TMI Tax Updates - e-Newsletter
June 3, 2015

Case Laws in this Newsletter:

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

TMI SMS

• Failure to furnish PAN in case of non-residents - because the provisions of the DTAAs was more beneficial, AO cannot insist TDS @20% - Tri

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Articles

1. Annual General Meeting

   By: CA Akash Phophalia

2. RECENT AMENDMENTS IN APPELLATE PROVISIONS IN SERVICE TAX

   By: Dr. Sanjiv Agarwal

News

1. RBI Reference Rate for US $

2. Second Bi-monthly Monetary Policy Statement, 2015-16 Dr. Raghuram G. Rajan, Governor

Circulars / Instructions / Orders

FEMA

1. 106 - dated 1-6-2015

Liberalised Remittance Scheme (LRS) for resident individuals - increase in the limit from USD 125,000 to USD 250,000 and rationalisation of current account transactions - Remittance facilities for persons other than individuals

DGFT

2. 03/2015 - dated 1-6-2015

Release of Beta Version of online ANF 5A with facility to upload supporting documents (Application for Issuance of EPCG Authorisations)

Highlights / Catch Notes

Income Tax

• High Court Affirms Section 11(2) Income Tax Exemption Cannot Be Denied for Not Providing Future Spending Details.

  Case-Laws - HC : Benefit u/s 11(2) denied - merely because of non-furnishing of the details, as how the said amount is proposed to be spent in future, the assessee cannot be denied the exemption as is admissible under sub-section 2 of Section 11 of the I.T.Act, 1961 - HC
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• Reassessment u/ss 147/148 Quashed: AO Already Reviewed Transactions, Creditor Identity, and Creditworthiness in Initial Scrutiny.

  Case-Laws - AT : Reopening of assessment - Addition u/s 68 - during scrutiny assessment, AO has examined all the details, creditworthiness of the transactions and identity of the creditor the reassessment proceedings initiated u/s. 147/148 are illegal and is liable to be quashed - AT
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• Retroactive Reserve Creation Denied u/s 36(1)(viii); Timely Special Reserve Establishment Required for Compliance.

  Case-Laws - AT : Disallowance u/s 36[1](viii] - no reserve was created - appellant submits that the appellant may be permitted now to create such reserve - such non-creation of special reserve by the assessee cannot be made good by creating any reserve on a later date - AT
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• Capital Gains on Gifted or Inherited Property: Index Cost Based on Previous Owner's Acquisition Year.

  Case-Laws - AT : Computation of capital gain - Since the property in question was acquired by way of gift/will by the assessee, the index cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset - AT
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• Revenue Cannot Reassess Same Income with Alternative Methods if Original Assessment is Quashed Due to Inefficiency.

  Case-Laws - AT : Reopening of assessment - If because of inefficiency or otherwise on the part of Revenue, the assessee is able to get some assessment order quashed, the revenue is not empowered to tax the same income by taking another route. - AT
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• PAN Requirement u/s 206AA Overridden by DTAAs; DTAAs Take Precedence for Lower TDS Rates.

  Case-Laws - AT : Requirement to furnish Permanent Account Number - TDS @20% - section 206AA of the Act cannot be invoked by the AO to insist on the tax deduction @ 20%, having regard to the overriding nature of the provisions of section 90(2) because the provisions of the DTAAs was more beneficial - AT
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• Court Rules TDS on Pest Control Charges Falls u/s 194C, Not Section 194J, Due to Lack of Technical Services Evidence.

  Case-Laws - AT : Tds on payment of pest control charges - 194C or 194J - no material was brought on record by the Revenue to show that any technical services were availed by the assessee for doing pest control in its premises - AT
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• Court Rules Business Inactivity Doesn't Justify Salary Cuts for Staff; No Automatic Proportionate Reduction Required.

  Case-Laws - AT : Disallowance of salary - there was no business activity - A decrease, or even absence, of business activity does not necessarily lead to proportionate reduction in staff salaries - AT
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• Income Tax Appeals: Commissioner Improperly Remands Expense Inquiry Back to Assessing Officer, Violating Procedure.

  Case-Laws - AT : Disallowance from work in progress account - CIT(A) directed the Assessing Officer to make certain inquiries with regard to genuineness of expenses incurred and business nexus by passing speaking order. It amounts to setting aside the issue to Assessing Officer which is not permitted - AT
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Customs

• Using Another Firm's IEC Doesn't Violate Customs Act; No Penalty u/s 7 of Foreign Trade Act.

  Case-Laws - AT : Penalty u/s 112 - import made in the name of other firm - Merely IEC holder lending the IEC to a third party is not an offence under the Customs Act and penalty for violation of Section 7 of Foreign Trade Development and Regulation Act 1992 cannot be imposed - AT
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Service Tax

• Rent-a-Cab and Tour Operator Services Eligible for Section 80 Benefits; Penalties Waived Despite Extended Tax Period.

