Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
June 21, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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When the Tribunal cannot adjudicate whether an ex-Member of the Tribunal can appear before it as an Authorized Representative or not, the natural consequence of the view is that the Tribunal cannot debar an ex-Member of the Tribunal from appearing as an Authorized Representative - AT
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Addition of surrender of tenancy rights the amount received against the transfer of tenancy is assessable as capital gain and not income from other sources - AT
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Addition on account of sundry creditors Cash system of accounting it would be inappropriate to treat the entire advance as fees in the year of its receipt when it does not bear any particular characteristic - AT
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Additions on account of difference between the purchase and cost of sales - AO did not point out any defect/discrepancy in books of account - no addition - AT
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Scope of the Term sale u/s 2(47) - sale of land advance received by the assessee but possession was not given - not taxable as income did not accrue - AT
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AOs entertainment of application of the assessee u/s 154 for interest on refund itself was quorum-non-judice and any order passed by a non-jurisdictional authority is a nullity in the eyes of law and all subsequent proceeding, emanating from it is also a nullity - AT
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Claim of exemption u/s 54 - exemption cannot be rejected simply because of the fact that certain payments were made before the period / eligible time period starts from 19.10.2005 i.e. one year before the date of transfer - AT
Service Tax
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Web hosting service is a service which is used by person for marketing of his products and, therefore, in our prima facie view, the same has to be treated as support service of business or commerce. - AT
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Refund claim - Export of services - period of limitation - The date of receipt of such payment is not relevant for determining the time of export. - AT
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Bonafide belief is not blind belief and belief can be said to be bona fide only when it is formed after all reasonable considerations are taken into account. - demand confirmed invoking extended period of limitation - AT
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Waiver of pre-deposit - classification of services provided by Overseas Logistics Service Providers (OLSPs) to accomplish the overseas part of the clearing and forwarding job - prima facie taxable - AT
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Waiver of pre-deposit - Valuation - Once it is established that the charges collected from the customer in lieu of the RCVs is a service charge, not a sell, it is automatically established that the amount deducted by the dealer is nothing but commission which should be included to the taxable income of the noticee - AT
Central Excise
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Appellant availed credit on commission in respect of trading goods, which are not in or in relation to the manufacture of final products and therefore there are not eligible to avail credit on the commission paid on trading goods - AT
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CENVAT Credit - Credit on strength of debit notes - duty paying documents - there is no reason to deny the credit on the basis of the debit notes - AT
VAT
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Inter-State purchases of goods used in the execution of works contract where as mutual contract allows local procurement only -the movement of goods may or may not be as a result of a covenant but definitely it was an incident of the contract - benefit of CST allowed - HC
Case Laws:
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Income Tax
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2014 (6) TMI 595
Transfer pricing adjustment - Determination of ALP Disallowance of cost of land transferred to APHB Held that:- The two companies are parent companies who formed the assessee through that agreement - the provisions of the agreement are not to be violated by the assessee - The assessee cannot say that only the beneficial clauses in that agreement would be followed and the other part cannot be acted upon - The agreement as a whole is to be acted upon by the assessee in order to give full effect to the agreement - The obligation of the assessee under the agreement is nothing but an actionable claim in favour of the APHB - the burden of a contract cannot be assigned without the consent of the other party of the contract a contract as a whole is to be acted upon for the functional operation of the assessee - The terms of the agreement are very clear that unless obligations cast upon the assessee are carried on by the assessee, the assessee cannot function and operate - The assessee is bound by the terms therein and being so it is not possible to accept on behalf of Revenue that this is a case where income has accrued to the assessee and later on it was applied by it by passing the share of profit in favour of the APHB - the right to receive this payment was vested with the APHB and the assessee has to comply with the agreement in true letter and spirit - the payment made by the assessee to the APHB in terms of the agreement is to be allowed as wholly and exclusively incurred for the purpose of business Decided in favour of assessee. Disallowance of incentive paid to IJMII Held that:- The assessee was contractually liable to pay incentive to IJMII - The payment was measured as a percentage of development costs incurred for development of integrated township - the incentive payable was quantified based on the quantum of development costs incurred till 31.3.2007 - the liability to pay incentive crystallised during the year - the incentive payable is to be finalised after completion of construction based on the total cost of development does not postpone the incurrence of liability - incentive paid to IJMII is allowable irrespective of the fact that the construction of the township had not been completed at the end of the year - the fact that the execution of work was not in time is irrelevant for the purpose of allowability of expenditure - substantial completion of the project is done and only some minor works are pending which are very time consuming such as interiors, design changes by the owners etc. - incentive paid to IJMII is fully allowable in computing the business income Decided in favour of Assessee. Disallowance of incentive paid Held that:- The commercial complex was not completed in time it is not clear how such incentive was paid and what is the necessity for such payment while the project was in progress - IJMII is 51% shareholder of this company - incentive as well as 'anticipated profits' are taken away and profit is not disclosed for income tax purposes such that no dividend tax nor any tax need be paid - the profit/income disclosed by the taxpayer as well as one of the shareholders - among other justified reasons another issue to be noticed is that low incomes are only disclosed by taxpayer as well as one of the shareholders i.e., APHB - the reason can be traced to the self-serving nature of the agreement concluded after 8 months of incorporation - the applicability of Sections 2 (22), 40A(2) and unreasonableness of payment, there is no justification to allow the deduction on account of incentive paid Decided against Assessee. Disallowance of handling over charges Held that:- The assessee was to handover the flats after completion of construction within 12 months from the date of agreement with the purchasers - there was inordinate delay in completing the construction and the assessee has to pay compensation to the purchasers - AO held that the impugned sum is to be treated as interest as per definition u/s 2(28A) and to the extent there was failure to do TDS and the same is held to be disallowable u/s 40a(ia) - As per clause 38 which deals with delay in completion, the contractor shall pay to the employer for every day's delay certain compensation - These sums are to be as liquidated damages for delay and not as a penalty. As per Appendix:-B liquidated damages clause.38.1 the tax payer is liable to collect the damages from the contractor-cum-shareholder, i.e. IJMII - The AO has already pointed out that IJMII has not executed the work in time to term the payment as incentive for timely completion - There is no evidence placed on record to state that contractor handed over possession in time - the liability to pay liquidated damages vested in the tax payer Decided against Assessee. Payment of handing over charges Scope of term interest u/s 2(28A) of the Act Held that:- The handing over charges paid were not in respect of any debt incurred or money borrowed - the assessee had merely paid compensation for delay in completion and handing over possession of flats Relying upon Delhi Development Authority v ITO [1995 (1) TMI 126 - ITAT DELHI] - handing over charges cannot be equated with the word "interest" so as to invoke the provisions of section 40(a)(ia) of the Act and no addition is possible Decided in favour of Assessee. Addition of cost of land attributable to flats Held that:- Nothing prevented the tax payer to sell directly and credit such consideration to its P&L account - The necessity to conclude this agreement after incorporation of the company and to sell the flats only through shareholder is not substantiated - The expenditure is in fact incurred for the business purpose of shareholder and not for taxpayer's business - The necessity to incur such loss is also not established - Sec. 40A(2)(a) arises in this case as APHB is a shareholder holding 49% of shares in the company - excess expenditure is incurred for the specified person - it also amounts to diversion of profit since the shareholder, APHB, can sell at a far higher than Rs.400/- and make profit whereas the taxpayer incurs loss which is the quantum of addition made by the AO as disallowance - already the incomes disclosed by taxpayer and APHB are pointed out - The tax avoidance device is once again brought to light besides the legal issues Decided against Assessee. Disallowance made u/s 10A(2) of the Act Cost of construction of houses Held that:- The burden is on the AO to bring on record the proof with regard to market value of the services rendered - The expression used in this provision is "incurs any expenditure in respect of which payment has been made or is to be made in person" - actually payment must be made and there has to be expenditure incurred before the provision can be applicable - A trade discount is the subject matter of the claim is a discounted price of offer and not an expenditure thus, no question of invoking the provisions of section 40A(2) arises Decided in favour of Assessee. Disallowance of interest paid to IJMII Held that:- There was no evasion of tax since interest paid to IJMII was offered to tax by IJMII and the taxable income of IJMII was higher than the taxable income of the assessee - The interest was paid at prevalent bank rates - even though the construction agreement did not provide for payment of interest, the same was later on agreed between the parties orally and later confirmed in writing - contractual obligation is not necessary for incurring the expenditure Relying upon CIT v. Associated Electrical Agencies [2003 (12) TMI 36 - MADRAS High Court] - tax was also deducted at paid in respect of the interest paid to IJMII. Transfer pricing adjustment - Fees for Technical services Reimbursement of bank guarantee charges - Held that:- The transaction taken place is with domestic enterprises and at least one among the AEs are not non-resident - Both the assessee and IJMII are the residents for the purpose of Indian Taxation as they are Indian companies - Any transaction between them will not constitute an international transaction - The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more associated enterprises. Section 92A defines the term "associated enterprise" - Section 92A(1) provides the broad parameters on satisfaction of which two or more enterprises constitute associated enterprises - the deeming fiction u/s 92A(2) are limited to the parameters of management, control or capital. Section 92B(2) travels beyond these parameters - the primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs in terms of section 92A(1) and 92A(2) of the Act - the transactions between the assessee and IJMII do not fall u/s 92B(2) of the Act.
