Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
June 20, 2015
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
TMI SMS
Articles
News
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Reimbursement of the expenditure does not generate any income in the hands of the recipient and consequently there was no requirement of deduction of TDS and consequently the provisions of section 40(a)(ia) could not be invoked - AT
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Disallowance of payment for preliminary warranty and reworking costs - TDS u/s 195 - it is categorical in so far as if the assessee in the contracting State does not have a PE in the other State, then the income of the assessee in the contracting State is liable to tax only in that contracting State and not in the other State. - AT
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Deduction u/s 80P(2)(a)(i) - the three conditions as provided under Section 5 (CVV) of the Banking Regulation Act, 1949, are to be satisfied cumulatively and except condition (2) the other two qualifying conditions are not satisfied. Ergo, appellant cannot be considered to be a co-operative bank for the purposes of Section 80P(4) of the Act. - Deduction allowed - HC
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Deduction u/s 80IC - The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking - exemption allowed - AT
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Claim of exemption under section 11 denied - interest free loan given by the assessee society to another society with identical object cannot be treated as “investment” or “deposit” in which event there is no violation of section 13(1)(d) r.w.s. 11(5) - AT
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Interest u/s 234C - Advance Tax - The law is not at all clear - merely because the assessee has declared higher income due to some error or mistake, the assessee shall not be liable to pay interest u/s 234C of the I.T. Act on the returned income when the assessed income falls below the returned income - AT
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Interest paid on borrowed capital (from bank) invested in a house property - the claim of interest on borrowing applied to a particular source of income (house property) against income arising from the said source of income, i.e., house property (Rs.1.50 lacs) as well as against income from another source, i.e., income from other sources (at ₹ 14.19 lacs), is self contradictory. - AT
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Nature of Commission earned - no documentary evidence to establish that in fact it was a commission income in lieu of the services rendered to various persons - Held as income from other sources - AT
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Income from House property - Determination of Actual Rent - payment of brokerage cannot be allowed as deduction either u/s. 23 or u/s. 24 - AT
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Penalty under section 221(1) read with section 140A(3) - default in payment of the tax demand - penalty @ 5% of the admitted tax liability would be reasonable and meet the ends of justice - AT
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TDS u/s 194H - The provisions of section 40(a)(ia) are not attracted as the appellant has not claimed any deduction for any expenses on account of payment, either in its profit and loss account or in the computation of taxable income filed.- AT
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Disallowance of salary of employees - female employees - no services were rendered to the company and they were receiving salary because they are family members of the directors of the company - disallowance confirmed - AT
Customs
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Denial of refund claim - Unjust enrichment - Security deposit - amount not to be credited to consumer welfare fund - appellants are eligible for refund of cash security deposit - AT
Corporate Law
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Winding up petition u/s 433 and 434 of the Companies Act, 1956 - respondent company is a profit making company and not a single instance of any creditor's legal action before any forum was pointed out - prima facie, dispute exists about the debt - no justification for ordering winding up - HC
Service Tax
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Business Auxiliary service - promotion/marketing of goods manufactured by the service recipient under a Multilevel Marketing Service Scheme - demand confirmed - AT
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Intellectual Property service - Appellant are the Brand Owner of IFML and M/s. Pilkhani is a job worker manufacturing IMFL on behalf of the appellant and the amount retained by the appellant is the business profit not liable to be taxed under the Finance Act, 1994 under the category of Intellectual Property service. - AT
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Demand of service tax - Tax on commission received - Commission as distributor of Amway - When there is scope for doubt in the mind of an assessee on a particular issue, the longer limitation period, under proviso to Section 11 A(1) cannot be invoked - AT
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CENVAT Credit - input services of Renting of immovable property - If the factory itself is located in a rented premises, then perhaps the nexus could be there, but in the present case situation is different - credit denied - AT
Central Excise
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CENVAT Credit - Since the, challans under which the service tax, in question, has been paid and on the basis of which CENVAT Credit has been taken mention the Gurgaon Unit as the assessee, in terms of Rule 9 (i) (e), the CENVAT Credit cannot be denied to the appellant even though the invoices mention the address of Bangalore Unit of the Appellant Company - stay granted - AT
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Admissibility of cenvat credit - In absence of any materials on record showing energy generated by wind mills was used for the purpose other than manufacture or providing of service, credit allowed - AT
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Penalty u/s 11AC - CENVAT Credit - Suo moto reversal of wrongly availed duty - Since show cause notice was not supposed to be issued, consequential penalty should not have been imposed. - AT
VAT
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Nature of Contract - use of machinery for doing Seismic surveys activity - transfer of property for providing services is involved in the contract or not - there was no transfer of right to use goods and the petitioner was only rendering services which are only amenable to tax by the Union of India and not by the State - HC
Case Laws:
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Income Tax
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2015 (6) TMI 591
Disallowance of payment for preliminary warranty and reworking costs - Non deduction of TDS u/s 195 - reimbursement of reworking cost paid - Disallowance of reimbursement of Information Technology costs being expenses on connectivity and software charges - Transfer pricing adjustments - Held that:- Disallowance of payment for preliminary warranty and reworking costs - A perusal of the decision of the Hon’ble Supreme Court in the case of Tejaji Farasram Kharawalla Limited [1967 (7) TMI 6 - SUPREME Court], clearly shows that Hon’ble Supreme Court has categorically held that the reimbursement of the actual expenses would not be taxable in the hands of the person receiving the reimbursements. Further Hon’bel Karnataka High Court in a recent judgment in the case of DIT v. Sun Microsystems India P. Ltd. [2014 (10) TMI 100 - HIGH COURT OF KARNATAKA] exactly on the similar issue interpreting article 7 of the DTAA between India and Singapore, which is identically worded to article 7 of DTAA between India and Austria. The Explanation only explains the provision. The main provision of section 195(1) of the Act uses these specific words “any other sum chargeable under the provisions of this Act”. Therefore, for the invocation of the provisions of section 195(1) of the Act, the main condition is that the payment must be of the sum chargeable under the provisions of the Indian Income Tax Act, 1961. Admittedly there is a DTAA between India and Austria. As per the Article 5 read with Article 7 of the DTAA, it is categorical in so far as if the assessee in the contracting State does not have a PE in the other State, then the income of the assessee in the contracting State is liable to tax only in that contracting State and not in the other State. The facts in the present case clearly show that AT & S Austria is carrying out the re-working of the products of the assessee at its own manufacturing plant at Austria and there is no connection between the manufacturing activities done by AT & S Austria with the manufacturing process done by the assessee at its manufacturing facility in Nanjangud. Consequently the income, if any, generated by AT & S Austria on account of the repairing operations or manufacturing operations done by AT & S Austria at its manufacturing facility outside India cannot be held to generate any income taxable in India under the Indian Income Tax Act, 1961. Admittedly even as per the provisions of section 9(1)(vii) of the Act and the Explanation (2) thereto clearly excludes the consideration for the assembly undertaken by AT & S Austria from the rigours of section 9(1)(vii) of the Act.In these circumstances, as the income of AT & S Austria is not chargeable to tax under the Indian Income Tax Act, 1961, the requirement of deduction of tax at source under section 195 of the Act would not be applicable and consequently no disallowance under section 40(a)(ia) of the Act can be made. - Decided in favour of assessee. Disallowance of reimbursement of Information Technology costs being expenses on connectivity and software charges - Hon’ble Karnataka High Court in a recent judgment in the case of DIT v. Sun Microsystems India P. Ltd. [2014 (10) TMI 100 - HIGH COURT OF KARNATAKA] exactly on the similar issue interpreting article 7 of the DTAA between India and Singapore, which is identically worded to article 7 of DTAA between India and Austria held that the parent company has not made available to the assessee the technology or the technological services which was required to provide the distribution, management and logistic services. We further noticed that in the said order the Tribunal has taken into consideration the decision of the Hon’ble Jurisdictional High Court in the case of CIT v Dunlop Rubber Co. Limited [1982 (2) TMI 24 - CALCUTTA High Court ] and in the similar circumstances that of the assessee to hold that the reimbursement of the expenditure does not generate any income in the hands of the recipient and consequently there was no requirement of deduction of TDS and consequently the provisions of section 40(a)(ia) could not be invoked. - Decided in favour of assessee. Transfer pricing adjustments - The DRP admittedly has not specified as to which is the appropriate profit level indicator? Whether it is a cash profit margin or whether it is operating profit margin. However, the DRP repeatedly talks of applying the cash profit margin. If cash profit margin is to be considered as the most appropriate profit level indicator, then obviously the NFA to sales ratio cannot be applied as that would be a filter which is more appropriate when adopting the operating profit to sales method for arriving at the PLI. Admittedly, perusal of Transfer Pricing Study and orders for AYs 2004-05, 2005-06 and 2008-09 show that the cash profit margin to sales is the method adopted for arriving at the appropriate PLI for the said AYs. In these circumstances, admittedly the principles of consistency would have to be followed and the methodology followed for the earlier years cannot be tinkered with or modified just for the purpose of assessment years in between with no variation in the facts and circumstances are available for the two AYs. In these circumstances, we direct that in the assessee’s case most appropriate PLI is to be arrived at by applying the cash profit margin to sales ratio. - Decided in favour of assessee.