  Case-Laws - AT : Providers of Rent-a-Cab/ Tour Operator services providers were under the impression that services provided to M/s. ONGC are not leviable to service tax. - fit for extending the benefit of Section 80 of the Finance Act, 1994 even if extended period is found applicable - penalty waived - AT
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• Service Tax Applicability Dispute for Amway Distributor Under Business Auxiliary Service Category; Stay Granted in Favor of Appellant.

  Case-Laws - AT : Business auxiliary service - distributor or marketing agent of M/s Amway India Enterprises Pvt. Ltd. - appellant had a reasonable basis to presume that they being an individual would not be covered for the purpose of levy of service tax. - stay granted - AT
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Central Excise

• Excise and customs duty exemptions for goods supplied to the Ministry of Defence by Ordinance Factory Board withdrawn.

  Notifications : Excise and customs duty exemptions available to goods manufactured and supplied to Ministry of Defence by Ordinance Factory Board and Defence PSUs withdrawn - Notification
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• Applicability of Duty on PSF and POY from Recycled PET Bottles (2008-2013); Exemption under Notification 89/95-CE Reconsidered.

  Case-Laws - AT : Whether PSF and POY manufactured by the appellant from plastic waste pet bottles, is liable to duty during the period April 2008 to March 2013 - Exemption to waste and scrap under Notification No. 89/95-CE is subject to certain conditions - matter requires reconsideration - AT
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• UN-Backed Projects in India Eligible for Tax Exemption on Goods under Notification No.108/95-CE.

  Case-Laws - AT : Exemption under Notification No.108/95-CE - projects financed by the said United Nations or an International Organisation and approved by the Government of India - the condition for grant of exemption is supply of the goods towards the project and nothing beyond - AT
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VAT

• Court Condones Delay in VAT and Sales Tax Case, Acknowledging Litigants' Good Faith and Sufficient Cause for Delay.

  Case-Laws - HC : Condonation of delay - Bonafide belief - a prejudice cannot be permitted to be caused to a litigant who was acting bonafide - petitioners have made out a case of sufficient cause and as such, have made out a case for condonation of delay - HC
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Case Laws:

• Income Tax

• 2015 (6) TMI 51
  Penalty under section 140(3) read with section 221(1) of the Income Tax Act , 1961 - Available funds utilised for expansion purposes - Notice served on an employee who not forwarded the same to the management - Held that:- The CIT(Appeals) condoned the delay in filing the said appeal as the impugned penalty order was not served upon the assessee. The revenue is aggrieved by the said condonation order passed by the CIT(Appeals) . We find no merit in the pleas raised by the ld. DR for the revenue in this regard in view of the observations of CIT(Appeals) in para 4 of the appellate order.Upholding the same, we dismiss the ground No.2 raised by the revenue. Further the issue arising before us is in relation to levy of penalty under section 140A(3) of the Act with section 221(1) of the Act for non-deposit of the taxes before filing the return of income. The Courts have time and again laid down the proposition that liberal interpretation should be given to the provisions of section 140A(3) with section 221(1) of the Act. The list of cases have been referred by the CIT(Appeals) .There is no dispute regarding the said issue. However, the perusal of the financial statements of the assessee company for the financial year 2007-08 and 2008-09 reflect the availability of the funds with the assessee which in- turn have been utilized for expansion purposes. The assessee had also borrowed funds from the banks as is apparent from the perusal of the balance sheet for the two financial years. However, in the totality of the facts and circumstances of the case, we find the assessee to have not discharged its onus vis-à-vis payment of taxes due. We are of the view that the ends of justice would be met by restricting the levy of penalty under section 140A(3) read with section 221(1) of the Act to Rs .10 lacs for each of the year i.e. assessment year 2008-09 and 2009-10. Thus, applying the liberal interpretation, we restrict the levy of penalty in the case to Rs .10 lacs each for the financial year 2007-08 and 2008-09.- Decided partly in favour of revenue.

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• 2015 (6) TMI 39
  Expenditure on development of machineries - revenue v/s capital - ITAT allowed the claim as revenue expenditure - Held that:- The sale of spare parts were not possible in the market since the assessee company did not want the technology information to its competitors. It is submitted that the A. O. has not disputed the expenses being incurred. He has made the disallowance merely because the details of spare parts used back in the business has not been furnished before him. It is submitted that separate charges for the value of these parts has not been made in the accounts and therefore, the original expense is allowable in full as per decision of B. Nagireddy v. CIT reported in [1991 (6) TMI 9 - MADRAS High Court]. - Decided against revenue. Disallowance of bank charges paid to guard against fluctuations in the foreign exchange rate for payment of loan taken for import of machineries - ITAT allowed the claim - Held that:- the consideration paid by the assessee to the authorized dealer of foreign exchange, which is the bank in this case, in order to obtain protection from fluctuation of foreign exchange rates is a revenue expenditure and the view taken by the learned Tribunal is correct. - Decided against revenue.