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2014 (6) TMI 587
Validity of assessment u/s 153A of the Act Reference to seized documents not made Held that:- Following Mr GOPAL LAL BHADRUKA, Versus DEPUTY COMMISSIONER OF INCOME TAX [2012 (6) TMI 657 - ANDHRA PRADESH HIGH COURT] - return filed for the AYs pending on the date of search - the assessment for the AYs stands abated on the date of initiation of search - even if there is no incriminating material to indicate any undisclosed income or income escaped assessment during the original assessment completed u/s 143(3), the AO is bound to make assessment u/s. 153A for all the AYs Decided against Assessee. Disallowance of expenses on commission income - Held that:- AO disallowed the expenditure without an iota of discussion in his order- There is no finding by the AO regarding how he doubted this expenditure and he in a mechanical manner disallowed the same which is not proper - Had he doubted the expenditure, he ought to have called for evidence and confronted the assessee to prove the genuineness of the expenditure - the expenditure cannot be disallowed Decided in favour of Assessee. Addition of unexplained credit u/s 68 of the Act - Held that:- Following Mr GOPAL LAL BHADRUKA, Versus DEPUTY COMMISSIONER OF INCOME TAX [2012 (6) TMI 657 - ANDHRA PRADESH HIGH COURT] - by virtue of section 158BI of the Act, various provisions of Chapter XIVB of the Act are made in applicable to the proceedings u/s. 153A/153C of the Act- while provisions of Chapter XIVB of the Act limit the enquiry by the AO to those materials found during the course of search and seizure operation, no such limitation is found in so far as section 153A/153C of the Act are concerned - there is no necessity of seized material to frame the assessment u/s. 153A of the Act as required for framing assessment u/s. 158BC r.w.s. 158BB of the Act - the assessee is required to explain the source while framing the assessment u/s 153A of the Act thus, the matter is remitted back to the AO to explain the source of receipt Decided partly in favour of Assessee. Addition of capital gain our of development agreement Already offered for tax - Held that:- The HUF has declared the income arising out of transfer of property vide Joint Development Agreement in the hands of HUF and paid tax consequent to the notice issued to the assessee u/s. 153A of the Act on 9.9.2009 - once the Department accepted the return of income declared by the HUF arising out of transfer of capital asset vide development agreement - it is not proper to tax the same in the hands of the assessee in any assessment year which amounts to double taxation - the lower authorities are not justified in taxing the capital gain arising out of transfer of capital asset vide development agreement. The entire control over the property was with the assessee inasmuch as the licence to construct the property was also in the name of the assessee - It was found that execution of the agreement could not amount to transfer as contemplated u/s 53A of the Transfer of Property Act Decided in favour of Assessee. Addition of unaccounted investment Investment of loans Held that:- There is no evidence to show that the assessee has given loans to these parties - the addition is made on the basis of conjectures and surmises - This is an assessment framed u/s. 153A r.w.s. 143(3) of the Act - There should be conclusive evidence to suggest that the assessee has carried on money lending business and in terms of money lending business the assessee has received these cheques - unless and until there is corroborative evidence to suggest that the assessee has carried on the money lending business no addition can be made Decided in favour of Assessee. Addition of value of gold and jewellery Held that:- Assessee rightly contended that the jewellery found at the residence of the assessee is not only belongs to the assessee but also belongs to the family members of the assessee and the same should be considered as per the CBDT circular 1916 dated 11.5.1994 - thus, the matter is required to the be remitted back to the AO to give credit to gold and jewellery to each member of the assessee's family members in terms of CBDT circular No. 1916 dated 11.5.1994 if they are living under single roof as supported by documentary evidence Decided partly in favour of Assessee.
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2014 (6) TMI 576
Debar from practice - Whether Shri Deepak R. Shah, advocate and ex-Accountant Member of the Income Tax Appellate Tribunal, is debarred from practicing before the Income Tax Appellate Tribunal in view of the insertion of Rule 13 E in the Income Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963 - Held that:- though the power of the Tribunal u/s. 253 is to adjudicate the issues arising out of orders passed by the lower authorities as prescribed in the section and pass such orders thereon as it deems fit, but at the same time, the Tribunal has inherent and incidental power to regulate the proceedings which are conducted before it. For example, Rule 17A of the Income Tax Appellate Tribunal Rules, 1963 prescribes for the dress code of the representatives of the parties before it. Therefore, if a representative appearing before it is in proper dress as per the said rule or not is to be decided by the Bench of the Tribunal before which he or she is appearing. To say that the Bench of the Tribunal has no jurisdiction to decide this incidental matter as because this issue is not arising out of the orders of the lower authorities, in my view is preposterous. When the Tribunal cannot adjudicate whether an ex-Member of the Tribunal can appear before it as an Authorized Representative or not, the natural consequence of the view is that the Tribunal cannot debar an ex-Member of the Tribunal from appearing as an Authorized Representative - Shri Deepak R. Shah, advocate and ex-Member of the Income Tax Appellate Tribunal, cannot be debarred by the Tribunal from practising before the Tribunal Benches - Decided in favour of appellant.
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2014 (6) TMI 575
Denial of exemption u/s 54EA of the Act - Addition of surrender of tenancy rights Income from other sources Held that:- Merely because the correction is made in the agreement would not render entire agreement as non-genuine when all other place the name of the assessee is correctly appearing in the agreement even this is immaterial mistake which has been corrected in the name of the assessee - it does not affect the terms and conditions of the agreement - the rent receipts placed on record are duly signed and also appearing dates and month for which the rent was paid - The rent receipt coupled with the agreement in respect of the premises establish the fact that the assessee was having tenancy right in respect of the premises - tenancy right was surrendered by the assessee in lieu of alternative accommodation to be constructed by the developer under the redevelopment plan. The tenancy right has been recognized as the capital asset u/s 55(2) of the Income Tax Act - there is no doubt that the consideration to be received by the assessee against the surrender of tenancy rights is capital in nature and to be assessed as capital gain - the value of tenancy rights along with the construction cost was converted/substituted into the alternative accommodation to be provided by the builder in the year 2000 - the amount received against the transfer of tenancy is assessable as capital gain and not income from other sources - the amount received by the assessee is against the transfer of capital asset there was no justification in treating the same as income from other sources - assessee has produced sufficient material to establish the tenancy rights and surrender of tenancy rights and creating the right to have alternative accommodation - the assessee surrendered the right in alternative accommodation and received the amount in question which is capital gain in nature the amount has been invested in the prescribed units u/s 54EA thus, the assessee is entitled for deduction u/s 54EA against the receipt Decided in favour of Assessee.
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2014 (6) TMI 574
Expenses on replacement of meters Head Office Expenses - Held that:- Company engaged in the business of providing energy/ electricity and finding that the expenses have been incurred for development and to take care of environmental issues - The Tribunal rightly noted the factual position and particularly that the very claim arose for the AY 1999-2000 to 2005-2006 - The particulars in that regard are referred in the order of the ITAT thus, no substantial question of law arises for consideration Decided against Revenue. Deduction u/s 80IA of the Act - Purchase price from Tata Power Company Held that:- The Tribunal was of the view that till the AY 2005-2006, the Revenue considered the rate at which the power was purchased by the Assessee from Tata Power Company as market value - there is nothing brought on record as to how the rate determined by the MERC is the true market value - the reasons assigned by the ITAT and finding that the attempt is to seek re-appreciation and reappraisal of the factual data thus, no substantial question of law arises for consideration Decided against Revenue. Disallowance u/s 14A r.w Rule 8D of the Rules - Held that:- Following Godrej & Boyce Manufacturing Company Limited v/s DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] - the disallowance u/s 14A of the Act, has to be made in accordance with the principles laid down in the decision - Rule 8D should not be applied retrospectively - Such findings of remand and based on the judgment of the Court obviously will not raise a substantial question of law Decided against Revenue.
