt Ltd. - If it is so then those directors have also worked for M/s Premier Hollowers Pvt Ltd and salary paid to them cannot be said to be exclusively have been paid for the services rendered by them to the assessee company - the AO was right in proportionate allocation of salary paid to the directors on the basis of turnover of both the companies – thus, there was no infirmity in the order of the CIT(A) – Decided against Assessee.

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• 2014 (6) TMI 324
  Transfer pricing adjustment – International transaction of software development research and other services rendered – Held that:- Selection of comparables – Functionally not comparable – Held that:- The assessee’s objections regarding the comparables have not been properly dealt with - the matter pertaining to the above may be sent back to the file of the TPO to consider the issue fresh - the assessee agreed to this proposition – the direction should be given to the TPO that where necessary segmental data are not available the same may be obtained by issuing direction u/s 133(6) and if the comparables are found functionally not comparable, the same may be rejected – thus, the matter is required to be remitted back to the TPO for fresh adjudication – Decided in favour of Assessee. Assessee has elaborately submitted that TCS is engaged not only in software development services but also sale of products, assurance services, cloud consulting, industrial services etc. -The turnover of TCS was Rs. 2,245 crores as against Rs. 31.86 crores of the assessee - There were related party transaction of 59% as against assessee 25% which were engaged in diverse functions - the objections by the assessee are glaring and the same needed to be addressed cogently by the TPO and the DRP - even administrative orders have to be consistent with the law of natural justice - the comparable TCS should be rejected from the list of comparables on both the ground that the same was not functionally comparable as well as the fact that assessee’s objections were not at all addressed – Decided in favour of Assessee.

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• 2014 (6) TMI 323
  Admissibility of appeal as per Rule 19 of the ITAT Rules, 1963 - Held that:- Following CIT vs Multiplan (India) Pvt. Ltd. [1991 (5) TMI 120 - ITAT DELHI-D] - issuance of notice under Rule 19 itself does not make the appeal admissible - Non-attendance makes the appeal defective and the assessee has to correct the same by giving proper address - the appeals are to be held as unadmitted with a liberty to assessee to move appropriate application and explaining the reasons for its non-appearance if so advised and pray for a recall of the order and adjudication on merits – Decided against Assessee.

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• 2014 (6) TMI 322
  Denial of exemption u/s 10(38) of the Act – LTCG on sale of shares – Sale consideration treated as undisclosed sources – Held that:- It does not emerge as to what is the exact allegation to assess the income of the assessee - CIT(A) has raised list of objections against assessee but it has not been disputed that the objections were not communicated to assessee during hearing of first appeal – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of Assessee.

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• 2014 (6) TMI 321
  Taxability of transfer fee receipts – Principles of mutuality – Held that:- Mittal Court Premises Co-operative Society Ltd. Versus Income-tax Officer [2009 (7) TMI 689 - BOMBAY HIGH COURT] - the principle of mutuality would not cease on account of charging of excess amount - the clarification issued by Govt. of Maharashtra now also states that for Cooperative societies it was mandatory to adopt the new model bye laws w.e.f 13/3/2009 only - it was not mandatory for appellant to adopt model bye laws nor was any ceiling placed in the original bye laws of the appellant society - Payments were made under the bye laws of the society which constituted a contract between society and its members and if any amount was received more than what was chargeable under the bye laws, then only the principle of mutuality would be lost - it cannot be said that the appellant society violated the model bye laws in the previous year relevant to AY 2004-05 by not adopting the new model bye laws and not amending the bye laws restricting the amount of transfer fee which could be charged by the society. The limit of Rs.25,000/ - as per notification dated 9/8/2001 is applicable to all kinds of cooperative societies including the plot owner society also - the new model bye laws became mandatory w,e.f 13/3/2009 only till 13/3/2009 it will not lead to any violation of principles of mutuality or any law of govt. until the society has amended its bye laws and placed restriction clauses in its bye laws limiting the transfer fee prior to 13/3/2009 - a member is not prohibited from gifting any amount to the society for the objects of the society - the principle of mutuality would not cease on account of those aspects - authorities under the Co-operative Societies Act and Rules, if any action is taken, may direct an additional amount to be refunded. The principle of mutuality shall apply to Society on facts and circumstances of the case even if the notification was held to be applicable for plot owner's society and accordingly the addition of transfer fees as income from other sources is not sustainable - the FAA has considered the issue in detail – thus, there is no reason to interfere in the order – Decided against Revenue.