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• 2015 (6) TMI 38
  Benefit u/s 11(2) denied - Entitlement to accumulation of income of 85% of the donations - Held that:- In the present case, we find that the revenue does not dispute the fact that all the three purposes specified by the Assessee in Form 10 are for achieving the objects of the trust, and that the purposes as well as objects, are both charitable. Merely because more than one purpose has been specified and details about the plan of such expenditure has not been given, the same would not, in our view, be sufficient to deny the benefit u/s 11(2) of the Act to the Assessee. As long as the objects of the trust are charitable in character and as long as the purpose or purposes mentioned in Form 10 are for achieving the objects of the trust, merely because of non-furnishing of the details, as how the said amount is proposed to be spent in future, the assessee cannot be denied the exemption as is admissible under sub-section 2 of Section 11 of the I.T.Act, 1961. - Decided in favour of assesse.

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• 2015 (6) TMI 37
  Reopening of assessment - Addition u/s 68 - Held that:- while recording the reasons by the AO, the AO has mentioned the names of three firms namely Hillridge Investment Ltd; Nisha Holdings Ltd and Shalini Holdings Ltd. and stated that the AO had issued notice u/s 148 in respect of the share application money of M/sShalini Holdings Ltd. We also find that vide the order sheet entry 27.10.2009 and 4.11.2009, the AO called the details of three parties and in response thereto the assessee filed complete details of share application money as allotted, Board Resolution, name and address of allottees and copy of challans, copy of Form No. 2 as filed with ROC, copy of bank certificate, confirmation letter with copy of incorporation certificate and income tax acknowledgement, balance sheets etc. before the AO., The AO examined the same and completed the assessment u/s. 143(3) of the I.T. Act, meaning thereby the AO has examined all the details, creditworthiness of the transactions and identity of the creditor, hence, in view of the above, the reassessment proceedings initiated u/s. 147/148 are illegal and is liable to be quashed - Decided in favour of assesse.

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• 2015 (6) TMI 36
  Revision u/s 263 - assessee has claimed Overburden removal expenses (OBR) expenses as revenue nature u/s 37 (1) - Held that:- In the impugned revision proceedings, learned Commissioner started by pointing out that the AO did not realize that the matter was decided on the basis of accepting CoD verdict but the CoD itself has outlived its utility as was held by Hon’ble Supreme Court in the case of Electronics Corporation (2011 (2) TMI 3 - Supreme Court), but what he concluded was that the said assessment order was passed “in haste, without making necessary inquiries warranted and also not appreciating the correct set of facts”. In our humble understanding, lack of proper inquiries, which an Assessing Officer ought to have conducted on the facts of the said case, is altogether a different reason from a claim having been allowed on the basis of CoD decision which is no longer legally valid. In view of the above discussions, as also bearing in mind entirety of the case, we are of the considered view that the impugned revision order is contrary to the scheme of law, and should be quashed for this reason also. The Assessing Officer has noted that “ it was also brought to notice of the department that departmental request for approval of the same [i.e. pursuing appeal against Overburden Removal Expenses being held to be deductible under section 37(1)] was rejected by the CoD”. It was in this backdrop and apparently with due deference to the views expressed by the CoD that the Assessing Officer decided not to make this disallowance in this assessment year. Once such a high powered committee as the Committee on Disputes, set up in the Cabinet Secretariat under directions of Hon’ble Supreme Court, decides that admissibility of deduction in respect of overburden removal expenses need not be carried to the judicial forums and the income tax department should not agitate its grievance against its admissibility, it is certainly a possible, and desirable, view of the mater that the income tax authorities should stop making an issue of this deduction. It is well settled in law, as held in the case of the Malabar Industrial Co Ltd Vs CIT [2000 (2) TMI 10 - SUPREME Court], that, “when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law.” The stand of the Assessing Officer, on the facts of this case and notwithstanding the subsequent legal developments in the case of the Electronics Corporation (supra), was one of the possible views of the matter and it was not “unsustainable in law”. For this reason also, it was not a fit case for invoking revision powers by the learned Commissioner. Thus the impugned revision order is indeed unsustainable, in law and on facts, for more reasons than one - Decided in favour of assesse.