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2014 (6) TMI 573
Disallowance u/s 40(a)(ia) of the Act - Payment of management fee TDS not deducted Held that:- The net amount is required to be grossed up for the purpose of deduction of tax at source- the assessee made deduction of tax at source @ 10% of the net amount paid - it appears that the assessee did not furnish any details about deduction of tax at source from this management fee and its resultant payment thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Revenue. Expenses incurred as Fees and subscription Held that:- The AO proceeded to make disallowance by observing that the assessee purchased some software against which the subscription/fee was paid - without examining the actual detail of such expenses, the AO went on to make addition - the details of expenses which do not relate to software purchase as was made out by the AO, were sent to him for remand report - he considered it expedient not to offer any comment. There was no reason to deviate from the finding recorded by the CIT(A) that such expenses were not for software purchase but revenue in the nature towards fees and subscription Decided against Revenue. Addition of communication and travelling expenses Held that:- The AO was not justified in disallowing the entire expenditure of ₹ 1.25 crore merely on the ground that this expenditure was excessive in comparison with the preceding year - the assessee did not file any details of such expenses, but the assessee did furnish the necessary details of such expenses on various dates thus, the order of the CIT(A) does not require any interference Decided against Revenue.
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2014 (6) TMI 572
Rejection of books of accounts u/s 145(3) of the Act - Confirmation of addition by adopting GP @ 23.338% of the Act Held that:- The result disclosed by the regularly maintained books of account cannot be rejected unless it is found that the books of account maintained are either incomplete or unreliable or method of accounting employed is such on the basis of which correct profit of the assessee cannot be deduced - the assessee maintained regular books of account which were duly audited and the stock register was also duly maintained by the assessee - no material was brought on record to show that any transaction made by the assessee was not recorded in the books of account - no material was brought on record to show that the method of accounting employed by the assessee was not a regular or consistent method or a method from which the correct profit of the assessee could not be deduced - disproportionate increase in expenses under any head by itself does not empower the Revenue to reject the book results - Such a situation only creates a doubt and requires the AO to verify the genuineness of the expenditure with caution - the AO cannot reject such expenses without finding that any bogus or non-business expenditure or capital expenditure has been debited. Revenue could not bring any material on record to show that any bogus expenditure or non-verifiable expenses were debited under any head of expenses - the wholesale rejection of book result was not warranted - reasons given for rejecting the book results was inability of the assessee to properly explain the reason for decline in gross profit for disproportionate increase in expenses in three heads - the reason could at best present a case where the AO ought to have verified the books with caution and make due inquiries but does not empower the AO to reject the book results. The breakage claimed during the year worked out to 0.61% of the total production which compares favourably with the breakage of 1.22% accepted by the Department in the case of the assessee in the AY 2007- 08 and 1.08% accepted in the AY 2008-09 - no addition in respect of breakage claimed in the year is also warranted - the entire addition is not sustainable Decided in favour of Assessee. Deletion of gross profit on unaccounted production Held that:- CIT(A) was of the view that the assessee contended before him that the assessee never admitted that the projected production worked out on the basis of comparative quantitative consumption of fuel was actual production of the year - no material was brought by the Revenue to show that the assessee admitted at any time that its actual production during the year was 17,63,930 square metres and not 17,11,343 square metres as recorded in the audited books of account. No material was brought before us to controvert the finding of the CIT(A) to the effect that the quantity of fuel consumption may vary in manufacturing of glazed tiles from one period to other period for various reasons and the comparison of fuel consumption in absolute terms as against quantity is improper, the manufacturing process of the assessee with regard to the nature of fuel used was changed during the year. Moreover, we find that no specific defect in the correctness and completeness of the audited accounts of the assessee could be brought on record by the Revenue. It was not open to the Revenue to brush aside the result disclosed from books of account - absolutely no material was brought on record by the Revenue to show that the assessee actually produced quantity more than what has been disclosed in the books of account or made any sale which was not recorded in the books of account - variation in the amount of consumption of fuel could have been a ground for careful scrutinizing of the facts, but it by itself does not empower the AO to assume some undisclosed production and thereby make addition to the result disclosed by the regularly maintained books of account there was no infirmity in the order of the CIT(A) Decided against Revenue. Deletion of additional depreciation on electric installation Held that:- Following DCIT Vs. Datacraft India Limited [2010 (7) TMI 642 - ITAT, MUMBAI] - where electric installations were part of plant and machinery, the assessee was entitled to depreciation at the rate applicable to plant and machinery and not electric installations and allowed the appeal of the assessee revenue could not point out any specific error in the order of the CIT(A) - the claim for depreciation on electrical installation at the rate applicable to plant and machinery to the assessee is allowed Decided against Revenue.
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2014 (6) TMI 571
Determination of gross business receipts Estimation of income @ 12.5% of gross receipts Held that:- The account copy indicated that deposits are made from 08.11.2006 to 29.03.2008 - closing balance as on 29.03.2008 is the balance available up to 29.12.2008 as well - prima facie this part of turnover taken into the total turnover of the assessee on the basis of the bank deposits may not pertain to the year under consideration - this aspect was not examined by the CIT(A) and also not raised before the AO as there was no compliance to various notices before the AO the matter is required to be remitted back to the AO for fresh adjudication. The withdrawals may be for the purpose of business and since estimation was done on the basis of the receipts only, the withdrawals cannot be given credit - no books of account were maintained or no reasonable explanation was offered, the profit at the rate of 12.5% may meet the justice at both the ends - Based on the facts of the case, the profits of the assessee, deserved to be estimated at 12.5% on the turnover as quantified - assessee choose not to maintain books of accounts nor furnished any return of income inspite of various notices issued - CIT(A) is very considerate in estimating the income at 12.5% - there was no reason to interfere with the order of the CIT(A) Decided partly in favour of Assesee.
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2014 (6) TMI 570
Deletion of excess depreciation on computer peripherals Held that:- Following CIT Vs. BSES Rajdhani Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] - the assessee is entitled to higher rate of depreciation, i.e., at the rate of 60% on computer accessories and peripherals instead of the normal rate of 25% - Decided against Revenue. Deletion made u/s 14A r.w Rule 8D of the Rules Held that:- For the purpose of the clause, only the assets, income from which does not or shall not form part of total income, is to be considered thus, the investment in the shares in the company whose dividend income is taxable cannot be considered as investment thus, the matter is remitted back to the AO for examination of the assessees contention and exclude the assets, income from which is taxable Decided in favour of Revenue.
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2014 (6) TMI 569
Addition on account of sundry creditors Cash system of accounting amounts shown as sundry creditors has been invested by the assessee in the Mutual Funds and properties - Held that:- As it has already been decided in assessees own case for the earlier assessment year, it has been held that, the assessee is following cash system of accounting - the assessee has to account for all the incomes received during the year irrespective of the fact whether they have accrued to the assessee or not - a receipt to be accounted as an income must bear the character of an income and then only it can be treated as such in the year of receipt under the cash system of accounting Relying upon KCP Limited Versus Commissioner of Income-Tax [2000 (8) TMI 3 - SUPREME Court ] - if a receipt is a trading receipt, the fact that it is not so shown in the account books of assessee would not prevent the assessing authorities from treating it as a trading receipt - the advance received by the assessee does not bear the character of a professional fee - It is merely an advance out of which many expenses may have to be incurred before the matter gets finally concluded - The characterization of the receipt can take place only at the time of appropriation i.e., in case of fees only when the matter is over and the assessee decides upon the quantum of fees - it would be inappropriate to treat the entire advance as fees in the year of its receipt when it does not bear any particular characteristic Decided against Revenue. Restriction of disallowance u/s 14A of the act Nexus between expenses were incurred for earning the exempt income Held that:- CIT(A) rightly restricted the disallowance from Rs. 8,92,738/- to Rs. 94,721, thereby granting a relief of Rs. 7,98,017/- to the assessee Following Justice Sam P. Bharucha Versus Additional Commissioner of Income-tax-11(3), Mumbai [2012 (12) TMI 409 - ITAT MUMBAI] - when it is possible to determine the actual expenditure in relation to the exempt income, or when no expenditure had been incurred in relation to exempt income, the principle of apportionment embedded in Section 14A of the Act has no application, that to disallow the expenditure u/s 14A of the Act, there must be a live nexus between the expenditure incurred and the income not forming part of total income; that a notional expenditure cannot be apportioned for the purpose of earning exempt income unless there is an actual relation in earning income not forming part of total income - the AO had not given any finding that any of the expenditure incurred and claimed by the assessee was attributable to earning of the exempt income - in the absence of any such instance of expenditure, finding of the AO, or any material that the assessee had in fact incurred any such expenditure having relation to the earning of the exempt income, the provisions of Section 14A of the Act cannot be applied thus, the order of the CIT(A) is upheld Decided against Revenue.