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• 2014 (6) TMI 320
  Recall of order – Held that:- Following Commissioner of Income-tax Versus Jolly Polymers [2012 (4) TMI 398 - GUJARAT HIGH COURT] - the appeal is allowed to be in favour of the Department, where the assessee has already applied before 31/03/2004, and such license were granted shortly thereafter - the date of application for Factory license was not emerging from the record, the matter is bound to be remitted back to the AO for verification of such fact and to decide the assessee’s case on the basis of findings given in the judgment – thus, the order is recalled and Registry is directed to fix the hearing of the appeal in due course – Decided in favour of Revenue.

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• 2014 (6) TMI 319
  Nature of expenses – Revenue or not - Amount of repairs and maintenance expenses and furniture and fixtures – Held that:- Following Deputy Commissioner of Income Tax Versus M/s. Satguru Infocorp Services Pvt. Ltd. [2014 (6) TMI 170 - ITAT MUMBAI] - CIT(A) has rightly stated that considering the total block of furniture and fixtures, the repairs and maintenance expenditure could not be stated to be unreasonable, particularly when the furniture and fixtures were being used for business centre - furniture and fixtures at business centre require inherent higher maintenance expenditure as business centre are used by a large number of people for commercial purposes resulting in higher wear-and-tear of the furniture etc. – Relying upon CIT v/s A.M. Sanghvi [2007 (8) TMI 265 - RAJASTHAN HIGH COURT] - even if the substantial amount is spent on repairs and renovation of office premises taken on rent, it is to be allowed as revenue expenditure because no capital asset is acquired by the assessee – thus, the order of the CIT(A) is upheld – Decided against Revenue.

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• 2014 (6) TMI 318
  Nature of policy - Keyman Insurance Policy or is an investment policy – transfer of the policy two day before completion of three years in favor of key partner - Maturity proceeds of insurance policy treated as taxable - Held that:- Following M/s. F.C. Sondhi & Co. (India) Pvt. Ltd. v. DCIT, Range-1, Jalandhar [2014 (6) TMI 39 - ITAT AMRITSAR] - policies are for the investment plan and are having guaranteed return and the premium paid by the assessee company to such Insurance Company after deducting for mortality cover and other administrative charges are to be put into investment plan as selected by the assessee company as far as the policies taken from ICICI Prudential are concerned –"Keyman Insurance Policy", a person purchasing life insurance can only do so to the extent of his insurable interest in the assured. CIT(A) was of the view that the assessee-firm has taken policy, which is Unit Linked Insurance Plan, an Investment Plan, the purpose of which is guaranteed returns on the premium amount through investment in Units and Unit Linked Insurance Plan for which the premium is paid though wrongly claimed as an expenditure, which is not allowable as an expenditure - The Circular of IRDA has clarified the position and the arguments made by the ld. counsel that it is prospective in nature, cannot be accepted since the circular is clarificatory in nature - it is not a 'term Assurance Policy Plan" as per IRDA guidelines - A nominal amount is being charged for mortality charges for life cover and balance amount has been deployed to purchase Units as per assessee's choice. The claim shows that policy has not completed three years but in the present case the Policy has completed three years and the AO has rightly held that due to malafide intention of the assessee to evade payment of tax which has transferred two day before completion of three years - the assessee did not pay premium due on 31.03.2008 which shows that he intended to encash policy after completion of three years - there is assignment of policy for malafide purpose - the sum received under the policy is taxable in the hands of receiver of the sum - Since the firm could surrender policy at any time after retaining it atleast for three years - the assessee did not pay next premium due on 31.03.2008 - they intended to encash the policy immediately after completion of three years, which was encashed in its own hands and accordingly a circuitous route was adopted for fulfilling the requirement of the funds on one hand and not paying tax due on the other and - It is a colourful method adopted to evade tax as it was held in McDowell & Co. [1985 (4) TMI 64 - SUPREME Court] - CIT(A) has ignored all the facts and accordingly the order of the CIT(A) is set aside – Decided in favour of Revenue. Claim of expenses out of income from Business and profession – Held that:- CIT(A) was of the view that the assessee was engaged in the business of commodity trading which is mainly done by sitting in the office on telephone and directly linked to earning of income and in view of all other expenses, there was no infirmity in the order of the CIT(A) who has rightly restricted the disallowance at 10% - Decided against Revenue.