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2015 (6) TMI 590
Disallowance of selling expenses - determination of AMP expenses - Held that:- The decision of the LG Electronics (2013 (6) TMI 217 - ITAT DELHI) and all questions concerning the tax implications and transfer pricing arising therefrom in AMP related matters was considered by the Division Bench judgment of this Court in Sony Ericsson Mobile Communications India Private Limited v. CIT-III (2015 (3) TMI 580 - DELHI HIGH COURT). In the said decision, direct selling expenses such as the one which are the subject matter of these proceedings – including incentives paid to distributors and dealers for services rendered are treated as AMP expenses and, therefore, held to be excluded from the determination of transfer pricing. In the light of this decision, this Court is of the opinion that the main question as to the correctness of the ITAT’s decision with respect to ₹ 54.75 crores does not survive consideration. So far as balance amount of ₹ 3.91 crores is concerned, we notice that the matter was remitted for fresh consideration to the AO who was bound by the decision in Sony (supra).
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2015 (6) TMI 573
Entitlment to the benefit of Section 80P(2)(a)(i)denied - whether assessee is a Primary Co-operative Bank, thus hit by the exclusion provided in Section 80P(4)? - Held that:- As rightly pointed out on behalf of the appellant the word society as referred to bye law 9(d) would include the co-operative society. This is so as the definition of a society under the Co-operative Act is co-operative society registered under the Cooperative Act. Besides the qualifying condition 3 for being considered as a primary Cooperative bank is that the bye laws must not permit admission of any other cooperative society. This is a mandatory condition i.e. the bye laws must specifically prohibit admission of any other cooperative society to its membership. The Revenue has not been able to show any such prohibition in the bye laws of the appellant. Thus even the aforesaid qualifying condition (3) for being considered as a primary cooperative bank is not satisfied. Thus, the three conditions as provided under Section 5 (CVV) of the Banking Regulation Act, 1949, are to be satisfied cumulatively and except condition (2) the other two qualifying conditions are not satisfied. Ergo, appellant cannot be considered to be a co-operative bank for the purposes of Section 80P(4) of the Act. Thus, the appellant is entitled to the benefit of deduction available under Section 80P(2)(a)(i) of the Act. The contention of Ms. Dessai, learned Counsel for the revenue that the appellant is not entitled to the benefit of Section 80P(2)(a)(i) of the Act in view of the fact that it deals with non-members cannot be upheld. This for the reason that Section 80P(1) of the Act restricts the benefits of deduction of income of co-operative society to the extent it is earned by providing credit facilities to its members. As at the time when effect has been given to the order of this Court, the authorities under Act would restrict the benefit of deduction under Section 80P of the Act only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. - Decided in favour of assessee.
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2015 (6) TMI 572
Non eligibility for exemption u/s 10B - foreign exchange gain derived - Held that:- The issue is squarely covered by the decision of CIT vs. Gem Plus Jewellery India Ltd (2010 (6) TMI 65 - BOMBAY HIGH COURT ) wherein the decision of CIT vs. Shah Originals (2010 (4) TMI 216 - BOMBAY HIGH COURT) has been clearly distinguished. However, the ld Counsel for the assessee submitted that foreign exchange gain before realization of sale price in convertible foreign exchange was ₹ 53,92,050 and loss on exchange fluctuation was credited to the P&L a/c i.e. the net amount accounted was ₹ 44,83,952 which we find from the account copy filed in the paper book. The foreign exchange gains/loss post receipt of sale is not income for the unit to be allowed deduction u/s 10B. In these circumstances, we set aside the issue to be examined by the AO and give an opportunity to the assessee to substantiate its claim. - Decided in favour of assessee for statistical purposes. Exclusion of an amount adjusted by the foreign customer from the eligible turnover for the purpose of computation of exemption u/s 10B - Held that:- We find that ₹ 2,61,844/- has been equal to ₹ 4,132 Euros was reduced from the amount due to the assessee and the balance of the amount was remitted into India. We are of the opinion that ₹ 2,61,844 cannot considered as receipt into India as the amount was adjusted Following the decision in the case of CIT vs. McLeod Russel (India) Ltd (2014 (2) TMI 797 - CALCUTTA HIGH COURT), we hold that the amount claimed by the assessee is to be excluded from the export turnover - Decided against assessee. Computation of deduction u/s 80IC of Baddi unit - Held that:- Once the income is assessed as business income, the corresponding expenditure is to be reduced and the balance to be excluded for the purpose of 80IC. Hence, we direct the AO to examine the nature of interest and decide this issue after giving an opportunity to the assessee. Determining the deduction claimed u/s 80IC - whether the amount derived by sale of scrap; interest income and other income were not derived by the manufacturing unit and that the same are not eligible for deduction u/s 80IC? - Held that:- Sale of scrap has the effect of reducing the cost of production. Further, sale of scrap is eligible for deduction u/s 80IC. There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking for the purpose of computing deduction under section 80-IB. Respectfully following the decision in CIT vs. Sadhu Forgings Ltd,[2011 (6) TMI 9 - DELHI HIGH COURT]the activities of the assessee in giving heat treatment for which it had earned labour charges and job-work charges, it can thus be said that the appellant had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking - Decided in favour of assessee. Inclusion of profit on sale of assets as part of its export turnover - Held that:- The cost of the moulds is not separately billed and the payments have not been separately made. Hence, we agree with the CIT (A)’s view that the cost of moulds have become part of expenditure of the business and the entire amount of invoice price i.e sale consideration received represents the turnover on account of sale of plastic products is correct - Decided against revenue. Deduction u/s 10B relates to amortization of income and development charges - Held that:- amortization is actually cost of mould apportioned on number of pieces likely to be produced from a particular mould. Development charges also pertain to mould development only. Hence, we confirm the order of the CIT (A) that there was no justification for the adjustment to the deduction u/s 10B on account of amortization and development charges. - Decided against revenue. Deduction u/s 10B pertains to freight and insurance - Held that:- CIT (A) found the claim to be factually correct on an examination of the ledger account. Since the receipt towards freight and insurance do not form part of the export turnover in the first place, their deduction from the turnover is not justified. On an examination of the ledger account, the receipts towards freight and insurance charges does not form part of the export turnover and hence cannot be deducted from the turnover - Decided against revenue.
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2015 (6) TMI 571
Claim of exemption under section 11 denied - the income earned by the assessee-trust cannot be treated as income from educational activity and hence it has to be treated as business income - assessee let out its premises partly to Jet Airways and others and the income earned therefrom is assessable to tax as business income - Held that:- As long as the trust is imparting education as per the object of the trust, income earned by such trust should be allowed the benefit of exemption under section 11 of the Act. Having regard to the assessee has let out the property for efficient utilisation of its assets with a larger purpose of imparting technical training in the said campus, assessee can be said to be carrying on a charitable activity and income therefrom is exempt from tax. See Dy. DIT(E) -I(2), Mumbai Versus M/s. Samudra Institute of Maritime Studies Trust [2014 (6) TMI 350 - ITAT MUMBAI] Don Bosco Institute without charging any interest for a short period - as per revenue assessee advanced some amount to Don Bosco Institute out of accumulated income set apart for application, in terms of section 11(2) which is in violation of the provisions of section 11(5) - Held that:- The claim of the assessee is not disputed by the learned D.R. Having regard to the circumstances of the case and in the light of the decision in the case of Acme Educational Society [2010 (7) TMI 159 - DELHI HIGH COURT], observed that interest free loan given by the assessee society to another society with identical object cannot be treated as “investment” or “deposit” in which event there is no violation of section 13(1)(d) r.w.s. 11(5) of the Act, we are of the view that the amount advanced by the assessee to Don Bosco Institute is not covered by section 11(5) of the Act and even on that count the claim of exemption could not have been denied to the assessee. Under these circumstances we are of the view that the plea taken before us by the assessee merits acceptance and we direct the AO to grant exemption under section 11 of the Act on the income earned by the assessee, including lease rent, etc. - Decided in favour of assessee.