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2014 (6) TMI 568
Validity of reassessment u/s 147/148 of the Act Failure to issue notice u/s 143(2)(ii) within period of limitation - Held that:- The assessee had filed the return for AY 1998-99 in December, 1998, for AY 1999-2000 in March, 2000 and for AY 2001-02 in January, 2001 as it has already been decided in the earlier assessment year, the agricultural income shown by the assessee has been accepted by the Revenue in some years in 143(1) and in some years in 143(3) - the income disclosed by the assessee is Rs.2,50,000/- in AY 1998-99, Rs.3,00,000/- in AY 1999-2000 and Rs.4,50,000/- in AY 2000- 01 - the income disclosed is higher than the income accepted in the preceding two years - if the AO had any doubt about the correctness of the agricultural income disclosed and he wanted to verify the same, he ought to have issued notice u/s 143(2)(ii) within the time limit permissible under the proviso to above sub-section - Having failed to issue the notice u/s 143(2)(ii) with the period of limitation, Section 148 cannot be invoked to get the extended time limit for verification of the correctness of the income returned thus, the issue of notice u/s 148 was not valid Decided in favour of Assessee. Estimation of the agricultural income Held that:- The assessee has not maintained any regular books of account with regard to agricultural income - after several years, the AO was not justified in estimating the agricultural at Rs.1,00,000/- in AY 2001-02 and Rs.59,553/- in AY 2003-04. - the assessee has enclosed the copy of the letter written by the assessee to Tehsildar for issuing certificate of agricultural income - it would meet the ends of justice if the agricultural income of the assessee is estimated at Rs.3,50,000/- in both the years Decided partly in favour of Assessee.
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2014 (6) TMI 567
Additions on account of difference between the purchase and cost of sales - Facts properly not appreciated Held that:- CIT(A) was rightly of the view that the AO having failed to point out any quantitative discrepancy in the sales and purchases or any defect in the books of account and had made hypothetical addition on notional basis - the supplier M/s Rabani had also confirmed the fact that the goods were sent on approval basis to the assessee as a regular feature of a particular relationship which confirmation was filed with the AO - the assessee had been consistently following the same method of accounting in the earlier assessment years and its assessments had been earlier completed u/s 143(3) of the Act - the assessee was receiving the goods on approval basis and once the item was sold it requested supplier to issue the purchase bill - sales preceded purchases and not vice versa the method being regularly followed by the assessee the purchases of 31st March could not be matched with the sales of 31st March - the AO did not point out any defect/discrepancy in books of account - there was no difference in the quantitative tally of purchases and sales Decided against Revenue. Liability to deduct TDS u/s 194C of the Act Payment made for specific tailoring/alteration charge Held that:- From the statement of Ms. Ratna Vyas recorded by AO, it is evident that the proprietor of both the firms confirmed the transaction of purchases by the assessees proprietorship firm - there was no basis for treating the amount of purchases made from the above proprietorship firms as job work on conjectures and surmises - a probable fact has to yield against a specific statement unless some material is found to said the statement - The assessee had furnished quantitative tally of goods purchased (including purchases made from Ratna Vyas and RV Company) and sold during the year in which no discrepancy had been found or pointed out by the AO thus, there was no reason to interfere in the order of the CIT(A) Decided against Revenue. Sufficiency of drawings Held that:- The AO was quite reasonable in estimating the household expenses @ Rs. 25,000/- per month - he should have taken into consideration the withdrawals of other family members as she was living in joint family thus, the AO is directed to compute the disallowance accordingly Decided partly in favour of Revenue.
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2014 (6) TMI 566
Validity of order u/s 147 of the Act - Issues not properly addressed by CIT(A) Jurisdiction of the AO Held that:- Various legal propositions have been discussed by the CIT(A), however, the specific challenge posed to the jurisdiction of the AO vide the abovementioned grounds raised before the CIT(A) by way of revised additional grounds have not been adjudicated upon thus, the matter is required to be remitted back to the CIT(A) for fresh adjudication with the direction to decide the said grounds raised before him by way of a speaking order - only difference in the case of Raj Kumar Suneja is that the AO made an addition considered as bogus accommodation entries from M/s Batra Investment vide his order u/s 143(3)/147 wherein also before the CIT(A) by way of the specific grounds similar grounds were raised which it was argued have not been decided by the CIT(A) and an identical request that the issue may be restored Decided in favour of Assessee.
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2014 (6) TMI 565
Transfer pricing adjustment Advertisement, marketing and sales promotion expenses - LG. Electronics India P. Ltd. Versus Assistant Commissioner of Income-tax [2013 (6) TMI 217 - ITAT DELHI] not followed Held that:- Incurrence of AMP expenses higher than those incurred by comparable companies resulted in creation of marketing intangibles for the AE, thus amounting to an international transaction - Expenditure on Selling and distribution, being in the nature of selling expenses had to be excluded from the ambit of AMP expenses - DRP does not appear to have recorded categorical findings - apart assessees pleas on comparables are not found to have been considered objectively thus the order of the AA is set aside and the matter is remitted back to the Assessing Authority for fresh adjudication Decided in favour of Assessee.
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2014 (6) TMI 564
Scope of the Term sale u/s 2(47) - sale of land advance received by the assessee but possession was not given - Sale to be treated as capital gain or not u/s 45 of the Act - Agreement entered after 12 months of payment Held that:- CIT(A) was of the view that the land remained vested in Gram Sabha for the entire period from 29/03/2005 to 25/08/2007 - the appellant could not have handed over possession to the prospective buyer during the previous year relevant to AY 2007-08 - there is absolutely no material on record to justify any finding of possession - the possession of property was neither given nor allowed to be retained, provisions of s. 53A of Transfer of Property Act r/w s. 2(47)(v) of the I.T. Act have no application - there was no valid transfer of the land during the P.Y. relevant to AY 2007-08 so as to give rise to any income in the form of capital gains Decided against Revenue.
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2014 (6) TMI 563
Interest on refund u/s 244A of the Act Held that:- It is a code of its own for claiming interest on refund and it states that when any refund of any amount becomes due to the assessee, he shall be entitled to receive in addition to the amount, simple interest calculated in the manner given under the section - section 244A is subject to the provision of other sub-sections of section 244A - the entertainment of application/appeal for interest on refund by the AO at the first instance u/s 154 of the Act itself was without jurisdiction - The assessee ought to have moved an application before either the Chief Commissioner of Income Tax or Commissioner of Income Tax having jurisdiction to entertain its application for interest on refund u/s 244A of the Act, rather than moving an application u/s 154 before the AO at the first place - there is no inherent right of appeal - Appeal is a creature of statute and when the statute has provided a specific appeal provision for the relief claimed, then only that forum can exercise jurisdiction of appeal and no other. CIT (A) have erred in upholding the order of the AO - the AO withdrew his own order passed u/s 154 of the Act, for the simple reason that the application/appeal for interest on refund cannot be entertained by the AO, an application for refund of interest will lie only before the jurisdictional Chief Commissioner or the CIT - the AOs entertainment of application of the assessee u/s 154 for interest on refund itself was quorum-non-judice and any order passed by a non-jurisdictional authority is a nullity in the eyes of law and all subsequent proceeding, emanating from it is also a nullity - the order of the CIT (A) - the assessee is at liberty to move before proper Forum for relief u/s 244A Decided in favour of Assessee.