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• 2014 (6) TMI 317
  Transfer pricing adjustment – Corporate additions – Determination of Arm’s Length Price – Payment of Royalty - Held that:- The assessee is a licensed manufacturer of its products in its own right using the technology provided by the parent company i.e. Keihin of Japan - the assessee’s PLI is within the plus minus range of 5% - The PLI calculated by the TPO is OP/TC (Assessee) 6.22%, whereas PLI of the comparable calculated by the TPO is OP/TC of the comparable is 8.29% - The plus minus range of the comparable would be plus minus 8.29% i.e. from 3.29% to 13.29% and it is but obvious that the assessee’s PLI of 6.22% falls within the range - the plus minus 5% range has to be with reference to international transactions with the AE only and in view of the same as the difference between the two as calculated by TPO is 8.29% of the comparables and 6.22% of PLI of the assessee, That being within the plus minus range of 5% (3.29% to 13.29%), obviously no adjustment should have been mad – thus, the orderof the CIT(A) is upheld – Decided against Revenue. Relying upon CIT Versus EKL APPLIANCES LTD [2012 (4) TMI 346 - DELHI HIGH COURT] - the payment of running royalty is on revenue account - the Royalty was being paid from 1997 and was continuously examined by the AO, then in the absence of any new facts to hold that there was no need to pay the royalty was uncalled for – Decided against Revenue. Disallowance made u/s 40A(2)(b) of the Act – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that, various facilities such as rent, electricity, water, generator expenses and also providing manpower etc. A.O. made his own estimates and held the expenditure to excessive & unreasonable - The availing of facilities is not in dispute - this issue was decided in favor of the assessee holding that there was no excessiveness or unreasonableness qua this expenditure – there was no infirmity in the order of CIT (A) that AO has not brought any cogent material on record to come to a conclusion that this expenditure is excessive or unreasonable – Decided against Revenue.

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• 2014 (6) TMI 316
  Validity of reopening of assessment u/s 147 of the Act – Held that:- The AO has rightly reopened the assessment and the action of the CIT(A) in confirming the same is also proper – thus, there is no infirmity in the issue of notice u/s 148 of the Act – Relying upon Ess Kay Engineering Co. (P) Ltd. Vs. CIT [1997 (7) TMI 114 - SUPREME Court] - the reopening initiated by the AO is upheld – Decided against Assessee. Disallowance of expenditure incurred for license fee for the use of SAP in the company and other communication expenditure – Held that:- As it is one time expenditure and grant of licence is tied up to the payment made by the user, the same shall be allowed as revenue expenditure -CIT(A) has rightly came to a conclusion that expenditure is revenue in nature but that of deferred revenue - The expenditure is revenue in nature and AO has rightly considered as such at the time of original assessment – thus, the order of the CIT(A) is modified - AO is directed to allow entire expenditure as claimed – Decided partly in favour of Assessee. Disallowance of the claim u/s 35(2AB) of the Act – Held that:- The statutory formalities for getting approval u/s 35(2AB) are that application in Form No. 3CK and 3CL are to be submitted and an order of approval has to be obtained in Form No. 3CM from the prescribed authority - the assessee has not furnished Form No. 3CM for claiming weighted deduction u/s 35(2AB) - The AO has allowed this claim earlier without examining the allowability in the absence of certificates - there is justification for reopening of assessment – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO with a direction to allow weighted deduction u/s 35(2AB) as and when the assessee receives the approval under Form No. 3CM from the prescribed authority – Decided in favour of Assessee. Disallowance made u/s 35(1)(ii) of the Act - Claim made for weighted deduction – Held that:- The assessee filed list of payments i.e. payees list consisting of various Universities and Institutions for purpose of testing and sample note for approval from Central Rice Research Institute, Cuttack has been produced –revenue contented that the directions should be given to verify whether approval has been in accordance with the guidelines prescribed in Rules 5C and 5D or notified by the Central Government on proviso to Clause (2) – thus, the matter is remitted back to the AO to grant weighted deduction after verifying whether the approval has been obtained by the Universities/Institutions to whom payments have been made. Disallowance u/s 80HHC of the Act – Held that:- CIT(A) was of the view that deemed export sales are duly certified by the concerned agencies and fully documented – they are to be treated as part of the export turnover – there was no infirmity in the order of the CIT(A) – thus, the AO is directed AO to modify the calculation u/s 80 HHC after including the deemed export sales as part of export turnover. Claim of bad debts – Held that:- Following TRF Ltd. V. CIT, [2010 (2) TMI 211 - SUPREME COURT] - after the amendment of section 36(1)(vii) of the Act, w.e.f. April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable, it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee – Decided against Revenue.