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• 2015 (6) TMI 35
  Transfer pricing adjustment - assessee has charged its Associate Enterprise at cost + 12% basis - assessee has considered TNM method to be the most appropriate method for benchmarking its transaction with AE with return on capital employed/operating profits as the appropriate PLI - selection of comparables - Held that:- The matter requires fresh adjudication at the level of the TPO considering the fact that assessee has not considered any company as comparable and the 2 companies selected by the TPO from the final list of 10 companies are involved in fraud for which the financial results cannot be considered as correct and reliable. The TPO, however, is at liberty to search for fresh comparables and determine the ALP of the international transaction carried out by the assessee for the impugned assessment year. While doing so, the TPO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. - Decided in favour of assesse for statistical purposes.

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• 2015 (6) TMI 34
  Disallowance u/s 36[1](viii] - no reserve was created - appellant submits that the appellant may be permitted now to create such reserve - Held that:- The case of the assessee that admittedly it had not created any reserve in its books of account before claiming the said deduction under section 36(1)(viii) of the Act on the surmise that no such reserve is to be created in view of wording of the section finds no merit in the said plea of the assessee in view of the similar wordings in section 36(1)(viia) of the Act which have been interpreted in the case of State Bank of Patiala vs. CIT (2004 (5) TMI 12 - PUNJAB AND HARYANA High Court) which, in turn, has been applied in the case of Shri Mahalaxmi Co-op. Bank Ltd. vs. ITO (2014 (1) TMI 1366 - ITAT PUNE). In the absence of any reserve being created the assessee is not entitled to the said claim of deduction under section 36(1)(viii) of the Act. Plea of the assessee that it should be allowed an opportunity to create the said reserve in its books of account now - Held that:- In view of the clear wording of the section that where it is provided that the special reserve is to be created and maintained by the special entity from its profit derived from the eligible business, then such non-creation of special reserve by the assessee cannot be made good by creating any reserve on a later date. The books of account of the assessee are admittedly audited and in the absence of any reserve being created in such audited books of account, no remedy is available to the assessee to create such a reserve on a later date. The facts in the case of CIT vs. Punjab State Industrial Development Corporation (2009 (11) TMI 37 - PUNJAB AND HARYANA HIGH COURT) were different, wherein the assessee had already created a reserve before claiming the deduction under section 36(1)(viii) of the Act. However, the assessee therein was entitled to a higher deduction under section 36(1)(viii) of the Act for which opportunity was granted to create additional reserve. In the facts of the present case, there was no reserve created by the assessee and in the absence of same, we find no merit in the alternate plea raised by the assessee and the same is dismissed.- Decided against assesse.

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• 2015 (6) TMI 33
  Revision u/s 263 - Bank a/c was maintained towards Sony Wines, whereas the assessee was claimed to be the proprietor of M/s Sri Rama Wines - Held that:- As that assessee is proprietor of M/s. Sri Srirama Wines and since he was earlier working with another concern namely Sony Wines, the care-of address of that concern was given while opening the bank account. This being the factual position, no enquiry on this aspect of the matter was required to be done by the A.O. and it cannot be said that the order of the A.O. passed under section 143(3) was erroneous as alleged by the Ld. CIT on the basis of point No.1 raised in the notice issued under section 263. As per P & L a/c, the turnover is of Rs. 44.00 lakhs for which the accounts are to be audited u/s 44AB of the I.T. Act but neither the assessee furnished the audit report nor the A.O. called for the it and examined. - Held that:- CIT(A) in notice issued under section 263 that the A.O. having failed to call for the tax audit report under section 44AB which was required to be filed by the assessee, his order suffered from an error, as find merit in the contention of the Ld. Counsel for the assessee that the action of the A.O. in not calling for the tax audit report under section 44AB cannot be regarded as an error in the order of the A.O. which is prejudicial to the interests of the Revenue. Bank account reflected business activities for only 3 months and the balance transactions throughout the year were stated as activities on the agricultural lands of assessee's wife - Held that:- As regards non-examination of the transactions reflected in the bank account of the assessee for the period from 01.07.2008 to 31.03.2009, it is observed that this aspect was duly examined by the A.O. during the course of assessment proceedings as is evident from the relevant portion of the assessment order which wherein the issue relating to the transactions reflected in the bank account of the assessee from 01.07.2008 to 31.03.2009 was examined by the A.O. and on such examination, the addition of Rs. 40,500 was also made by the A.O. to the total income of the assessee being estimated interest income. A possible view on this issue thus was taken by the A.O. after due examination and application of mind and even if the same was not acceptable to the Ld. CIT, he cannot exercise the powers conferred upon him under section 263 to substitute his own view for the possible view taken by the A.O. - Decided in favour of assesse.

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• 2015 (6) TMI 32
  Transfer pricing adjustment - Held that:- In the present case since the assessee is already earning a markup of 15% which is more than the 5% markup in the case of Li & Fund India (2014 (1) TMI 501 - DELHI HIGH COURT), therefore, markup of 15% on operational costs in assessee’s case is more conservative. As such no TP adjustment is required in assessee’s case. - Decided in favour of assesse.