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2015 (6) TMI 570
Addition u/s 68 - Held that:- In the case of CIT vs. S. Kamaljeet Singh (2005 (1) TMI 676 - ALLAHABAD HIGH COURT), it was held that where the assessee has brought on record the confirmation of creditor, their affidavits, their full address, GIR/PAN, the assessee’s burden stood discharged and addition is not called for. Thus hen the assessee has established the identity of the creditor and the amount is received by account payee cheque, source of the credits need not be proved. In the present case, confirmation of all creditors with full address and PAN, bank statement and assessment particulars are brought on record. Only adverse feature is that in some cases, there is cash deposit in the bank account of the creditor. Merely on this basis alone, it cannot be said that those creditors are not having credit worthiness particularly when these creditors are assessed to tax and their PAN, address and assessment particulars are furnished and the A.O. has not made any effort to call any detail from the creditors or to verify the details from the A.O. of the creditors. Therefore no addition is justified u/s 68 of the Act in respect of any of the cash credits. - Decided in favour of assessee. Disallowance of car expenses - Held that:- Element of personal use of car cannot be ruled out and disallowance is only 10% of the expenses and hence justified. It is not shown that the assessee was having any personal vehicle for personal use, expenses of which were not claimed as business expenses. - Decided in favour of assessee.
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2015 (6) TMI 569
Non-granting of interest under section 244A of the I.T. Act on self assessment tax paid - Held that:- Hon’ble Bombay High Court in the case of Stockholding Corporation of India Vs. CIT & Ors. [ 2014 (11) TMI 899 - BOMBAY HIGH COURT] following the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Vijaya Bank reported in (2011 (7) TMI 582 - KARNATAKA HIGH COURT ) and CIT Vs. Sutlaj Industries (2010 (3) TMI 449 - DELHI HIGH COURT ) has held that the assessee is entitled to interest under section 244A of the I.T. Act from the date of payment of tax on self assessment to the date of refund of the amount. Respectfully following the decision of the jurisdictional High Court, we hold that the assessee is entitled to interest under section 244A of the I.T. Act on that portion of self assessment tax paid from the date of payment of such tax till the date of refund. - Decided in favour of assessee. Interest under section 234C - Advance Tax - re-calculate the interest under section 234C - Held that:- The law is not at all clear regarding the chargeability of interest under section 234C of the I.T. Act in a case where the assessment is completed at a figure below the returned income. In our opinion, merely because the assessee has declared higher income due to some error or mistake, the assessee shall not be liable to pay interest under section 234C of the I.T. Act on the returned income when the assessed income falls below the returned income. In our opinion, the assessee should be liable to pay interest under section 234C of the I.T. Act in such a peculiar case only on the assessed income when the same is determined at a figure below the returned income. In this view of the matter, we set-aside the order of CIT(A) and direct the Assessing Officer to re-compute the interest under section 234C of the I.T. Act on the assessed income. Decided in favour of assessee.
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2015 (6) TMI 568
Interest paid on borrowed capital (from bank) invested in a house property - claim against interest income assessable u/s. 56, i.e., in computing the income chargeable under the head of income ‘income from other sources’ - disallowance of interest paid and claimed as deduction against the interest receipts - Held that:- In the present case, section 24(b) governs the deduction on account of interest on borrowed capital for the purpose of acquiring house property or improvement thereto. The same, however, limits the deduction in respect of self occupied property (SOP) at ₹ 1,50,000/-. This, in fact, even as observed during hearing, is what had led to what we may term as an ‘imbalance’ as per the assessee’s plans. But for this limit, the entire interest on borrowed capital (Rs.15,69,007/-) would stand to be allowed against income under Chapter IV-B, i.e., income from house property, resulting in the two arrangements, i.e., either withdrawing money lent and saving interest to bank, or, alternatively, assuming borrowing for investment in house property, being at par, both financially (perhaps, that is – the interest rates on borrowing and monies lent being not known), as well as under the tax regime. Assuming a tax equivalence, while none existed, then, thus, represents the fundamental fallacy in the assessee’s argument and case, i.e., the underlying assumption that the two arrangements being financially equivalent (or nearly so), would lead to a similar or same consequence in law as well. The disallowance of the assessee’s claim is under s. 24(b) itself and, at best, read with s. 57(iii), and there is no need to travel to s. 14A of the Act; there being no income not forming part of the total income for invocation of the said section, to though either no benefit to the assessee or prejudice to the Revenue. The two investments, i.e., house property and interest bearing loan, have different income potential/implications, and carry different risks. The two streams of income, flowing from vastly different sources, are subject to different computational provisions under the Act, and bear different risk profiles. To say, therefore, that interest on a borrowing applied toward house property be deducted against the income from the property on the security on which the same is raised, is misplaced. Rather, the claim of interest on borrowing applied to a particular source of income (house property) against income arising from the said source of income, i.e., house property (Rs.1.50 lacs) as well as against income from another source, i.e., income from other sources (at ₹ 14.19 lacs), is self contradictory. - Decided against assessee.
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2015 (6) TMI 567
Disallowance of interest - AYs are 1997-98 - Held that:- The assessee refers to judgment in Core Health Care (2008 (2) TMI 8 - SUPREME COURT OF INDIA ) and submits that section 36(1)(iii) only requires the interest sum in respect of capital borrowed for the purpose of the business or profession. The Revenue seeks to restore the Assessing Officer’s finding. We intend to disagree with submissions of both the parties. It stands narrated in the preceding paragraph that a coordinate bench in its earlier order has already held facts of the issue involved in the impugned assessment year identical to those in assessment year 1995-96 (supra). However, both the lower authorities have nowhere considered any consequential order passed in the earlier assessment year. In other words, they have not taken into account the specific directions in the earlier remand order. Nor do the parties before us have placed on record any such consequential order passed in earlier assessment year dealing with the very issue of interest disallowance. In these circumstances, we reiterate our earlier directions and remit the grounds raised by both the parties to the Assessing Officer for passing a fresh order as per law invariably following consequential order; if any, passed in assessment year 1995-96 in furtherance to the tribunal’s direction. - Decided in favour of assessee for statistical purposes. Assessment Year 1999-2000 - The CIT(A) has distinguished facts of the impugned assessment year with those involved in 1997-98 as adjudicated herein above. He presumes that the assessee has put to use its plant and machinery and allows the impugned interest sum to have been incurred on borrowed funds for machinery. We reiterate that the assessee has already started its commercial production on 23.9.1996. Therefore, we held it entitled for deduction of impugned sum incurred on capital borrowed for purpose of the business in question - Decided in favour of assessee.
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2015 (6) TMI 566
Penalty u/s 271(1)(c) - disallowances on assessee’s wind mills, interest amount on account of interest bearing funds utilized in interest free advances and the one made under section 40A(3) @ 20% of the cash payment - CIT(A) deleetd penalty levy - Held that:- It is evident that the assessee chose to hand over the windmills back to the vender since the State government had not accorded approval of the ownership transfer. The Revenue sought to tax the very sum of ₹ 2.40 crores received in the following assessment year as capital gains. The tribunal in the subsequent year held that once it has not become owner in the impugned assessment year, no capital gain had arisen to be taxed on account of handing over the windmills back to the owner. All these facts indicate that the assessee has not furnished any inaccurate particulars of income. The present does not seem to be an instance of evasion of taxable income. We reiterate that quantum and penalty proceedings under the Act stand on a different footing and each and every disallowance/addition does not lead to automatic imposition of penalty as held by hon’ble apex court in Reliance Petroproducts Ltd. (2010 (3) TMI 80 - SUPREME COURT ). Therefore, we hold that the Assessing Officer had wrongly held assessee’s case as that of furnishing of inaccurate particulars of income under section 271(1)(c) of the Act. We also find in the same tune that the Assessing Officer has computed the other disallowances of interest amount and the one under section 40A(3) only on the basis of assessee’s accurate particulars already submitted on record in the course of scrutiny. Therefore, the impugned penalty qua these issues has also been rightly deleted. The CIT(A)’ finding under challenge are upheld. - Decided in favour of assessee.