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• 2014 (6) TMI 315
  Time limit for passing an Order u/s 201(1) or 201(1A) of the Act - TDS default - Assessee contended that order passed by the AO is barred by limitation as the order has not been passed within a period of 4 years from the end of the relevant - Held that:- Following ITO v. Delhi Development Authority [2001 (11) TMI 6 - SUPREME Court] - order u/s 201(1) is to be treated as an order of assessment as per section 2(8) “assessment includes reassessment", then it becomes manifest that the time-limit for initiating and completing the proceedings u/s 201(1) has to be at par with the time-limit available for initiating and completing the reassessment, more so when the scope of section 147 also ropes in the cases of assessment apart from reassessment - order passed u/s 201(1) or 201(1A) cannot be held as barred by limitation if it is passed within 4 years from the end of the relevant AYs or 6 years as the case may be - the order passed u/s 201(1) and 201(1A) is not barred by limitation and the same is valid, therefore, to that extent the CIT(A) is not correct in annulling the order passed u/s 201(1) and 201(1A) of the Act - even though the orders are passed beyond four years from FY 2003-04 and 2004-05, but within six years from the relevant financial year – Decided in favour of Revenue.

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• Customs

• 2014 (6) TMI 338
  Penalty u/s 112 - Goods seized from train - proceedings against the lease holder of the Shatabdi Express train - nobody claim the ownership of 70 packets of foreign origin mobile phones which were defaulted in terms of Import Policy - Held that:- appellant is a lease holder of Shatabdi Expres train for a period of 3 years. It is also not disputed by the appellant that the goods were booked by him on 23.6.11. However, as he was unable to give the complete address of Shri Guddu Pandey, who had got the goods booked, the adjudicating authority has observed that the appellant was in knowledge of the fact that booked goods were in the nature of smuggled goods and were illegally imported into India. As such, he has imposed penalty upon him. The finding arrived at by the adjudicating authority are in the nature of inference. He has concluded knowledge on the part of the appellant on the ground that he granted/created fabricated and fake consigner / consignee for illegal transportation of smuggled goods with intent to mis-guide the customs officer. However, I find that there is no evidence available on record to show that the appellant who admittedly booked the goods in question is the lease holder of the train, was having any knowledge about the contents of the packets. As per the appellants he was not aware of the complete address of Guddu Pandey. As such, Shri Guddu Pandey was to take delivery of the goods himself at Kanpur Railway Station. From the said fact itself, it cannot be held that the appellants was aware of the facts of being tainted goods. Apart from the fact that appellant took the consignment in question as the lease holder of Shatabdi train, there is virtually no evidence to show that he was aware of the contents of packets or tainted character of the same. - Penalty set aside giving benefit of doubt - Decided in favour of appellant.

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• 2014 (6) TMI 337
  Requantification of redemption fine - import of new Passenger Car Radial Tyres of mixed sizes - import in contravention of the provisions of the Pneumatic Tyres and Tubes for Automotive Vehicles (Quality Control) order, 2009 issued under Section 14 of the Bureau of Indian Standard Act, 1986 - Revenue contends that that the BIC certificate was valid only upto 31.12.2012 and had expired - Commissioner (appeals) observed that, even if the import of some of the Tyre was contrary to the Order, 2009, the appellant is entitled to redemption thereof on payment of appropriate Redemption Fine adjudged by the learned Additional Commissioner in terms of the provisions of Section 125 of the Customs Act, 1962. Redemption with the condition of re-export is very harsh penalty. - the adjudicating authority has travelled a bit too far in the matter & his order regarding re-export order of imported goods is arbitrary. The imposed goods are restricted but that does not mean that they cannot be allowed to be brought in India at all. Held that:- The issue stands dealt by Commissioner (Appeals) in details and he has passed the impugned order by following the precedent decision of the Tribunal. As regards quantum of redemption fine, the Revenue has not shown as to how the quantum of redemption fine of Rs. 8 lakhs imposed on the appellant is on the lower side. Revenue has also not referred to margin of profit. I find that Commissioner (Appeals) adopted the same quantum of redemption fine as was imposed by the original adjudicating authority and has simplicitor converted the impugned order of re-export into home consumption for clearance. - Decided against Revenue.