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• 2015 (6) TMI 31
  Computation of capital gain - property in question was acquired by way of gift/will - the indexed cost of acquisition has to be taken from the date on which it was held by the previous owner and not from the date from which the asset was first held by the assesse as held by AO - CIT(A) deleted the addition - Held that:- The benefit of indexed cost of inflation is given to ensure the taxpayer pays capital gains tax on ‘real or actual gain’ and not on increase in capital value of property due to inflation. While computing capital gains arising on transfer of capital assets, acquired by the assessee under a gift, indexed cost of acquisition has to be computed with reference to the year in which previous owner, first held the asset and not the year in which assessee became the owner of the asset. Explanation (iii) provides index cost of acquisition means an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year, in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on the first day of April, 1981. The property in question was gifted on 01/02/2003 and the assessee sold the flat on 30/06/2003 for Rs. 1.10 crores. Applying the decision of the Hon’ble jurisdictional High Court pronounced in the case of Manjula J. Shah (2011 (10) TMI 406 - BOMBAY HIGH COURT), the capital gains liability has to be computed by considering that the assessee held the asset from the date it was held by the previous owner and the same analogue has to be applied in determining the indexed cost of acquisition. Since the property in question was acquired by way of gift/will by the assessee, the index cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset, consequently, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). - Decided in favour of assesse.

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• 2015 (6) TMI 30
  Addition on cash deposited in bank - Held that:- In the present case, observations made in the assessment order as well as in the order of ld. CIT(A) clearly demonstrate that assessee has not been able to establish the fact that deposits of Rs. 60 lakhs were either offered as income by Smt. Baddam Kalavathy or was assessed in her hands. Even before this forum also, apart from a copy of letter dated 14/12/2011 claimed to be of Smt. Kalavathy, assessee has not been able to prove the fact that cash deposits of Rs. 60 lakhs were either offered by Smt. Baddam Kalavathy as her income or were assessed at her hands by furnishing any conclusive and cogent evidence. Thus assessee’s explanation that entire amount was paid back to Smt. Baddam Kalavathy through self withdrawals is also not correct. In these circumstances, when assessee has failed to establish the fact that the cash deposits of Rs. 60 lakhs actually belonged to Smt. Baddam Kalavathy and assessed at her hand, addition, in our view, is justified - Decided against assesse.

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• 2015 (6) TMI 29
  Entitlement to exemption under section (10)(10C) - Held that:- As per section 10(10C), the scheme is to be framed as per the guidelines as may be prescribed. Further a perusal of the heading of rule 2BA shows that it prescribes the guidelines for the purpose of section 10(10c). The guidelines, as its nomenclature suggests, are just for the purpose of guidance, while framing the scheme of voluntary retirement by the institutes/companies and cannot be said to be mandatory in nature but only procedural or guiding in nature. If the scheme as a whole, otherwise in accordance with the provisions of section 10(10C) and as per the guidelines under rule 2BA except as to some departures from the guidelines, but not in violation of the guidelines as a whole or of the provisions of section 10(10C), its object and purposes, then, in such an event, merely because the scheme differs at one or two points from the guidelines is not sufficient to deny the benefits granted under the section 10(10C) to an employee in view of the beneficial nature of the provision keeping in view the purpose and object sought to be achieved through such a provision. We, therefore, are of the view that denial of exemption to the assessee only because he has received compensation on his retirement a little more than the limit prescribed by rule 2BA, will be against the spirit of the provisions of the section 10(10C), especially, when no such limit has been prescribed under section 10(10C) and also in view of our observations that provisions of rule 2BA are not mandatory but in the shape of guidelines which are to be taken into consideration while framing the scheme The assessees are entitled to exemption under section (10)(10C) of the Act up to the amount of Rs. 5 lakhs as provided under the relevant provisions as provided of the said section - Decided in favour of assesse.

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• 2015 (6) TMI 28
  Reopening of assessment - Held that:- An addition which has already been considered u/s 158BC, the same cannot be made subject matter of addition by again invoking the provisions of Section 148. The reasons recorded by A.O. itself do not point out to the fact that some income had escaped assessment. It has been mentioned in the reasons recorded that the reassessment is being proposed in view of the fact that ITAT had quashed the order u/s 158BC. The reasons recorded are not good enough to initiate proceedings u/s 148 especially in view of the fact that decision regarding addition made u/s 158BC is pending before Hon'ble High Court. The provisions of section 147 are meant to tax only that income which had escaped income. The additions made during this year are admittedly part of block assessment when has been taxed by Revenue. If because of inefficiency or otherwise on the part of Revenue, the assessee is able to get some assessment order quashed, the revenue is not empowered to tax the same income by taking another route. - Decided in favour of assesse.