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2014 (6) TMI 562
Corporate Tax matter Service income - Income from other sources or not Held that:- Following ITO, Ward 18 (4), New Delhi Versus Yum! Restaurants (India) Private Ltd. [2014 (4) TMI 532 - ITAT DELHI] - the word business is one of wide import and which means an activity carried out continuously and systematically by a person by the application of his labour and skill with a view to earn income - the assessee is receiving the income from parent company i.e. YRI and not making payment to it the AO miserably failed to appreciate the facts and circumstance - The assessee has been offering income from consultancy etc. as a business income - It has duly been accepted by the department since 1998-99 - The AO without assigning any valid reason concluded that it is an income from other sources the First Authority has considered this issue in right perspective Decided in favour of Assessee. Disallowance of royalty expenses Held that:- Following ITO, Ward 18 (4), New Delhi Versus Yum! Restaurants (India) Private Ltd. [2014 (4) TMI 532 - ITAT DELHI] - The AO has misread the approvals granted by the Govt. of India while arriving at a conclusion that assessee has not been remitting the payment as per the approvals - In the approval SIA has used expression royalty as well as fee for technical services loosely and interchangeably - Apart from all these things, the tax rate for remitting a royalty as well as fee for technical service is 15% plus the research and development cess - The assessee has paid both these amounts while remitting the payment - The expense is directly related to its business - It has been incurred wholly and exclusively for running the franchises within India Decided in favour of Assessee. Hypothetical disallowance of the administrative expenses Held that:- Following ITO, Ward 18 (4), New Delhi Versus Yum! Restaurants (India) Private Ltd. [2014 (4) TMI 532 - ITAT DELHI] - YRMPL was incorporated on 8th June, 1999 - It is a 100% owned subsidiary of the assessee - It has been incorporated to carry out advertisement, marketing and promotion activities of the assessee as well as various franchise - The assessee had entered into a tripartite agreement with its franchise and YRMPL - As per this agreement, the franchise shall pay AMP contribution to YRMPL and assessee may not pay a separate contribution - YRMPL was to carry out the activities on no profit no loss basis - The AO has disallowed the expenses which are attributable to YRMPL but in fact, he ought to have not disallowed any such amount because ultimately it is the assessee who has to contribute for all these sums - The assessee can bear the cost of administrative expenses to be incurred by YRMPL or it can separately remitted the amount to YRMPL towards such cost - it is the assessee or its franchise who has to contribute this amount - CIT(A) has rightly deleted the disallowance Decided in favour of Assessee. Disallowance of depreciation u/s 32 of the Act Held that:- Following ITO, Ward 18 (4), New Delhi Versus Yum! Restaurants (India) Private Ltd. [2014 (4) TMI 532 - ITAT DELHI] - The AO has highlighted certain discrepancies in the maintenance of WDV of the assets as well as identification of each asset - There may be some shortcomings but that does not mean that assessee was not having any assets and they were not used for the purpose of business - AO ought to have identified each item and find out how that item is treated in the block of assets, if it is established that those assets were not used for the purpose of the assessees business then he should make out a care for disallowance of depreciation - By making general observation, he cannot deny the total claim of the depreciation of the assessee - CIT(A) has already directed the AO to give effect outcome of 1999-2000 - The depreciation disallowed in asstt. year 1999- 2000 would be considered for disallowance in this year also Decided in favour of Assessee. Disallowance of excessive advertising, marketing and promotion (' AMP') contribution Held that:- Following ITO, Ward 18 (4), New Delhi Versus Yum! Restaurants (India) Private Ltd. [2014 (4) TMI 532 - ITAT DELHI] - The DRP has given a finding that the major beneficiary of the AMP expenditure was foreign associate concerns who are the owner of the brand and the franchisees are only marginal beneficiaries - no finding has been recorded with regard to the relevant provisions with regard to advertisements etc. in the franchisees agreement between the assessee and the franchisees the matter is liable to be remitted back to the AO for fresh adjudication Decided in favour of Assessee. Disallowance of the research and development expenses Held that:- Following ITO, Ward 18 (4), New Delhi Versus Yum! Restaurants (India) Private Ltd. [2014 (4) TMI 532 - ITAT DELHI] - In its day to day operations, assessee is experimenting new dishes, where it incurred expenses on food items and spices etc. - On many of occasions, the flavor may not come to the expectation for commercialized use - Thus, these are the routine research work carried out by the assessee and no capital assets came into existence - DRP has erred in treating this amount as a capital expenditure Decided in favour of Assessee. Disallowance of tax depreciation @60% on computer peripherals Held that:- Following CIT vs. BSES Yamuna Powers Limited [2010 (8) TMI 58 - DELHI HIGH COURT] - computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system - the computer accessories and peripherals cannot be used without the computer - they are the part of the computer system, they are entitled to depreciation at the higher rate of 60% - Decided in favour of Assessee. Selection of comparables Support services outside India Functionally different companies - Held that:- Saket Projects Ltd. cannot be held to be comparable on the basis of functional dissimilarities and the assets employed Relying upon ITAT, Delhi Bench-I, New Delhi in the case of M/s. Premier Exploration Services Pvt. Ltd. vs. ITO [2013 (11) TMI 1413 - ITAT DELHI] - When direct comparables are available then segmental results of companies engaged in other business should not be taken as comparable - the specific characteristics of services provided, assets employed and risk assumed, i.e. the FAR of the comparable is decisive and inclusion or exclusion of comparables - Saket Projects Ltd is functionally different as it is organizing events with various kinds of sponsorships - The company in the division is earning revenue from selling event fees and offering space for rent which cannot be comparable with provision of marketing and sales support services - the segmental allocation of expenses was also not reliable. Also, M/s. Choksi Laboratories Ltd., was engaged in chemical testing services which are highly technical and not comparable to assessee thus, Choksi, Rites and Wapcos are functionally different from the assessee company and cannot be held to be proper comparables the TPO is directed to exclude them from the TPO adjustment while determining the ALP - As far as, M/s. Indus Technical & Financial Consultants Ltd. is concerned, it is engaged in rendering services pertaining to environment and energy conservation which cannot be held to be different from the assessee company - the assessees claim that as per the website of the company, M/s. Indus Technical & Financial Consultants Ltd. is a renowned manufacturer of TMT Bars, there was no substance in the claim Decided partly in favour of assessee.
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2014 (6) TMI 561
Valuation of stock - Deletion of Excise duty/modvat credit Invocation of section 145A of the Act Held that:- When the assessee is following exclusive method of accounting for the valuation of purchase and sale of goods as well as inventory, the further adjustment is required to be made to include the amount of excise duty in such valuation as per the provisions of section 145A of the Act assessee has submitted that detailed working was filed by the assessee before the CIT(A) to show that the adjustments required to be made as per the provisions of section 145A of the Act are revenue neutral having no effect on the final profit of the assessee and after taking into consideration the working, the CIT(A) deleted the addition made by the AO by invoking the provisions of section 145A of the Act - revenue contended that working furnished by the assessee before the CIT(A) for the first time in support of its claim by the assessee has been relied upon by the CIT(A) to give relief to the assessee without giving an opportunity to AO to verify the same - there is also nothing in the order of CIT(A) to show that the working has been verified by him thus, the matter is required to be remitted back to the AO for verification of the working furnishing by the assessee before the CIT(A) to show that the adjustments required to be made u/s 145A of the Act are revenue neutral having no effect on its final profit Decided in favour of Assessee.
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2014 (6) TMI 560
Disallowance of additional deprecation on installation of embroidery machines Held that:-Following DCIT vs. Cosmo Films Ltd. [2012 (9) TMI 281 - ITAT DELHI] - the additional depreciation cannot be restricted to 50 % and it has to be allowed in succeeding years if it is not allowed full in the relevant year the assessee had earned the benefit as soon as he had purchased the new plant and machinery in full but it is restricted to 50% in that particular year on account of period of usages - Such restrictions cannot divest the statutory right - Law does not prohibit that balance 50% will not be allowed in succeeding year - The extra depreciation allowable u/s 32(1)(iia) in an extra incentive which has been earned and calculated in the year of acquisition but restricted for that year to 50% on account of usage - The so earned incentive must be made available in the subsequent year - overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of plant machinery thus, the order of the CIT(A) in respect of deletion of disallowance on account of additional depreciation is upheld Decided against Revenue.