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• 2014 (6) TMI 336
  Maintainability of appeal - Time period of filing appeal - Held that:- goods have been assessed to duty on 09/06/2009 and the assessment order was passed on that date. It is an entirely different matter that the appellant paid the duty subsequently and got the goods cleared after examination by the Customs and out of charge order was issued on 17/06/2009. appeal has to be filed within 60 days from the communication of the assessment order. In the present case it is not in dispute that the assessment order was passed and communicated on 09/06/2009. Therefore, the time limit for computing the appeal period has to be counted from 09/06/2009 which is the date of communication of the assessment order and not from 17/06/2009 when the out of charge order was passed. - it is seen that there Was no re-assessment done after examination. From the Section 128, it is clear that the assessment was complete on 09/06/2009 though payment of duty, examination of the goods and out-of-chargewas done later - Following decision of Singh Enterprises vs. Commissioner of Central Excise, Jamshedpur cited [2007 (12) TMI 11 - SUPREME COURT OF INDIA] - Decided against assessee.

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• 2014 (6) TMI 335
  Levy of CVD - effective rate of CVD equal to excise duty - Notification No. 1/2011 and 2/2011-C.E - rate of duty - whether the Excise duty rate prescribed for goods falling under Chapter Heading Nos. 5004 and 5005 subject to the condition that no credit of duty on inputs and capital goods have been taken under the provisions of Cenvat Credit Rules, 2002, could be applied for the levy of CVD in respect of imports of the said goods - Held that:- benefit of 1% ad valorem is available subject to the condition of non-availment of CENVAT credit of the duty paid on inputs or the tax paid on input services under Cenvat Credit Rules, 2004. Unless this condition is satisfied, the benefit of 1% of duty cannot be granted. The question of taking CENVAT credit under the CENVAT Credit Rule, 2004 does not arise in the case of imported goods and, therefore, this condition cannot be satisfied in respect of imported goods. Hence, the imported goods will not be eligible for the benefit of duty exemption under this Notification. CVD is leviable on Intravenous fluid @ 5% ad valorem under Notification No. 2/2011-C.E., dated 1-3-2011 and not @ 1% ad valorem under Notification No. 1/2011-C.E., dated 1-3-2011 as claimed by the appellant - Decided against assessee.

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• Service Tax

• 2014 (6) TMI 356
  Demand of service tax - suo moto credit - Amount charged for arranging visa for their clients - Business Auxiliary Service - cancellation of tickets - Held that:- activity is not covered by any of the clauses of the definition of Business Auxiliary Service as given in Section 65 (19) of the Finance Act, 1994, therefore, we hold that this activity is not taxable under Business Auxiliary Service during the period of dispute and, hence, the demand of service tax on this amount is not sustainable. Cancellation charges are collected from the persons booking the air ticket and this is not the amount received from the appellant s client the airlines. It is not disputed that in respect of cancelled tickets, the airlines do not give any commission whatsoever to the appellant. In view of this, we hold that no service tax would be payable under Section 65 (105) (l) of the Finance Act, 1994 on the cancellation charges which are a part of the airfare received by the appellant from the persons booking the air ticket who, subsequently, had cancelled the same. Moreover in any case, in terms of exemption Notification No. 22/97-ST dated 26/06/97 the amount received by the air travel agent, which is in excess of the commission received by him from the airline for the booking of passage for travel by air, was exempt from service tax and in terms of this exemption notification no service tax would be leviable on the cancellation charges. - Decided in favour of assessee. As regards, the suo moto credit of service tax paid in respect of cancellation of tickets, we find that this issue stands decided in favour of the appellant by the judgment of Hon’ble Punjab & Haryana High Court in the case of CCE & ST, Jalandhar vs. Janta Travels (P) Ltd. (2008 (8) TMI 187 - PUNJAB AND HARYANA HIGH COURT) and, hence, the impugned order on this issue is not sustainable. - Decided in favour of assessee.