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• 2015 (6) TMI 27
  Addition to the book profit u/s 115JB - Held that:- We are not inclined to concur with the finding of CIT(A) who has confirmed the addition of Rs. 33,91,715/- made to book profit u/s. 115JB of the Act. We find that Tribunal in assessee’s own case for A.Y. 06-07 allowed the appeal by following the decision of CIT vs. Meghmani Organics Ltd. (2014 (7) TMI 673 - GUJARAT HIGH COURT ), wherein it has been held that material aspect of Tribunal’s recording the fact is that amount of Rs. 71 lacs was reduced by assessee passed on after approval of company in its AGM, which was also accepted by the auditors. If that be so, the Assessing Officer thereafter could not have made any further adjustment dehors the provisions of Section 115JA of the Act. Nothing contrary brought to our knowledge on behalf of revenue. Facts being similar so following same reasoning, we are not inclined to conquer with the finding of CIT(A) and Assessing Officer is directed to delete the addition of Rs. 33,91,715/- as discussed above. - Decided in favour of assesse.

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• 2015 (6) TMI 26
  Applicability of sec 206AA - Requirement to furnish Permanent Account Number - TDS @20% - whether not applicable in case of non-residents as the DTAA overrides the Act as per section 90(2)as per CIT(A)? - Held that:- Where section 90(2) of the Act provides that DTAAs override domestic law in cases where the provisions of DTAAs are more beneficial to the assessee and the same also overrides the charging sections 4 and 5 of the Act which, in turn, override the DTAAs provisions especially section 206AA of the Act which is the controversy before us. Therefore, in our view, where the tax has been deducted on the strength of the beneficial provisions of section DTAAs, the provisions of section 206AA of the Act cannot be invoked by the Assessing Officer to insist on the tax deduction @ 20%, having regard to the overriding nature of the provisions of section 90(2) of the Act. The CIT(A), in our view, correctly inferred that section 206AA of the Act does not override the provisions of section 90(2) of the Act and that in the impugned cases of payments made to non-residents, assessee correctly applied the rate of tax prescribed under the DTAAs and not as per section 206AA of the Act because the provisions of the DTAAs was more beneficial. Thus, we hereby affirm the ultimate conclusion of the CIT(A) in deleting the tax demand relatable to difference between 20% and the actual tax rate on which tax was deducted by the assessee in terms of the relevant DTAAs - Decided against revenue.

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• 2015 (6) TMI 25
  Disallowance of compensation paid to M/s L&T - compensation for not honouring its commitment for procuring ‘seat frame’ and ‘trim covers’ from Vendors - revenue v/s capital expenditure - CIT(A) deleted the disallowance - Held that:- The nature of payment under settlement is with respect to supplies by vendors to the assessee which are inherently in revenue field. While we have noted that the A.O. has alleged that the assessee company was "certainly benefited by enduring nature" by the virtue of this agreement. We are unable to see any factual support for this allegation. As the ld. CIT(A) has rightly noted, the existence of such an enduring benefit was merely a presumption and based on nothing on record to demonstrate any such enduring benefit. As to whether the payment is capital or revenue is determined by the purpose for which the payment is made and when, as in this case, the payment is clearly relatable to the revenue field such as supplies by vendors, the purpose of payment is clearly revenue in nature. In these circumstances, unless there is any cogent material or evidence to demonstrate that the payment is capital field, the expenditure in question required to be treated as revenue expenditure. As we have mentioned earlier, there is nothing on record whatsoever, to suggest that the assessee derived any enduring benefit by making the payment for this compensation. Hence the payment in question having been made to enhance the supplies and in connection with supplies receipt during the normal course of business, was revenue in nature. - Decided in favour of assesse.