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2014 (6) TMI 559
Claim of exemption u/s 54 of the Act Deletion of disallowance of payment - Investment in the new house/apartment Held that:- CIT(A) rightly was of the view that the assessee started making payments w.e.f. 7.11.2004 though the eligible time period starts from 19.10.2005 i.e. one year before the date of transfer - the period of two years after the date of transfer of house ends on 19.10.2008 - The property has been constructed / purchased within two years after the date of transfer - the assessee is entitled to exemption u/s 54 having met the condition of making the investment within two years from the date of transfer - the main purpose of section 54 is to give relief in respect of profits on the sale of a residential house. The amount of capital gain has been invested by the assessee in new house property - the payment had started from November, 2004 and were paid in installments up to August, 2008 - the payments were made in view of the agreement entered into by the assessee with the developer in November, 2004 whereas the possession of the house was handed over to the assessee in January, 2008 and property was registered in the name of the assessee in May, 2008 - as per section 54, the assessee was required to invest in the new house property between the period 19.10.2005 to 19.10.2008 - The AO in view of the date of agreement being before 19.10.2005 disregarded the claim of assessee ignoring the fact that actual conveyance deed was executed between this period of 19.10.2005 & 19.10.208 - the claim of the assessee cannot be rejected simply because of the fact that certain payments were made before the period 19.10.2005 - CIT(A) though has considered the investment in the house as eligible investment u/s 54 but has excluded the payments made by the assessee before 19.10.2005 - CIT(A) was justified in doing so and there is no reason to interfere in the order of CIT(A) Decided against Revenue.
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Customs
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2014 (6) TMI 580
Denial of rectification of mistake - Typographical error - Held that:- in the case of self-assessed bill of entry there is no order passed by the assessing authority, therefore, no appeal lies against this order hence the impugned order is not sustainable - Commissioner (Appeals) in the impugned order only rectified a typographical mistake whereby the amount of the consignment was mentioned in Euro whereas it was, in fact, in terms of US Dollars. The Revenue is not disputing the fact that the value of the consignment was in US Dollars - No infirmity in order - Decided against Revenue.
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2014 (6) TMI 579
Jurisdiction of Tribunal - amendment of shipping bills filed - Held that:- According to Section 129A of Customs Act, 1962, any person aggrieved by a decision or an order passed by the Commissioner of Customs as an adjudicating authority, but in this case, the appellants are in appeal against the letters issued by the Deputy/Assistant Commissioner of Customs communicating the decision of the Commissioner not to allow the amendment of shipping bills filed by them. Since the appeals are not against adjudication orders passed by Commissioner as an adjudicating authority, this Tribunal has no jurisdiction to consider these appeals - Decided against assessee.
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Corporate Laws
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2014 (6) TMI 578
Appointment of receiver - Validity of sale of shares - whether the alleged allotment of 50,00,000 shares made in the Board Meeting of the Company purportedly held on 21/05/2013 is prima facie non-est, illegal and liable to be cancelled for the reasons stated hereinafter - Held that:- Ajay Singh Group was under an obligation to take consent of IL & FS Group and/ or obtain the affirmative vote of their directors before making such an allotment. Furthermore, taking into consideration the reasons pleaded by the Petitioners challenging the validity of the Board Meeting purportedly held on 21/05/2013 prima facie, I find that the said Board Meeting was not held by following due process of law - while granting an ad-interim injunction order, the Court is required to examine not only the "prima facie case", but also the other factors, like balance of convenience and "question of irreparable loss". Admittedly, IL & FS Group has made huge financial exposure in the Company and its interest is at stake now after losing the Appeal in the DRAT. I am, therefore, of the view that in case, the proposed settlement does not get through by the shareholders of the Company in the EOGM, that may be held by the Company for the purpose, the Petitioners may suffer irreparable loss as compared to the Ajay Singh Group. Therefore, in my considered view, both the factors are found in favour of the Petitioners. - Decided in favour of applicants.
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FEMA
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2014 (6) TMI 577
Hawala transactions - Partial explanation of payment made through hawala channels - During investigation appellant invoked right against self incrimination under Article 20(3) - Imposition of penalty - Held that:- Impugned AO of the SD, ED and the impugned order of the AT proceeded on the basis that the Appellant could not have validly invoked the right against self-incrimination under Article 20 (3) of the Constitution since he was not accused in any criminal proceeding initiated under FERA at the time his statement was recorded under Section 40 FERA. Both orders further proceeded to draw an adverse inference as regards his refusal to explain the entries found with the seized diaries - It is seen that the FIR of the CBI dated 4th March 1995 mentioned the provisions of both the PCA as well as FERA. At that stage the proceedings under FERA were yet to commence. It was noted in the FIR that the Superintendent of Police had sent to the ED a report for filing a statutory complaint under FERA. It is, therefore, clear that at the time when the statements of Mr. S.K. Jain and Mr. J.K. Jain were initially recorded, i.e., in April 1995 no proceedings under FERA had commenced. The second factor to be noted is that it is only at the stage of filing of the charge sheets by CBI on 16th and 23rd January 1996 that it became clear that the cases filed by the CBI did not govern the violations of FERA. Therefore, till that date the two noticees, Mr. J.K. Jain and Mr. S.K. Jain were justifiably advised that they could invoke their right under Article 20 (3) of the Constitution so as to not incriminate themselves while making their statements under Section 40 FERA. For the purpose of FERA, the noticee can, to the extent that he is required by the ED officers to give answers that might tend to incriminate him in the criminal proceedings under FERA, decline to do so. The resultant position as far as the present case is concerned is that on the dates of their examination in April 1995 the Appellant and Mr. J.K. Jain were 'accused' in terms of the FIR registered by the CBI and this continued till the filing of chargesheets by the CBI in January 1996. Therefore, the two noticees were entitled to invoke their right against self-incrimination under the Article 20 (3) of the Constitution. No adverse inference could be drawn against them for having exercised that right. Even thereafter, since admittedly criminal proceedings were also launched against the noticees under Section 56 FERA, they continued to be 'accused'. Their refusal to explain the entries could not lead to an adverse inference being drawn against them. This is not a case where a confession was initially made under Section 40 FERA which thereafter was retracted. Here the noticee either declined to answer or gave an answer which did not help the ED since he claimed that had no knowledge of the entries in the diaries. Mr. Panda sought to contend that the said answers should be construed as either false or misleading or both. The Appellant said that he was unable to explain the entries because they were not written by him. The latter part of the answer was a fact since the entries were admittedly made by Mr. J.K. Jain. While Mr. J.K. Jain claimed that he did so on the instructions of Mr. S.K. Jain, the AO itself noted that there was no evidence whatsoever to show involvement of Mr. J.K. Jain in the transactions of foreign exchange. The Supreme Court has in the V.C. Shukla case held that the so- called 'admissions' in relation to the entries by Mr. J.K. Jain in his statement under Section 40 FERA cannot be used against Mr. L.K. Advani or Mr. V.C. Shukla. It was, however, clarified that they could be proved against the Jains as admissions under Section 18 read with Section 21 IEA provided they relate to 'any fact in issue or relevant fact.' The initial burden of proving that the entries related to 'any fact in issue or relevant fact' was on the ED. - The penalty amount deposited by the Appellant pursuant to the impugned orders of the SD and AT will be refunded to him in accordance with law within a period of eight weeks - order set aside - Decided in favour of appellant.
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Service Tax
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2014 (6) TMI 594
Waiver of pre deposit - reverse charge - import of services - web hosting services - maintenance and repair service Held that:- in respect of maintenance and repair service in respect of software to have been received from foreign service providers during period from 09/07/04 to 17/04/06 - since these services had been received during period prior to 18/04/06 when there was no provision in the Finance Act, 1994 for charging service tax in respect of services received by a person in India from an offshore service provider - demand is not sustainable. As regards supply of software content for use in telecommunication service - held that:- for the period prior to 01/06/07 no service tax could be charged by treating this service as business support service. - demand is not sustainable. AS regards activity of wireless instant messenger application on MTCs network - Held that:- there is nothing in the joint venture from which it can be inferred that TASK, Kuwait were providing the service of marketing or promotion of the services of the appellant and, as such, this joint venture agreement cannot be said to be an agreement between the service provider and the service recipient. - demand is not sustainable. As regards web hosing services - classification - information technology service covered by Section 65 (105) (zzzze) or business support service taxable w.e.f. 01/05/06 under Section 65 (105) (zzzq) - Held that:- On perusal of Section 65 (105) (zzzze), we are prima facie view that the service of Web hosting being received by the appellant from foreign service providers is not covered by clause 65 (105) (zzzze), as this clause covers various services in relation to information technology software including development of information technology software, study, analysis, design and programming of information technology software, acquiring the right to use the information technology software supplied electronically etc. - On the other hand the Web hosting services received by the appellant involved providing of space by a service provider in his server to another person to enable that person to upload information about his business or his company which can be accessed by his customers, friends and other individuals through internet. The Web hosting service is a service which is used by person for marketing of his products and, therefore, in our prima facie view, the same has to be treated as support service of business or commerce. Therefore, in respect of the service tax demand on this service, the appellant do not appear to have prima facie case in their favour. - stay granted partly.