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2015 (6) TMI 565
Nature of Commission earned - treated as Income from Other Source or Business income - Held that:- The assessee in each and every case was provided opportunity on several occasions to prove that the said miscellaneous income was in fact the commission income received in lieu of the services provided to various persons. The fact of notices being returned back unserved or denial by Shri Pawan Kumar Kedia and Sri R.K.Khetrapal and reply of Rawmet Commodities Pvt. Ltd. and M/s.Rawmet Resources were informed to the assessee and due opportunities was given to the assessee to prove the commission income received in lieu of services provided to various persons in the form of evidences/documents or details etc. but nothing was produced before AO as well as ld.CIT(A). Even before us no documentary evidence was placed on record to establish that in fact it was a commission income in lieu of the services rendered to various persons. CIT(A) correctly the finding of A.O. that commission earned by assessee is assessable as “Income from Other Source” - Decided against assessee. Disallowance of set off of business loss comprising current depreciation and unabsorbed depreciation against the Commission Income - Held that:- In the circumstances and facts of the case order of ld. CIT(A) is not a speaking order and accordingly order of ld. CIT(A) on this issue is set aside to his file to decide the issue denovo and pass a speaking order and to deal with the decisions of various courts of law relied upon by the assessee along with the decisions of the Tribunal in the case of M/s. Jai Ushin Limited [2008 (1) TMI 441 - ITAT DELHI-F] and Suresh Industries Limited (2012 (11) TMI 674 - ITAT MUMBAI) relied upon before us and decide the issue de novo but after affording adequate opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.
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2015 (6) TMI 564
Assessment of the interest income - under the head "Profit & gains of business or profession" OR "Income from other sources" - Held that:- There is no evidence of any organized activity or embarking on housing finance business in any manner. The loan, given to a director, prior to the stated decision of change in the business, is not shown to be for the purchase or acquisition of any house property. Further, rather than the same being recalled, it continues to outstand year after year, with even the interest thereon being not received or recovered. The interest income, under the circumstances, which are admitted and borne out by the record, would necessarily fall to be classified for assessment purposes under the residuary head of income, i.e., as income from other sources, or u/s. 56 of the Act. Allowability of the various expenses claimed by the assessee in terms of section 57 - Held that:- The said expenditure is general expenditure incurred for various functions/activities, ostensibly for maintaining the establishment of the assessee’s undertaking. The same would thus not fall to be covered within the compass of section 57(iii), given its limited scope, i.e., for earning income, and which is only the interest income on a single loan granted by the assessee to, one, Shri Maneklal Bhandari. In fact, the expenditure allowed, i.e., on filing fees, bank charges and audit fee, would, again, strictly speaking, not fall within the purview of section 57(iii), and stands allowed on being the minimum statutory expenses required to be incurred in view of the legal requirement incident on the assessee as a company. The decision by the AO, since endorsed by the ld. CIT(A), cannot, therefore, be faulted with. - Decided against assessee. Addition being notional interest on advances paid to M/s B.U. Bhandari treating the same as a loan - Held that:- When the principal amount itself is not forthcoming, there is great uncertainty in collecting interest, which has not been provided for. The same can, under the circumstances, be either agreed to between the parties, or directed by a third party, as an arbitrator, for example, to whom the parties may approach, or a court of law. We are conscious, when we state so, that we presume a normal, genuine problem on hand, while the Revenue’s case is based on the transaction, as being reflected, in the absence of any evidence, as not true, raising serious and valid doubts with regard to its genuineness. True, but that would not by itself imply of the assessee-company to have benefited, at the cost of the payee, to any extent. Tax, it is trite law, can only be charged on real income, while we find no basis for inferring the interest cost on the part of Revenue. - Decided in favour of assessee.
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2015 (6) TMI 563
Deduction under section 54F - CIT(A) allowed claim - Held that:- Assessing Officer has made disallowance of claim of deduction under section 54F of the Act without making necessary verification. Before the ld. CIT(A), the assessee has filed enormous evidence in order to establish that the alleged properties held by the assessee were not of residential nature, as they were used for commercial purposes. Revenue has not brought anything on record to controvert the evidence produced by the assessee before the ld. CIT(A) and also before us. The evidence filed before the ld. CIT(A) is also available on record and from its careful perusal we find that these properties are of commercial in nature. Therefore, it cannot be held that the assessee owns more than one residential house at the time of purchase of new residential house out of sale proceeds received from his capital asset at Mumbai. - Decided against revenue. Disallowance of deduction of ₹ 30 lakhs paid to the seller through cheque for delay in execution of sale deed and handing over of possession within a specified period as per memorandum of understanding - Held that:- Undisputedly there was a clause in the agreement to sell that the assessee would pay ₹ 30 lakhs to the seller if the possession is delayed. The explanation has furnished for the delay in handing over the possession to the seller for which assessee has paid ₹ 30 lakhs, therefore, the payment is compensatory in nature and is a part of sale transaction. Had it not been paid, the deal would not have been materialized. Therefore, the payment of ₹ 30 lakhs is an allowable deduction from sale consideration. The lower authorities have looked this payment from a different angle and treated it to be penal in nature; whereas the payment was made for the delay in handing over the possession. Since it was compensatory in nature, the same is allowable for deduction. We accordingly set aside the order of the ld. CIT(A) and direct the Assessing Officer to allow deduction of ₹ 30 lakhs against sale consideration.- Decided in favour of assessee.
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2015 (6) TMI 562
Addition on account of gross profit - books of account rejected u/s 145 on the basis that the closing stock shown by the assessee in balance sheet and the closing stock figure submitted to bank is different and closing stock shown to bank is much higher - held by CIT(A) that the gross profit rate of 8.5% should be worked out on the basis of actual turnover reported by the assessee and credit should be allowed to the assessee of ₹ 1,38,99,075/- being GP declared by the assessee and he worked out net addition of ₹ 9,21,620/-, which was confirmed by him - Held that:- Considering the judgment of CIT vs. N. Swamy [1998 (9) TMI 27 - MADRAS High Court] we find no reason to interfere in the order of CIT(A) on this aspect that only book turnover should be adopted and the same cannot be estimated merely on the basis of stock statement submitted to bank. On second aspect also, we do not find any infirmity in the order of CIT(A) regarding reduction of gross profit reported by the assessee at ₹ 1,38,99,075/- from gross profit to be worked out after rejecting the books of account of the assessee. In the present year, the gross profit shown by the assessee is higher by 1.80% as compared to the preceding year. Even if books are rejected, adopting gross profit rate of 8.5% is excessive considering the facts particularly the gross profit of preceding year and hence, we feel that in the interest of justice, if gross profit rate of 8% is applied, it will serve the interest of justice. We direct the Assessing Officer accordingly. The Assessing Officer should adopt the gross profit rate of 8% on the declared turnover of ₹ 17,43,61,117/- and from the gross profit so worked out, he should reduce the gross profit already reported by the assessee and addition should be made only for the balance amount. - Decided partly in favour of assesee. Addition u/s 68 - CIT(A) deleted addition - Held that:- A clear finding has been given by him that the assessee has discharged his onus by submitting confirmation letter, PAN, Bank statement and letter from police department. In this manner, we find that the assessee has established all the three ingredients of 68 of the Act i.e. identity and creditworthiness of the creditor and genuineness of the transaction. These findings of CIT(A) could not be controverted by Learned D.R. of the Revenue and therefore, on this issue, we do not find any reason to interfere in the order of CIT(A). - Decided in favour of assessee. Depreciation of machinery - deletion of disallowance of depreciation to the extent of ₹ 6,77,724/- by CIT(A) - Held that:- We find that a clear finding has been given by CIT(A) that this depreciation is claimed in respect of generator, transformer and fixed assets and plant of the assessee could not have been run and achieved the turnover of ₹ 1,743.61 lacs without using this plant & machinery and therefore, depreciation is to be allowed. These findings of CIT(A) could not be controverted by Learned D.R. of the Revenue and therefore, on this aspect, we do not find any infirmity in the order of CIT(A). - Decided in favour of assessee. Regarding the remaining part of disallowance of depreciation of ₹ 10,28,500/-, we find that the same was confirmed by CIT(A) on the basis that the Learned A.R. of the assessee of the assessee has himself agreed that the purchased plant & machinery has been returned back to the concerned supplier and therefore, it is clear that the plant & machinery has not been used for business and therefore, depreciation is not allowable. - Decided against assessee. Unexplained investment in purchase of plant and machinery - Held that:- We find that this addition was made by the Assessing Officer on the basis that as per accounts statement submitted by M/s New Era Dairy Engineers India Private Limited, an amount of ₹ 46,000/- was paid by the assessee to Shri Mahesh Chandra on various dates in May & June 2008 but the assessee has denied making any payment to Shri Mahesh Chandra. These findings of Assessing Officer could not be controverted by Learned A.R. of the assessee and therefore, on this aspect, we do not find any reason to interfere in the order of CIT(A). - Decided against assessee.