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• 2015 (6) TMI 24
  Non-deduction of tax under section 194C - assessee-in-default under section 201(1) - Held that:- As the appellant was required to deduct tax on the year end provisions made by it. However, as tax has been deducted subsequently before due date of filing of return and the remaining amount being disallowed and added back to the total income while filing return of income, the appellant is not held to be in default u/s.201. - The AR of the assessee could not explain what is the grievance of the assessee arising out of the above order of the CIT(A), who has decided the issue in favour of the assesse - Decided against assesse. Non deduction of tax at source u/s.194C - assessee-indefault under section 201 - Held that:- Simply because the amount was disallowed in the assessment made by invoking the provisions of section 40(a)(ia), does not lead to the conclusion that the assessee cannot be treated as assessee-indefault under section 201 in respect of the same amount. Rather, when the assessee is found to be an assessee-in-default in respect of the TDS amount, then out of many consequences, one of the consequences, is disallowance under section 40(a)(ia) of the Act. We, therefore, do not agree with the order of the CIT(A) in respect of not treating the assessee as assessee-in-default in respect of Rs. 4,98,43,087/-, on the ground that the said amount was disallowed under section 40(a)(ia) of the Act. We, therefore, set aside the order of the CIT(A) to the above extent. However, we find that the assessee has also taken other grounds of appeal before the CIT(A) for its contentions that it should not be treated as assessee-in-default in respect of Rs. 4,98,43,087/-. The same was not adjudicated upon by the CIT(A) as he decided the issue in favour of the assessee on the above ground. In the circumstances, in our considered view, it shall be in the interest of justice to restore the issue back to the file of CIT(A) in respect of the amount of Rs. 4,98,43,087/- for deciding the other grounds of appeal after allowing reasonable opportunity of hearing to both the parties - Decided in favour of revenue for statistical purposes. Tds on payment of pest control charges - 194C or 194J - Held that:- error in the order of the CIT(A) could be pointed out by the DR. He could not cite any contrary decision in support of the claim of the Revenue that the tax was required to be deducted at source under section 194J and not under section 194C of the Act. Further, no material was brought on record by the Revenue to show that any technical services were availed by the assessee for doing pest control in its premises. Hence, we find no good reason to interfere with the order of the CIT(A), which is hereby confirmed - Decided against revenue.

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• 2015 (6) TMI 23
  TP adjustment - adjustment of Rs. 51,20,400/- to the value of international transactions by accepting the CUP method - Held that:- By applying the rate difference of Rs. 150/- per hour to the number of hours charged to AE at 34,136, the CIT(A) arrived at adjustment of Rs. 51,20,400/- as against adjustment of Rs. 73,46,647/- made by AO. We found that in assessee’s own case in A.Y.2003-04 to 2007-08 vide order dated 25-5-2012 the Tribunal had deleted the adjustment made by TPO by accepting CUP as most appropriate method. The Tribunal has also recorded a categorical finding to the effect that the TPO has not brought out any material on record to prove that the per hour rate charged by the assessee company is lower than that charged by third party in the same line of business. However, in the instant case, after recording categorical finding regarding rate difference of Rs. 150 per hour, the TP adjustment has been restricted by the CIT(A) to Rs. 51,20,400/- as against adjustment of Rs. 73,46,647/- made by TPO. Detailed finding recorded by CIT(A) at para 2 of his order has not been controverted by ld. AR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings recorded by the CIT(A) resulting into addition of Rs. 51,20,400/-. - Decided against assesse. Adjusting the brought forward losses against the income of section 10A unit, before deduction u/s.10A - held that:- As relying on case of Black & Veatch Consulting Pvt. Ltd [2012 (4) TMI 450 - BOMBAY HIGH COURT ] no merit in the order of lower authorities for adjusting brought forward losses against income of Section 10A unit, before deduction u/s.10A. Accordingly, the AO is directed to allow claim of deduction u/s.10A on the profit of eligible unit before adjusting the brought forward losses against the income of Section 10A unit - Decided in favour of assesse.

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• 2015 (6) TMI 22
  Unclaimed liability and cessation of liability - CIT(A) deleted the addition - Held that:- It is an uncontroverted finding by the CIT(A) that the amounts which were shown as payable to M/s. Geo-chem Laboratories, M/s. Jain House and Shri Sohan Lal Ghai have been subsequently paid by the assessee. Under these circumstances, there cannot be any good reason to conclude that these were ceased liabilities. We have also noticed that the details of identity, creditworthiness and genuineness of the creditor Ms Priyanka Jhunjhunwala were duly furnished and the revenue has not brought on record any material against the same. In any case, there is no dispute that these amounts reflected in the balance sheet were not even written back by the assessee and these being so shown in the balance sheet also constituted as an acknowledgment of debt, as was held by Hon’ble jurisdictional High Court in the case of CIT vs. Shri Vardhman Overseas Ltd. (2011 (12) TMI 77 - DELHI HIGH COURT). In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. - Decided against revenue. Disallowance of salary - amount was far more excessive as compared to preceding year when there was some business activity whereas in the period under consideration there was no business activity - CIT(A) deleted the addition - Held that:- There is nothing more than increase in expenditure which has been put against the assessee in support of impugned disallowance but even this alleged increase in debit overlooks the fact that while overall expenses were broadly the same, the increase in net debit was due to no recoveries from sister concern. In any event, as uncontroverted findings of the CIT(A) show, all the requisitioned details were before the authorities below and the disallowance was thus wholly uncalled for. A decrease, or even absence, of business activity does not necessarily lead to proportionate reduction in staff salaries. In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusion arrived at by the CIT(A) and decline to interfere in the matter. - Decided against revenue