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2014 (6) TMI 593
Refund claim - Export of services - period of limitation - Rule 5 of the Cenvat Credit Rules, 2004 - Notification No.5/2006 CE(NT) - period fo limitation to be computed from the date of invoice / export or from the date of receipt in convertible foreign exchange - Held that:- Of course, if payment for export of service is to be obtained in rupees or non-convertible foreign exchange, then it will not be treated as export of service. Further, reading of Rule 4 of the Export of Service Rules indicates that any taxable service may be exported without payment of service tax. If rule 3(2) is to be read as export will take place only after receipt of payment in convertible foreign exchange then except in case of advance payment no service can be exported without payment of service tax. Thus a harmonious reading of sub-rule (2) to Rule 3 and Rule 4 would indicate that the services are exported when (i) these are provided from India and used outside India and (ii) payment terms are in convertible foreign exchange. In the present case, the appellants are providing business auxiliary service and management consultancy services. Thus the export of service takes place at the time or issuing invoice. The payment condition is only to ensure that the service provider receives the payment in convertible foreign exchange so as to get the benefit of service tax. The date of receipt of such payment is not relevant for determining the time of export. In view of the above analysis, I hold that the relevant date for determining the period of limitation will be the date of export of services or the date when the invoices are raised. Regarding various input services on which refund was rejected on the ground of no nexus with the output service, various input services was found as allowable and some of them are not eligible - adjudicating authority to allow the refund as per the order - Decided partly in favour of assessee.
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2014 (6) TMI 592
Demand of service tax - Business Auxiliary service - Whether the services rendered were classifiable under BAS prior to 16-6-2005 or not - Held that:- Activities undertaken by the appellant for which they were collecting service charges were in respect of cargo imported or exported by their customers and this fact is evident from the nature of service charges collected - services were in relation to procurement of goods or services, which are inputs for the client and such services clearly fell under sub-clause (iv) of section 65 (19) as it stood with effect from 10-9-2004. Even if it is held that these activities did not fall under sub-clause (iv), they would certainly fall under sub-clause (vii) as any service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi). Even if the appellant had acted as a commission agent as claimed by them, they would fall under sub-clause (vii) of clause (19) of section 65 as the entry covered the services rendered as a commission agent. From the statutory definition of BAS as it stood prior to 10-9-2004, the services rendered by the appellant would not come under any of the activities specified under various sub-clauses, namely, (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; (ii) promotion or marketing of service provided by the client; (iii) any customer care service provided on behalf of the client; or (iv) any incidental or auxiliary support service in respect of (i) to (iii). Therefore, there would not be any liability to pay service tax prior to 10-9-2004 on the appellant. Extended period of limitation - Held that:- bonafide belief is not blind belief and belief can be said to be bona fide only when it is formed after all reasonable considerations are taken into account. No evidence has been led before us showing that the appellant took all reasonable pre-cautions. - extended period of limitation applicable. The services rendered by the appellant are liable to service tax under "Business Auxiliary Service" as defined in 65 (19) of the Finance Act, 1994 for the period from 10-9-2004 onwards - The consideration received shall be treated as cum-tax and the service tax liability shall be re-computed for the period from 10-9-2004 onwards - The appellant shall be liable to penalties under sections 76, 77 and 78 of the said Finance Act, on the re-determined service tax liability - For the period from 10-5-2008, penalty under section 78 alone shall apply and not that under section 76 - Decided partly in favour of assessee.
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2014 (6) TMI 591
Waiver of pre-deposit - classification of services provided by Overseas Logistics Service Providers (OLSPs) to accomplish the overseas part of the clearing and forwarding job - business auxiliary service of not - services for providing the entire clearing and freight forwarding services including collection of cargo from the customer's place, arranging for storage in the foreign land, Customs clearance, booking space with the airline and shipping lines, landing over the cargo to airlines or shipping lines for shipment and informing the Applicant regarding dispatch of cargo. The OLSPs facilitated the business of the Applicant by providing marketing information in a reciprocal manner and by creating condition in the foreign land wherefrom a support in conducting the logistic service by providing their ready infrastructure for catering the needs of client of the Applicant. Held that:- services provided by the OLSPs to the Applicant were business auxiliary services because the activities of the OLSPs satisfied the categories appended under (vi) and (vii) of the definition of 'Business Auxiliary Service'. We find that OLSPs not only provided service of clearing and forwarding on behalf of the Applicant, but they also undertook incidental or auxiliary services like collection of payment, management or supervision job. We also find that OLSPs provided a number of services to the Applicant till they intimated M/s. TKM Global regarding dispatch of cargo and in doing so, they rendered services on behalf of the Applicant. Thus, they provided the services, incidental or auxiliary, to provide such service. Their activity in relation to the functioning of the Applicant as a clearing and forwarding agent, was surely auxiliary in nature because in absence of their services, the Applicant would not be able to fulfill their responsibility as the clearing and forwarding agent. Taxability is quite evident from the admission of the Applicant themselves. However, the Applicant made an alternate plea that they are covered under 'Cargo Handling Service' and contested a part of the demand on the ground of limitation of time. A question of limitation of time is a mixed question of fact and law, which will be considered during regular hearing of the Appeal - Applicant are directed to make a predeposit of 25% of the Service Tax amount - stay granted partly.
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2014 (6) TMI 590
Waiver of pre-deposit - Valuation - inclusion of discount offered to dealers as part of consideration - sale of Recharge Voucher (RCVs) - RCVs are sold at MRP - Penalty u/s 78 - from April, 2008 to March, 2009 - telecommunication service - Held that:- period involved in this case is from April, 2008 to March, 2009 and Section 67 was amended w.e.f. 18/4/2006 and simultaneously service tax (Determination of Value) Rules, 2006.So far as the reliance placed by the applicant on the case laws cited by the applicant is concerned they relate to period prior to the amendment of the provisions of law. Admittedly, the explanation was added to Rule 5 (1) of Service Tax Rule vide which it was clarified that service specified in sub-section (zzzx) of clause 65 of section 105 of the Finance Act, 1994, the value of the taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraphic authority" which goes to show that the intention of Registration has always been to levy the tax on the value received from the person to whom the telecom service is provided by the telecom authority. In this case the service is provided to the consumer and not to the distributor. Hon'ble High Court of Kerala in the case of Vodafone Essar Cellular Limited [2010 (8) TMI 691 - KERALA HIGH COURT] has held that "So much so, there is no sale of any goods involved as claimed by the assessee and the entire charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is only for rendering services to ultimate subscribers and the distributor is only the middleman arranging customers or subscribers for the assessee." Once it is established that the charges collected from the customer in lieu of the RCVs is a service charge, not a sell, it is automatically established that the amount deducted by the dealer is nothing but commission which should be included to the taxable income of the noticee". The above case relates to applicability of certain income tax provisions but the decisions support the Department's case. Prime facie case is against the assessee - directed to make pre-deposit of 25% of duty involved - stay granted partly.
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Central Excise
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2014 (6) TMI 586
Availment of input service credit paid on commission - Trading services - extended period of limitation - Held that:- appellant availed input service credit on commission for procurement of orders. On perusal of the impugned order, it is seen that the input service credit in respect of manufacturing activity, service tax on commission was allowed. Credit was denied in respect of that portion of service tax relating to the commission paid on the trading goods. The definition of input service under Rule 2(l) of the CENVAT Credit Rules means any service used by a manufacturer whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products. In the present case, there is no dispute that the appellant availed credit on commission in respect of trading goods, which are not in or in relation to the manufacture of final products and therefore there are not eligible to avail credit on the commission paid on trading goods. - credit was rightly denied - Decided against the assesssee. Appellant had not disclosed the availment of input service credit on commission in respect of trading activities. These facts came to the knowledge of the Department only on verification of the documents such as contract agreements, commission agreements etc. So there is no merit in the submission of the learned counsel on limitation - Decided against assessee.