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2015 (6) TMI 561
Profit from sale of agricultural land - business income OR capital gains - claimed by the assessee as exempt from tax - Held that:- As the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality notified by the central govt. Hence, land sold by assessee not being a capital asset, the gain derived there from is not taxable at the hands of the assessee. See Commissioner of Income tax & Others Versus Sri R. Srinivasa Rao, Sri MS. Raghava, Bhavya Constructions Pvt. Ltd., R. Vijaya Lakshmi, Shri S. Srinivasa Rao, Sri T. Gopichand, Shri GC. Subba Naidu, Sri P. Shiva Kumar & Others [2015 (4) TMI 295 - ITAT HYDERABAD ] - Decided in favour of assessee.
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2015 (6) TMI 560
Reduction of Brokerage from Rent Received for Determination of Actual Rent - whether the payment of brokerage can be deducted from the rental income while computing the taxable income under the head “income from house property”? - Held that:- Nature of expenses like brokerage, professional fee, etc., is held to be allowable, then numerous other expenses like salary or commission to an employee/agent who collects the rent can also be held to be allowable. This is not the mandate of the law. So far as the decisions relied upon by the learned counsel before us are mostly pertaining to maintenance charges paid to the society, wherein it has been held to be allowable as deduction u/s. 23 itself. There is distinction between maintenance charges and the brokerage paid because such a charge is given/paid for the very maintenance of the property so as to enjoy the property itself; whereas brokerage has nothing to do with the property or the rent which is given to a third party who has facilitated the landlord and the tenant on agreeable terms to rent the property. Therefore, these decisions will not apply in the assessee’s case. Further in the cases where payment of stamp duty has been held to be allowable will not apply also as the same is directly related in connection with the lease agreement for renting of the property. Hence, said cases and instances will not apply in the present case. Thus, in our opinion, the payment of brokerage cannot be allowed as deduction either u/s. 23 or u/s. 24. The CIT(A) has therefore, rightly confirmed the disallowance of such a payment of brokerage and we hold that no such deduction can be allowed while computing the income from house property. - Decided against assessee.
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2015 (6) TMI 559
Penalty under section 221(1) read with section 140A(3) - default in payment of the tax demand - Held that:- The common issue involved in the present appeals thus is squarely covered by the order of the Tribunal in other group companies involving materially the same facts (2014 (12) TMI 431 - ITAT HYDERABAD) and this position is not disputed even by the learned representatives of both the sides. We therefore respectfully follow the said order of the Tribunal wherein held perusal of the penalty order does not reveal the basis on which AO has quantified the penalty. However, considering the fact that assessee has discharged the tax liability along with interest, in our view, liberal approach needs to be taken. More so, when section 221(1) itself empowers AO to increase penalty in case of continuing default. Therefore, imposition of penalty at such a high figure at the first instance, in our view, is not justified. Considering the facts and circumstances of case, we are of the view that penalty @ 5% of the admitted tax liability would be reasonable and meet the ends of justice. Accordingly, we direct AO to confine the penalty u/s 221(1) of the Act to 5% of the admitted tax liability in each case - Decided partly in favour of assessee.
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2015 (6) TMI 558
TDS u/s 194H - Disallowance under section 40(a)(ia) - whether CIT(A) was right in holding that the payment allowed to M/s Vikram Electric Equipment Pvt Ltd for consolidation of land are not in the nature of commission? - Held that:- Payments made to M/s Vikram Electric Equipment Pvt. Ltd. as land consolidator were not for any services rendered but same were made for consolidation of land and surrendering of its rights in the land in favour of the appellant. M/s Vikram Electric Equipment Pvt. Ltd was acting as principle to principle basis and not an agent. Therefore, provision of section 194H are not attracted in the case of appellant. The clause 3.2 of the MOU entered into between the appellant and M/s Vikram Electric Equipment Pvt. Ltd clearly show that M/s Vikram Electric Equipment Pvt. Ltd was working on principal to principal basis and the amount paid to M/s Vikram Electric Equipment Pvt. Ltd was for consolidation of 27 acres of land and surrendering of its rights in favour of the appellant company. The provisions of section 40(a)(ia) are not attracted in this case as the appellant has not claimed any deduction for any expenses on account of payment to M/s Vikram Electric Equipment Pvt. Ltd, either in its profit and loss account or in the computation of taxable income filed. See M/s Finian Estates vs. ITO [2012 (6) TMI 705 - ITAT, Delhi] - Decided in favour of assessee.
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2015 (6) TMI 557
Disallowance of salary of employees - Held that:- AO has asked the assessee company to produce these female members for verification, but no one was produced. Thus, the AO on the basis of the reasons given in the assessment order, disallowed the salary on the plea that expenditure was incurred for non-business purpose. The findings recorded by lower authorities have not been controvered by ld. AR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings recorded by lower authorities to the effect that no services were rendered by these female employees. In the statement so recorded during search it was admitted that no services were rendered to the company and they were receiving salary because they are family members of the directors of the company. - Decided against assessee. Disallowance of vehicle expenses on which FBT were paid - AO made the disallowance of vehicle running expenses @20% and depreciation also @20% being personal use of the vehicle - Held that:- The issue with regard to disallowance of expenses on which FBT has been paid is covered by the series of decision of the Tribunal, wherein it was held that once fringe benefit tax is levied on such expenses as has been done in the present case, it follows that the same are treated as fringe benefits provided by the assessee as employer to its employees and the same have to be appropriately allowed as expenses incurred wholly and exclusively incurred by the assessee for the purpose of its business. See Hansraj Mathuradas, Versus The Income Tax Officer, 22(1) (2), Mumbai.[2012 (10) TMI 300 - ITAT, MUMBAI] - Decided in favour of assessee. Addition made u/s.145A on account of unutilized Modvat credits - CIT(A) deleted addition - Held that:- milar issue has been dealt with by the Tribunal in assessee’s own case in the assessment years 2000-01, 2003-04 and 2004-05, wherein the addition made u/s.145A with regard to Modvat credit has been deleted wherein held as per the provisions of section 145A of the Income-tax Act, 1961, the Excise Duty on purchases has to be included in sales. Alternatively, the purchases and sales have to be taken at gross value and whatever credit is left in the Modvat account that would form part of. the closing stock. - Decided in favour of assessee.