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• 2014 (6) TMI 355
  Waiver of pre deposit - demand of service tax on GTA services from recipient of services being proprietary concern - Held that:- some more leniency ought to have been shown to the appellant in the matter. Accordingly, taking into consideration the factual issues involved in the matter, we are of the opinion that interest of justice will be served by directing the appellant to pay only an amount of Rs.35 lakhs instead of Rs.70 lakhs as directed by the Tribunal. - stay granted partly.

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• 2014 (6) TMI 354
  Denial of rebate claim - notification no.11/2005-ST dated 19.4.2005 - Export of business auxiliary services - Held that:- In both the cases, the rebate claims under notification no.11/2005-ST issued under Rule 5 of the Export of Service Rule, 2005 have been rejected, In both the cases, though in course of proceedings before the Commissioner (Appeals) the agreements of the appellants with their foreign clients had been produced, the finding of the Commissioner (Appeals) is that the service rendered cannot be classified as Business Auxiliary Service and also the same cannot be treated as Export of Service. Ongoing through the agreements of the appellants with their foreign clients, M/s. Secheron SA, Switzerland and M/s. Gimota AG, Switzerland, we find that function of the appellant is promoting the sales of their client s products in India, conducting market survey and, if required, conducting inquiries with regard to solvency and reliability of the clients and besides this, they are also required to provide after-sale warranty service in testing, etc. on behalf of their foreign clients to the buyers in India. These services are covered by the definition of Business Auxiliary Service as given in Section 65(105)(zzb) read with Section 65(19). Services provided by the Appellants have to be treated as export of service, the appellant would be entitled for rebate of service tax paid on the same in terms of notification no.11/2005-ST issued under Rule 5 of the Export of Service Rules, if the procedure prescribed in this notification has been followed and the conditions prescribed therein are fulfilled. The Assistant Commissioner has not gone into this aspect. In view of this, the impugned orders are set aside and the matters are remanded to the original adjudicating authority for examining the rebate claims in terms of the notification no.11/2005-ST issued under Rule 5 of the Export of Service Rules. - Decided in favour of assessee.

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• 2014 (6) TMI 348
  Demand of service tax - service of storage and warehousing - Held that:- "storage and warehousing" includes storage and warehousing services for goods including liquids and gases but does not include any service provided for storage of agricultural produce or any service provided by a cold storage" - all the operations of the outlets are under the control of the dealers and not of the appellant. It is not as if the dealers bring their goods to the appellant for storing or warehousing and thereafter clear the goods so stored. Appellant only owns and leases facilities to the dealers for their use. Keeping in view the nature of transaction the service provided cannot be considered as storage and warehousing service provided by the appellant - Decided in favour of assessee.

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• 2014 (6) TMI 347
  Goods transport agency service (GTA) - Abatement of 75% as per Notification 32/2004 - endorsement not on the transport document or consignment - Held that:- appellant availed goods transport agency service and paid the Service Tax as per the Service Tax Rules, 1994 as service recipient. Although there is no endorsement on the consignment that the transporter has not availed Cenvat credit but it is implied that when the transporter has not paid any Service Tax, question of availment of input/input Service Tax credit does not arise. In view of these observations, we do not find any merit in the impugned order. Therefore, impugned order is set aside - Decided in favour of assessee.

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• 2014 (6) TMI 346
  Waiver of pre deposit of refund allowed - refund of amount of Cenvat credit availed on input/input services used in the manufacture of final products - the words ‘used in’ has been substituted by the words ‘used in or in relation to’. - Held that:- issue is no more res integra due to amendment carried out to Notification No. 5/2006-C.E. (N.T.) by the Finance Act, 2010, Clause 74 and is also covered by the judgment of this Bench in the case of Naval Overseas Pvt. Limited (2011 (5) TMI 326 - CESTAT, AHEMDABAD) - Decided in favour of assessee.