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2014 (6) TMI 585
Waiver of pre deposit - Penalty u/s 11AC - Whether the goods are liable to be assessed under Section 4 or 4A of the Central Excise Rules, 1944, a debatable issue - Held that:- Applicants had submitted that the differential duty applying the value under Section 4 of Central Excise Act, 1944, has been worked out to Rs.52.72 lakhs and the computation of demand by the ld.Adjudicating Authority has been disputed. At this stage, we find that the offer made by the ld.Advocate for the Applicant, seems to be reasonable - Conditional stay granted.
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2014 (6) TMI 584
CENVAT Credit - Credit on strength of debit notes - duty paying documents - Held that:- Rule 4A of Service Tax Rules, 1944 provides that the taxable service to be provided or credit to be distributed on invoices, bill, challan. It has also prescribed that such invoices, bill or challan or as the case may be, shall be serially numbered and shall contain the name, address and the registration number of such person and other informations as specified therein. It appears that the debit notes placed by the learned counsel and that the debit notes issued by the service provider had fulfilled all the conditions as prescribed under Rule 4A (1) of the Service Tax Rules, 1944. - there is no reason to deny the credit on the basis of the debit notes subject to verification of the documents placed by the learned counsel. - matter remanded back - Decided in favour of assessee.
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2014 (6) TMI 583
CENVAT Credit - whether an assessee is eligible to avail CENVAT Credit of an amount paid as Service Tax by a service provider in respect of installation and erection, maintenance or any other services rendered at wind mills, which are located away from the factory premises and the electricity generated out of such wind mills is consumed at the factory premises after such power is to put through the common grid - Held that:- there being contrary views expressed as regards the availment of CENVAT Credit of Service Tax paid on the services rendered by a service provider at wind mill farms which is situated away from the factory premises, this matter needs to be sorted out by a Larger Bench. - Matter referred to larger bench.
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2014 (6) TMI 582
Waiver of pre-deposit - CENVAT Credit as distributed by input service distributor (ISD) - reversal of credit towards exempted products - Held that:- there is no dispute as to the fact that appellant is availing Cenvat credit of the Service Tax paid on the input services distributed by their Head Office as Input Service Distributor. It is also undisputed that the appellant is utilising the ISD service tax credit for discharge of Central Excise duty on the goods manufactured and cleared by them. It is seen from the records that the appellant has claimed that they have reversed the amount which is attributable to the input services which go into manufacturing of exempted products, as per the provisions of Rule 6(3) of Cenvat Credit Rules, 2004. We also find from the certificate issued by the Chartered Accountant that it is so. At this juncture, though the appellant could have intimated the departmental authority regarding the option of reversal of input services which are attributable to the exempted goods but having reversed the same, we find that appellant has made out a prima facie case for the waiver of pre-deposit of amount which are confirmed against the main appellant on the ground that they are liable to pay 5% of the value of the exempted goods cleared from their factory premises - Stay granted.
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2014 (6) TMI 581
Waiver of pre-deposit of duty - Affixing of retail price on goods - cosmetic products - Revenue contends that applicants are affixing retail sale price on the goods imported which amounts to manufacture therefore the appellants are liable to pay Central Excise duty. - Held that:- There is no evidence on record to show that applicants undertaking any activity which amounts to manufacture as applicants were not labelling or relabelling of packages nor affixing any retail sale price after the clearance from the customs. The retail sale price is affixed before the clearance of the goods from the customs area as per the requirement by the Notification No. 44(RE-2000)/1997-2002, dated 24-11-2000 and paid the CVD duty as per the retail price fixed on the goods. In view of this, we find that the applicants had made out a strong case in their favour. The pre-deposit of dues are waived and recovery of the same is stayed during the pendency of the appeal - Stay granted.
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CST, VAT & Sales Tax
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2014 (6) TMI 589
Inter-State purchases of goods used in the execution of works contract - Denial of exemption claim - The goods were procured from outside the State - in the contract it clearly mentioned that the assessee would procure the goods only from within the State. - revenue contended that, movement of goods from outside the State was not a result of the contract or incidental to the contract, since the General Conditions of Contract did not mention about inter-State vendors and, therefore, it cannot be stated that the goods were moved in pursuance of the contract. Held that:- It is now well settled that if a contract of sale contains a stipulation for such movement, the sale would, of-course, be a inter-State trade. But it can also be inter- State sale even if the contract of sale does not itself provide for movement of goods from one State to another but such movement would be result of a covenant in the contract of sale or is an incident of such contract. (See Union of India vs. Khosla and company [1979 (3) TMI 176 - SUPREME COURT OF INDIA]). It is true, in the instant case, the contract of sale did not require or provide that goods should be moved from other States to the State of Karnataka at Bijapur. But it is not true to say that for the purpose of Section 3(a) of the Central Act it is necessary that the contract of sale must itself provide for and cause the movement of goods or that the movement of goods must be occasioned specifically in accordance with the terms of the contract of sale. A sale which occasions movement of goods from one State to another is a sale in the course of inter-State trade, no matter in which State the property in goods passes. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement, and it is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It would be sufficient if the movement was in pursuance of and incidental to the contract of sale. In the present case the movement of goods from one State to another may or may not be as a result of a covenant but definitely it was an incident of the contract. - Decided in favour of assessee.
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2014 (6) TMI 588
Liability in terms of section 3D of the Karnataka Tax on Luxuries Act, 1979 - Held that:- The levy is attacked mainly on the ground of legislative competence and secondly on the ground that it is misfit into the scheme of the Act; that it seeks to levy luxury tax more than once on the very facility; and thirdly on the premise that by seeking the levy on luxury not availed of or utilised, it renders itself unconstitutional in terms of the judgment of the Supreme Court in the case of Godfrey Phillips [2005 (1) TMI 391 - SUPREME COURT OF INDIA] - The activity if it is not required by an average member of the society, it can constitute luxury, is the meaning one can attribute to this paragraph. It is not as though an average member of the society cannot survive or cannot live even without such facilities as are made available in the petitionerclubs. It may be a different matter that such facilities are otherwise also available in other places, but when a facility is made available in a club and exclusively for its members and in the nature of such facilities as is defined under the Act, it can undoubtedly be termed as an activity in the nature of a luxury. There is no doubt that the expression that luxury means an activity of enjoyment or indulgence which is costly, is suggestive of only availed or utilised of the activity or indulgence in the activity. To this extent, the observation here is clearly at variance with the observations of the Supreme Court in the case of Express Hotels Private Ltd. [1989 (5) TMI 52 - SUPREME Court], wherein the Supreme Court has observed that for constituting a luxury, it need not necessarily be availed of and has a comparing situation to levy of tax on notional concept. A particular example in the case is a notional income. It is also further linked to a measure of the levy, in the sense, that a levy on special matter when it is on actual person is termed as a measure of levy so long as there is some nexus between the levy and the subject-matter. The justification is that there cannot be any reasonableness in a levy under the taxing statute and even if the tax is on a notional basis, it is an aspect of measure of levy. If there is no scope for interpretation in a taxing statute, which violates a constitutional provision it will have to be declared as unconstitutional, but in the given case, as it is found that the computation made in the case of the petitioner, being not based on a proper understanding of the provisions of section 3D of the Act, it has become necessary for the court to discuss about the scope of this charging section and to so interpret and understand the provision that it is not only effectuated but also does not violate any of provisions of the Constitution. Section 3D when understood in this manner in fact is free from any allegations of being bad either for want of legislative competence or on the ground of being discriminatory or as on imposing any unreasonable restrictions on any profession, trade or employment or such other grounds. The challenge to the validity of section 3D while fails on the grounds urged on behalf of the petitioners, the stand taken by the State Government in its counter and orders passed by the authorities under the Act to subject to tax, the petitioner-clubs on the premise that levy under section 3D is on the basis of total number of members in the club irrespective of the actual contents of section 3D is a clear wrong application and understanding of the provision and the assessment orders if have been passed on such understanding, are required to be redone to bring them, in conformity with section 3D as understood and interpreted in this decision. - Decided against appellants.
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