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2015 (6) TMI 556
Denial of exemption u/s. 10(21) - the assessee has failed to furnish the Form 10 within time and get the delay condoned from the Competent Authority - assessee has been granted registration u/s 12A - CIT(A) allowed exemption - Held that:- CIT(A) held that the AO was not correct in denying the benefit to the assessee merely on the ground that the assessee has not filed the Form No. 10 within time before the prescribed authority, because it was approved for the purposes of section 35 of the I.T. Act, and there is nothing on record to suggest that it violated any of the other conditions for exemption, its eligibility for exemption u/s. 10(21) of the I.T. Act is otherwise not in dispute. Ld. CIT(A) has also held that the assessee was registered u/s. 12AA of the I.T. Act w.e.f. 7.4.2006 and its income is exclusively by way of grants/ aids and interest on bank deposits, neither of which accrued in the first week of April, 2006. As regards its income accruing after 7.4.2006, it was also eligible for exemption u/s. 11 of the I.T. Act. Thus, it was eligible for exemption in respect of its income under section 10(21) as well as 11 of the I.T. Act and was not required to furnish the declaration in Form No. 10 in respect of part of the income accumulated by it. Ld. CIT(A) has granted the relief to the assessee, as requested by it by passing an elaborate impugned order. Therefore, no interference is called for in the well reasoned order passed by the Ld. CIT(A) - Decided against assessee.
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2015 (6) TMI 555
Disallowance u/s. 35D - assessee engaged in the business of construction of road and bridges, laying down railway track - Held that:- We do not find any error in the order of the ld.CIT(A) in confirming the disallowances made u/s. 35D for all the assessment years under consideration as the assessee is not an industrial undertaking within the meaning of section- 35D. The business of civil construction would not amount to carrying on any manufacturing activity. See Commissioner of Income Tax, Orissa & ors v. M/s. N.C. Budharaja & Company & Ors, [1993 (9) TMI 6 - SUPREME Court] and Ansal Housing and Construction Ltd vs. CIT [2009 (10) TMI 49 - DELHI HIGH COURT ] - Decided against assessee.
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2015 (6) TMI 554
Revision u/s 263 - CIT(A) upheld the rejection of books of account, however, reduced the estimation of gross income of assessee from 1% to 0.7% of the turnover - Held that:- The directions of ITAT make it clear that the entire issue is open before AO as he has been directed to make a fresh assessment. In these circumstances, when the assessment order has been restored back by ITAT to the file of AO with a direction to make a fresh assessment after examining the books of account, the impugned order of ld. CIT has become infructuous. Accordingly, we set aside the order of ld. CIT and direct AO to complete the assessment as per the directions of ITAT - Decided in favour of assessee.
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2015 (6) TMI 553
Amortization of premium paid on Government securities disallowed - Held that:- Amortization premium paid on Govt. Securities debited to Profit and Loss Account, as per RBI guidelines has to be allowed being expenses incurred during the course of business of banking. See case of Latur Urban Coop. Bank Ltd.[2015 (3) TMI 920 - ITAT PUNE] - Decided in favour of assessee
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2015 (6) TMI 552
Amortization of premium paid on Govt. Securities disallowed - Held that:- Amortization premium paid on Govt. Securities of ₹ 23,13,525/- debited to Profit and Loss Account, as per RBI guidelines has to be allowed being expenses incurred during the course of business of banking. See case of Nagar Urban Co-operative Bank Ltd [2015 (6) TMI 553 - ITAT PUNE] and Latur Urban Coop. Bank Ltd.[2015 (3) TMI 920 - ITAT PUNE] - Decided in favour of assessee
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2015 (6) TMI 551
Entitlement for deduction on account of depreciation of security - whether held as an investment in Government security or stock in trade - Held that:- The securities were stock in trade and so depreciation would amount to loss and not income. The authorities below held that this aspect is well settled through the judgment of this Court in the case of Commissioner of Income Tax vs. Bank of Baroda, reported in (2003 (3) TMI 80 - BOMBAY High Court) as well as in the case of UCO Bank vs. the Commissioner of Income Tax, (1999 (9) TMI 4 - SUPREME Court) wherein held that merely because the securities are kept under the head by the bank till the maturity, the said security cannot be treated as a purely investment. The security held by the bank is in the nature of stock in trade. - Decided in favour of assessee.
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Customs
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2015 (6) TMI 576
Denial of refund claim - Unjust enrichment - Security deposit - Held that:- The adjudicating authority has already sanctioned the refund but credited to the consumer welfare fund. The Commissioner (Appeals) has rightly held that bar of unjust enrichment not applicable for security deposits. By respectfully following the Hon ble High Court decision above, we hold that the appellants are eligible for refund of cash security deposit and there is no infirmity in the order of the LAA - Decided against Revenue.
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2015 (6) TMI 575
Valuation of goods - Enhancement of value by 5% - Held that:- Commissioner (Appeals) has misread the provisions of law as well as Board Circular No. 29/2012. The legal provisions are very clear. Any appeal against assessment order passed by Customs at JNCH will lie to the jurisdictional Commissioner (Appeals) Nhava Sheva. The Board Circular No. 29/2012, in fact, supports this view and states that the work relating to appeal etc. will continue to be handled by the jurisdictional Commissioner of Customs. For the sake of uniformity, the circular also states that Director General Valuation will provide its views on the orders passed by the adjudicating authority, which will be given due consideration when the orders are examined by Commissioner of Customs for review or acceptance of the orders under Section 129D of the Customs Act. Therefore, we hold that Commissioner (Appeals), Nhava Sheva is the appropriate authority to hear the appeals against assessment orders passed by Nhava Sheva, Customs. - no additional EDD will be payable by the appellant. Only a PD bond will be required to be submitted by them. - Decided in favour of assessee.
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Corporate Laws
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2015 (6) TMI 574
Winding up petition u/s 433 and 434 of the Companies Act, 1956 - Default in repayment of dues - Held that:- keeping in view the ratio of the decision of the Supreme Court in M/s. MADHUSUDHAN GORDHANDAS & CO. v. MADHY WOOLLEN INDUSTRIES PVT. LTD. [1971 (10) TMI 49 - SUPREME COURT OF INDIA ] it has to held that the defence of the respondent company appears bonafide but the exact amount of debt, which is disputed, cannot be ascertained on the basis of the evidence on record. However, it cannot be said that the defence of the respondent company is not a substantial defence. Since the object and purpose of the present winding up petition is not regarding quantification of debt due and payable, so for as is relevant for the purpose of the present petition, though the petitioner/creditor has prima facie established entitlement for the amount, as claimed in the company petition, it cannot be said that the defence of the respondent company is mere moonshine and is only raised for the purpose of avoiding its inability to pay the debt. Following principles related to bona fide disputes evolved from the Supreme Court decision in Tube Investments of India Ltd. - If there is dispute as regard the payment of sum towards principal however small, petition for winding up is not maintainable - Existing of dispute with regard to payment of interest can not be construed as existence of bona fide dispute - If ther is no bona fide dispute with regard to sum payable towards principal, it is open to the creditor to resort both the remedies of filing a civil suit as well as filing a petition for winding up . In the present case also it is not shown that the respondent company is unable to meet its liability as and when they accrued. It is also accepted in the present case that the respondent company is a profit making company and not a single instance of any creditor's legal action before any forum was pointed out by P.W.1. In view of that, therefore, since, prima facie, dispute exists about the debt, as claimed by the petitioner company, I do not find any justification for ordering winding up of the respondent company. There are neither pleadings nor any evidence to support the petitioner's claim that the respondent company is liable to be wound up on the ground that such order would be just and equitable. On the contrary, the facts, on record, clearly show that a profit making company for the last more than three years is not required to be wound up on any ground. - Petition for winding up dismissed.
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Service Tax
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2015 (6) TMI 589
Intellectual Property Service - whether the transfer of technology and know-how by the Japanese holding company to the assessee fulfils the requirements of Section 65 (105) (zzr) read with the definition of Intellectual Property Rights in section 65 (55 a), has not been considered by the adjudicating authority - Held that:- It is appropriate to remit the matter for consideration afresh and grant liberty to the assessee to raise any other issue as well before the adjudicating authority including as to whether the provisions of Section 65 (105) (zzr) are applicable to the assessee’s transactions, since the payment of royalties event though subsequent were pursuant to an agreement which was earlier to introduction of the taxable service. The assessee shall file a Memorandum of Written Submissions within 3 weeks from today before the adjudicating authority on this aspect but shall not however be entitled to personal hearing again. Any case supporting the assesse’s contentions may also be appended to the Memorandum of Written Submissions, within the time stipulated herein. - Matter remanded back - Decided in favour of assessee.