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• Central Excise

• 2014 (6) TMI 345
  Goods supplied to Indian Navy - consumption on board vessel - End User Certificate - Valid or not - Notification No. 64/95-CE - Held that:- Subject goods were supplied by the respondent as stores for consumption on board vessel of the India Navy cannot be said to be legally flawed. END USER Certificate is not applicable only for the purpose of Clause 21 of Exemption Notification 64/95 Central Excise and not in respect of Clause 3. The End User Certificate leaves no manner of doubt that the subject goods were purchased by Material Organisation exclusively for the consumption on board warships of the Indian Navy. This satisfies the twin requirement of Clause 3. - Decided against Revenue.

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• 2014 (6) TMI 344
  Waiver of pre deposit - Alternate remedy - Maintainability of appeal - Held that:- Proper remedy of the petitioner is to avail the statutory remedy by way of appeal and as such, this writ petition is not maintainable - petitioner is granted a further period of 'six' weeks from the date of receipt of a copy of the judgment to effect the pre-deposit, as ordered by the appellate Forum, upon which the appeal preferred by the petitioner shall be considered and entertained on merits. The recovery proceedings shall be kept in abeyance till such time - Decided conditionally in favour of assessee.

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• 2014 (6) TMI 343
  Refund of accumulated unutilized Cenvat Credit - closure of the factory - surrender of central excise registration - Held that:- the refund of the appellant does not fall under any of the rules and that there are no express or implicit provisions in the Central Excise Act and Cenvat Credit Rules for grant of refund of Cenvat Credit balance lying unutilized at the time of closure of the unit. - The findings of the first appellate authority is in variance of law as has been settled by the Hon’ble High Court of Karnataka in the case of Union of India Vs. Slovak India Trading Co. Pvt. Ltd. [2006 (7) TMI 9 - HIGH COURT OF KARNATAKA (BANGALORE)] wherein it was held that, "There is no express prohibition in terms of Rule 5. Even otherwise, it refers to a manufacturer as we see from Rule 5 itself. Admittedly, in the case on hand, there is no manufacture in the light of closure of the Company. Therefore, Rule 5 is not available for the purpose of rejection". - This decision was followed by the Honble High Court of Bombay in the case of CCE, Nasik Vs. Jain Vanguard Polybutylene Ltd. (2009 (6) TMI 790 - CESTAT, MUMBAI) Judgment of the Hon’ble High Court of Karnataka in the case of Union of India Vs. Slovak India Trading Co. Pvt. Ltd. (supra) was cited before the Larger Bench and it was taken note of, but no reasonings have been recorded as to why the said judgment of the Hon’ble High Court of Karnataka was not applicable in the similar / identical situations. In my view, the judgments of the Hon’ble High Court of Bombay and Karnataka will have to be followed by the Tribunal in an identical / similar situation. In the case in hand, I find that the issue involved is identical to the issue which was before the Hon’ble High Court of Bombay and Karnataka. - Decided in favour of assessee.

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• 2014 (6) TMI 342
  Classification of goods - classification of ‘Alovit Cream’ consisting of ‘Aloe extract 10% w/w, Tocopheryl Acetate I.P. 0.5% w/w and Moisturising cream base, manufactured by the appellant, M/s. Ciens Laboratories i.e. whether under CETH 3003.10 as ‘P or P Medicines’ or under CETH 3304 as ‘Skin Care Products’ - Held that:- From the technical literature available on the subject matter by way of ‘Martindale - The Complete Drug Reference’, U.S. Pharmacopeia, the expert opinion tendered by Shri M.K. Pradhan, it is seen that ‘aloe extracts’ has therapeutic properties and has been used in various treatments especially in ayurvedic and homeopathic treatments for treatment of skin disorders such as psoriasis, eczema, hyperpigmentation, etc. The product literature and product packing clearly indicates that ‘Alovit Cream’ is for use in treatment of skin diseases mentioned above and the product has to be used after consultation with the Doctor. The certificates issued by various Skin Specialists also clearly indicates that ‘Alovit Cream’ is prescribed as a drug for treatment of skin diseases. The licence issued by the Drug Control authorities also shows that the product is a drug. In the light of these evidences submitted by the appellant, it is clear that the product merits classification as ‘P or P’ medicine under CETH 3003.10. As against these evidences adduced by the appellant, the Revenue has not made any attempt, either to counter these evidences or to canvas their classification under CETH 3304 that the product is predominantly used as skin care product - no evidence was led by the appellants in those cases to establish that the products manufactured by them were medicines. In the case before us, there are specific and compelling evidences by way of technical literature, expert opinion, Doctor’s certificates and product literature adduced by the appellant in support of their contention that the product manufactured by them is a medicine - Decided in favour of assessee.