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2015 (6) TMI 588
Business Auxiliary service - promotion/marketing of goods manufactured by the service recipient under a Multilevel Marketing Service Scheme - Decision in the case of Shri Surendra Singh Rathore Vs. CCE, Jaipur-I [2013 (8) TMI 149 - CESTAT NEW DELHI] - orders of the adjudicating authority confirmed by the appellate authority - Decided against assessee.
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2015 (6) TMI 586
Intellectual Property service - payment received for royalty or mere profit making activity - good manufactured by the job worker on behalf of appellant - Revenue is of the view that M/s. Pilkhani is using the brand name and technical knowhow of the appellant and paying consideration in terms of royalty for use of brand name and technical knowhow of the brand owner - Held that:- Arrangement between the appellant and M/s. Pilkhani is squarely covered under clause 3 of said Circular wherein the appellant gets IMFL manufactured by M/s. Pilkhani who is holding the State license of manufacture of alcoholic beverages. In particular M/s. Pilkhani is owner as contract bottling i.e. CBU. As per the agreement, cost of raw material and other expenses were either paid by the appellant or reimbursed by the appellant. The State levies such as excise levy or taxes were also reimbursed to M/s. Pilkhani by the appellant. The IMFL was sold by or as per the direction of the appellant on profit /loss on account of the manufacturing and sale of IMFL is entirely on account of appellant who holds the property risk and reward of the product. M/s Pilkhani received consideration for undertaking the manufacture of job work done basis. In these circumstances, the appellant is not required to pay service tax at all. As per the agreement between the parties, the risk of manufacture and sale lies with the appellant in respect of the Foster Brand beer got manufactured by it from FIPL. It is evident from the contract that FIPL is only responsible for bottling, packing and dispatch as per the specification, terms, formula etc. as laid down by the appellant. Further, FIPL is bound to charge the price from the notified Indenter of the appellant as fixed by the appellant. Only for the risks associated with the manufacturing process fastened on FIPL (CBU), it cannot be said that as FIPL is responsible for proper quality, quantity and timely production, they are providing Franchise Service and/or IPR Service. Appellant are the Brand Owner of IFML and M/s. Pilkhani is a job worker manufacturing IMFL on behalf of the appellant and the amount retained by the appellant is the business profit not liable to be taxed under the Finance Act, 1994 under the category of Intellectual Property service. Therefore on merits, we hold that appellant are not required to pay Service Tax under the category of Intellectual Property Right service. - Decided in favour of assessee.
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2015 (6) TMI 585
Demand of service tax - Tax on commission received - Commission as distributor of Amway - Held that:- activity of a Distributor of identifying other persons, who can be roped in for sale of the Amway products/marketing of the Amway products and who on being sponsored by that Distributor are appointed by Amway as second level of distributors is, in our view, the activity of marketing or sale of the goods belonging to Amway and the commission received by the Distributor from Amway, which is linked to the performance of his sales group (group of the second level of distributors appointed on being sponsored by the Distributor) would have to be treated as consideration for Business Auxiliary Service of sales promotion provided to Amway. Therefore, service tax would be chargeable on the commission received by a Distributor from Amway on the products purchased by his sales group. However, in the impugned orders service tax has been demanded on the gross amount of commission and no distinction has been made between the commission earned by a Distributor from Amway based on his own volume of purchase from Amway and the commission earned by him on the basis of the volume of purchases of Amway products made by his sales group i.e. group of second level of Distributors appointed by Amway on being sponsored by the Distributor. - Matter remanded back. Whether duty exemption under notification no.5/2006-ST would be admissible to the Distributors in this group of cases - distributors are engaged in promoting sales/marketing of the products of Amway and they are not marketing or promoting any taxable service which is branded and the brand name belongs to another person. Marketing or sale promotion of branded products by a person/ commission agent does not amount to providing branded service by him and hence, marketing or sales promotion of a branded product does not come under the exclusion category as mentioned in the proviso to notification no.6/05-ST. In this group of cases, the eligibility of the Distributors (assessees) for the exemption notification no.6/2005-ST has not been examined and for this purpose also, these matters have to be remanded to the Original Adjudicating Authority. When there is scope for doubt in the mind of an assessee on a particular issue, the longer limitation period, under proviso to Section 11 A(1) cannot be invoked and in our view, the ratio of this judgement of the Apex Court is applicable to the facts of these cases. Therefore, the longer limitation period of 5 years under proviso to Section 73(1) of the Finance Act, 1994 would not be invokable and duty can be demanded only for normal limitation period of one year from the relevant date. - impugned orders passed by the Commissioner (Appeals) are set aside and the matters are remanded to the Original Adjudicating Authority for de novo adjudication strictly in terms of our observations and directions in this order - Decided in favour of assessee.
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2015 (6) TMI 584
Wrongful utilization of CENVAT Credit - Renting of immovable property - Held that:- It appears that the property located in Mumbai was never registered under service tax. In Pune the appellant had their manufacturing unit where they were taking credit of input services used in their manufacturing activities as well for providing output services. The correct procedure was to take recourse to centralized registration which they failed to do so. This being an omission no doubt but the center of the dispute lies elsewhere. The prime question to be addressed by us is whether CENVAT Credit on various input services which are used by the appellant in the course of their manufacturing activity and output services may be utilized for the payment of service tax liability on the service of renting of immovable property. If the factory itself is located in a rented premises, then perhaps the nexus could be there but in the present case we are of the view that input credit cannot be utilized for paying service tax liability on the renting of immovable property service provided in Mumbai. Ld AR has correctly placed reliance on the Larger bench decision in the case of Telco Equipment (supra) holding that there must be semblance integral connection between the input service and the manufacturing/output service. If some information is available in various reports and returns which are to be formulated in compliance to other statutes it does not lead to a conclusion that the utilization of credit for the activity of renting is known to the department. The department is not supposed to know each and every declaration made outside the Central Excise and Service Tax law. Even if the financial report is available to the audit, the same is meaningless in the sense that it does not indicate that input service tax credit is utilized to pay the tax liability on such renting of property. If the credit is not available for paying service tax liability on the renting of property service, there is no bar on utilizing the same credit for manufacturing/other output services at Pune. As the appellant have already paid the amount of ₹ 54,44,777/- which is due to the department, they are allowed to take re-credit of the same amount. In the circumstances, there is reasonable cause to waive penalty under Section 80. - Decided in favour of assessee.
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Central Excise
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2015 (6) TMI 587
Determination of Annual Capacity of production - Hot Rolls - Steel Rolls - Claim of abatement under Rule 5 - Principle of natural justice - Held that:- Both sides suggested that this batch of appeals may be disposed with appropriate direction to lower authority to re-determine the liability in accordance with law. - Matter remanded back. Since it is mentioned in the Bar that Rule 5 of Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 is under challenge before Hon'ble High Court of Madras in the writ application as aforesaid, the authority shall be guided by judgement of the Hon'ble High Court if Judgment therein comes while doing re-adjudication. Otherwise his decision shall be subject to outcome thereof. In such event, the authority shall mention in his order that the re-adjudication order is subject to outcome of the writ application above.
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2015 (6) TMI 581
Waiver of pre deposit - Denial of CENVAT Credit - Held that:- There was a manufacturing unit of the appellant company in Bangalore and there is also a manufacturing unit of the appellant company in Gurgaon since February, 2009. However, according to the appellant company, Bangalore unit had stopped manufacturing operations in 2007 and since February, 2009 it is only the Gurgaon Unit which is in operation. There is also no dispute that the 10 invoices on the basis of which the CENVAT Credit of ₹ 2,63,03,909/- has been taken by the Appellant had been issued by the parent company during period from March, 2011 to February, 2012 and against these invoices, the appellant company had made the payment to the parent company and the appellant company being the service recipient, has paid the service tax on the amount paid to the FSA, France under section 66A of Finance Act, 1994 read with section 2 (1) (d) (iv) of the service tax Rules, 1994. In case of the assessee who have paid service tax under reverse charge mechanism of Section 66 A of Finance Act, 1994 as service recipient in terms of the Rule 2 (1) (d) (iv) of service tax Rules, 1994, the challan under which the service tax had been paid is also a valid document for taking CENVAT Credit in terms of Rule 9 (1) (e) of CENVAT Credit Rules, 2004. Since the, challans under which the service tax, in question, has been paid and on the basis of which CENVAT Credit has been taken mention the Gurgaon Unit as the assessee, in terms of Rule 9 (i) (e), the CENVAT Credit cannot be denied to the appellant even though the invoices mention the address of Bangalore Unit of the Appellant Company. - Stay granted.