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• 2014 (6) TMI 341
  Valuation of goods - reimbursement of part of advertisement expenses - difference between transit insurance recovered from buyers and insurance paid - interest paid to financial institutions against bill discount - Turnover tax - Writing off calls for reversal of Cenvat credit of the entire amount - Cenvat credit on First-aid Kit - held that:- Relevancy of such cost to manufacture was not brought out by Revenue. Therefore, it is not possible to hold that such expenses shall be integral part of cost of manufacture. Accordingly the facts and circumstances of the case read with Para 4 of adjudication order clearly brings out that publicity and advertisement was borne by the dealer at his choice to promote sale that does not mean that assessable value shall be hiked by the extent of reimbursement of part of above expenditure. Cost which makes the goods movable from factory is to only form part of the assessable value of goods cleared. Therefore, excess if any remains after payment of transit insurance is beyond scope of Central Excise Act, 1944 to be included in assessable value which may be subject matter of Income-Tax. Wherever a seller finds working capital crunch, financing facility is extended by bankers to accommodate the seller to realise their price on presentation of the bill. Wherever the seller is able to realise sale price on spot such facility is not resorted to. Therefore, addition of interest paid on bill discounting shall result in anamoly and arbitrary taxation for which such expenditure needs to be excluded from assessable value. Adjudication finding does not show whether there was discrepancy between average tax incidence paid and actual tax liability payable was examined by the authorities below. So also the modus operandi followed by the appellant was not examined to find out the truth. Therefore, making finding by Tribunal at this stage is premature. Hence, this aspect is remanded to the learned Adjudicating Authority. - Decided in favour of assessee.

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• 2014 (6) TMI 340
  Duty demand - determination of quantities of quantity of paper and paper products - whether the weight of wrapper (packing paper and paper board) shall be taken into account to determine the quantity cleared in a financial year - Denial of Exemption under Notification 6/2001-CE (S. No. 86) dated 01-03-2001 and Notification 06/2002-CE (S. No.86) dated 01-03-2002 - Difference of opinion - Majority order - Held that:- appellants have not disclosed gross weight and net weight in respect of each packet of the paper in any of the documents occasioning clearance during material period. Normally when a container contains contents, the gross weight and net weight are exhibited on the container. In the present reference weight of contents and container was not exhibited conspicuously. Weights and Measures Act has adopted the rationale of gross weight and net weight for cons umer protection and declaration of MRP. This is to save the consumer from exploitation. When the appellants did not challenge manufacture of the wrapper by them and those were cleared and were excisable and to be accounted for, appellant should have come out with clean hands to prove the weight of wrappers cleared. But they have chosen a way to avoid such disclosure - duty stand confirmed along with confirmation of interest against the respondents. However, penalty is reduced to 25% of duty if the duty confirmed is deposited within 30 days of receipt of final order - Decided partly in favour of assessee.

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• 2014 (6) TMI 339
  Duty demand - Clandestine removal of goods - Held that:- It is a case where the allegation is clandestine removal of the goods on the basis of clearance register maintained by the Security Officer and the statement of Security Officer at the time of investigation. During the course of investigation, itself it has been explained to the departmental officers that there is no shortage of goods and no clandestine removal of the goods and the same were supported by various documents produced by the respondent before the investigating authority. It is also explained by the respondent that although the Security officer has maintained a register of clearance but it is a internal stock register of the goods. The goods were cleared finally from the factory gate on the basis of the gate pass and the clearance shown in gate pass are tallied with the invoices. As the respondent maintain two security checks the final security check deals with the clearance which are tallied with the actual clearance in the respondent stock register which tallies with each other and no evidence has been produced by the Revenue that these documents are not correct. Therefore, the allegation of clandestine removal is not sustainable. - Decided against Revenue.

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