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2015 (6) TMI 580
Admissibility of cenvat credit - Inputs and/or input services used in setting up of wind mills, generation of wind power and maintenance as well as operation thereof - Held that:- Power shortage is well known to the economy. Hydro power, thermal power as well as wind energy are normally generated at a place nearness to the source of raw material. Wind energy is generated at the place where wind is available and reciprocal arrangement is made with Electricity Board for bartering the energy so generated. This is an accepted phenomena since power/energy generated cannot be stored. Places where wind energy generated is not consumable arrangement between the generator of energy and power distributing agency like electricity board is obviously made to save the power so generated and make that available at the place of manufacture. - there should not be inadmissibility of input credit on input or input services used by wind mills to generate energy which is made available through electricity board under barter system. - In absence of any materials on record showing energy generated by wind mills was used for the purpose other than manufacture or providing of service, all the appeals listed in the Sl. Nos. are allowed subject to in some of appeals are specific observations are made . - Decision in the case of CCE, Aurangabad Vs. Endurance Technology Pvt. Ltd. [2015 (6) TMI 82 - BOMBAY HIGH COURT] - Appeal disposed of .
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2015 (6) TMI 579
Penalty u/s 11AC - CENVAT Credit - Suo moto reversal of wrongly availed duty - Held that:- The appellant has taken Cenvat Credit in respect of education cess paid on basic custom duty which was not admissible. From the fact, it is clear that there is bonafide mistake in taking such credit on the part of the appellant. On pointed out by the audit, they paid Cenvat amount alongwith interest without raising any dispute of the said payment before issuance of show cause notice. In my considered view since the appellant without contesting and without protest paid wrongly availed Cenvat Credit alongwith interest before issuance of show cause notice and intimated vide their letter dated 19/5/2007 the case is squarely covered by subsection (2B) of Section 11A of Central Excise Act, 1944 according to which the Revenue should not have issued show cause notice. Therefore payment of Cenvat Credit alongwith interest attained finality. Since show cause notice was not supposed to be issued, consequential penalty should not have been imposed. In view of this position, I set aside the penalty under Section 11AC invoking provision of subsection (2B) of Section 11A of Central Excise Act, 1944. It is made very clear that payment of Cenvat Credit and interest thereupon is held to be sustained - Decided partly in favour of assessee.
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2015 (6) TMI 578
Denial of CENVAT Credit - sale of finished goods after repacking - Held that:- In the new factory, proper packing was undertaken, and goods were cleared on payment of duty by utilizing the CENVAT credit of duty paid at the time of shifting of goods. I find that even if the appellants have not followed the provisions of Rule correctly, it is only a technical omission on the part of the appellant and it cannot be said that there is revenue loss. Moreover, the claim that appellants had done proper packing for the purpose of marketing has not been contradicted or there is no contrary finding. The only claim of the department is that the finished goods were cleared and there was no process undertaken on it and therefore, the CENVAT credit could not have been taken. If the proper packing was not done and further packing was undertaken in the new premises, it would amount to clearance of semi-finished goods and in my opinion, the procedure followed by the appellant is acceptable. The second issue involved is the availment of CENVAT Credit by the appellant in respect of services which are utilized for trading as well as manufacturing. During the relevant period, the trading was not defined as a deemed service and therefore it can not be considered as an exempted service. Even though learned advocate offered to present detailed arguments on this issue, when it was pointed out that in the case of Orion Appliances Ltd., Vs CST Ahmedabad [2010 (5) TMI 85 - CESTAT, AHMEDABAD], the very same Member who is passing this order had taken a view that proportionate credit attributable to trading activity has to be reversed. - Decided partly in favour of assessee.
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2015 (6) TMI 577
Duty evasion - Attachment of property - Denial of request to cross-examine two persons whose statements have been relied upon by the Revenue - Held that:- In the light of the admitted position and emanating from the appellant that its properties and assets are attached, we are of the view that in the circumstances peculiar to the assessee the direction contained in paras 9.1 and 9.2 of the order under challenge need not be given effect to. The same stands substituted with a direction from us that the attachment levied on the properties of the appellant by the Revenue shall continue till the Commissioner (Appeals) gives effect to the Tribunal’s order. - Revenue not to take any further steps in pursuance to this attachment including to sell attached properties. However, we direct the Commissioner (Appeals) to dispose of the appeal remanded to him by the Tribunal as expeditiously as possible and within a period of three months from the date of receipt of a copy of this order. This would be a fair order and would meet the ends of justice - Decided in favour of assessee.
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CST, VAT & Sales Tax
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2015 (6) TMI 583
Nature of Contract - transfer of property for providing services is involved in the contract or not - whether the services being rendered by the petitioner company are in the nature of works contract or are pure and simple services - joint venture - use of machinery for doing Seismic surveys activity - Held that:- The petitioner is not engaged in drilling work but was only engaged for carrying out seismic survey work. The said work does not fall within the ambit of Section 4(3) of the TVAT Act. The Seismic survey is carried out to investigate the Earth's subterranean structure. There was no transfer of the right to use goods. The equipment of the petitioner contractor remained the equipment and material owned and provided by the contractor. The equipment remained in the control of the petitioner. The petitioner remained in exclusive possession and control of the said equipment and all the resources were supplied by the contractor. - These provisions of the contract clearly indicate that the contractor's equipment remained his equipment solely under his control and even the equipment of the company, if any, given to him did not become his equipment but remained the equipment of the company. Therefore, there was no transfer of right to use goods and the petitioner was only rendering services which are only amenable to tax by the Union of India and not by the State. - Decided in favour of assessee.
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2015 (6) TMI 582
Validity of tax board's decision - Held that:- The petitioner may be a department, which is responsible for generating/collecting Revenue for the State, is expected to maintain consistency in the judicial verdicts. As, in these earlier judgments, the Revenue has not made any endeavour to assail these verdicts by way of revision petition, it is not in fitness of things to examine the issue involved in this revision petition on merits. However, after examining the impugned order on merits also, at the instance of the learned counsel for the Revenue, I am affraid no question of law is involved in the matter requiring adjudication in exercise of revisional jurisdiction. - Decided against Revenue.
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Indian Laws
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2015 (6) TMI 592
Extensions of Suspension of appellant from service - disciplinary proceedings - issuance of incorrect NOCs - Held that:- prior to 1973 an accused could be detained for continuous and consecutive periods of 15 days, albeit, after judicial scrutiny and supervision. The Cr.P.C. of 1973 contains a new proviso which has the effect of circumscribing the power of the Magistrate to authorise detention of an accused person beyond period of 90 days where the investigation relates to an offence punishable with death, imprisonment for life or imprisonment for a term of not less than 10 years, and beyond a period of 60 days where the investigation relates to any other offence. If Parliament considered it necessary that a person be released from incarceration after the expiry of 90 days even though accused of commission of the most heinous crimes, a fortiori suspension should not be continued after the expiry of the similar period especially when a Memorandum of Charges/Chargesheet has not been served on the suspended person. It is true that the proviso to Section 167(2) Cr.P.C. postulates personal freedom, but respect and preservation of human dignity as well as the right to a speedy trial should also be placed on the same pedestal. Currency of a Suspension Order should not extend beyond three months if within this period the Memorandum of Charges/Chargesheet is not served on the delinquent officer/employee; if the Memorandum of Charges/Chargesheet is served a reasoned order must be passed for the extension of the suspension. As in the case in hand, the Government is free to transfer the concerned person to any Department in any of its offices within or outside the State so as to sever any local or personal contact that he may have and which he may misuse for obstructing the investigation against him. The Government may also prohibit him from contacting any person, or handling records and documents till the stage of his having to prepare his defence. Previous Constitution Benches have been reluctant to quash proceedings on the grounds of delay, and to set time limits to their duration. However, the imposition of a limit on the period of suspension has not been discussed in prior case law, and would not be contrary to the interests of justice. Furthermore, the direction of the Central Vigilance Commission that pending a criminal investigation departmental proceedings are to be held in abeyance stands superseded in view of the stand adopted by us.
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