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• 2015 (6) TMI 21
  Disallowance from work in progress account - CIT(A) directing the Assessing Officer to pass order while giving effect to CIT(A)’s order after verifying part details furnished by assessee during assessment proceeding and by calling for further details from assesse - Held that:- CIT(A) held that Assessing Officer was not just and proper to deny the benefit of expenses incurred by assessee in the construction of multi storied mall. He further directed the Assessing Officer that while giving effect to the instant appellate order, verify the expenses incurred and claimed by assessee in A.Y. 2006-07 and A.Y.2007-08 as per details submitted by assessee on 26.12.2008 and Assessing Officer was further directed to verify business nexus of such expenses. For this purpose, Assessing Officer was free to call further details from assessee. Accordingly, Assessing Officer was directed to pass a speaking order about the genuineness of expenses incurred and business nexus thereof. According to us, having decided the main issue in favour of assessee by observing that it was not just and proper to deny the benefit of expenses incurred by assessee in the construction of multi storied mall. CIT(A) directed the Assessing Officer to make certain inquiries with regard to genuineness of expenses incurred and business nexus by passing speaking order. It amounts to setting aside the issue to Assessing Officer which is not permitted. Accordingly, we set aside the order of CIT(A) and restore the issue to him with direction to decide the same as per fact and law and in the light of our observation discussed above after providing due opportunity of hearing to the assessee. - Decided in favour of revenue for statistical purposes.

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• Customs

• 2015 (6) TMI 42
  Penalty u/s 112 - import made in the name of other firm - Held that:- Imports have been made in the name of IEC holder. Bills of entries have also been filed in the name of IEC holder. Further, the appellants has produced the IEC holder before the Revenue authorities and there is no bar for imports under the Customs Act to import the goods in the name of IEC holder and there is no offence under the Customs Act for lending of IEC code. In these circumstances, relying on the decision of Atul D Sonpal (2011 (4) TMI 1141 - CESTAT, MUMBAI), I hold that the appellant has not violated the provisions of Customs Act and there is no allegation of any misdeclaration, mis-representation or under-valuation of the goods - Merely IEC holder lending the IEC to a third party is not an offence under the Customs Act and penalty for violation of Section 7 of Foreign Trade Development and Regulation Act 1992 cannot be imposed under Customs Act. - Decided in favour of assessee.

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• Corporate Laws

• 2015 (6) TMI 41
  Application for the Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956 - Regional Director's observation regarding compliance of norms of Telecom Regulatory Authority of India (TRAI) duly addressed - Held that:- Although the Regional Director in his report has not raised any objection to the proposed Scheme, but in para 7 of his report, he has pointed out that the petitioner companies in their reply have submitted that the transferee company is registered as a Tele Marketer with Telecom Regulatory Authority of India (TRAI) and has to comply with norms specified by them along with the governance principles laid down by the corporation. He, therefore, prays that the transferee company may be directed to give an undertaking that “it has complied with norms specified by them along with the governance principles laid down by the corporation (especially around Data integrity & Respect for privacy). In reply, the petitioner companies have filed an affidavit dated 16th March, 2015 of Mr. Manish Motani, authorized signatory of the petitioner companies, undertaking to comply with the norms specified by the Telecom Regulatory Authority of India in terms of the Telecom Commercial Communications Customer Preference Regulations, 2010 and other applicable regulations, rules or guidelines, as also the governance principles laid by the TRAI. The aforesaid undertaking is accepted and the petitioner shall remain bound by the same. In view of the above, the observation made by the Regional Director stands satisfied. Considering the approval accorded by the equity shareholders and creditors of the petitioner companies to the proposed Scheme of Amalgamation and the affidavits filed by the Regional Director, Northern Region, and the Official Liquidator not raising any objection to the proposed Scheme of Amalgamation, there appears to be no impediment to the grant of sanction to the Scheme of Amalgamation. Consequently, sanction is hereby granted to the Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956. - Application of Scheme of Amalgamation approved.

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• Service Tax

• 2015 (6) TMI 50
  Tour Operator/ Rent-a-Cab Services - Bonafide beleif - Invocation of extended period of limitation - Penalty u/s 76, 77 & 78 - Held that:- Revenue came to know of the services provided by the appellant only through an audit of the records of M/s. ONGC. No service tax registration was obtained by the appellant during the relevant period of demand - extended period will be applicable to the present facts and circumstances. Providers of Rent-a-Cab/ Tour Operator services providers were under the impression that services provided to M/s. ONGC are not leviable to service tax. M/s. ONGC also conveyed to Rent-a-Cab service providers that service tax is not leviable as observed by this bench while passing order No. A/12094 to 12096/2014 dated 28.11.2014. This case is, therefore, fit for extending the benefit of Section 80 of the Finance Act, 1994 even if extended period is found applicable - Decided partly in favour of assessee.

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• 2015 (6) TMI 49
  Waiver of pre deposit - business auxiliary service - distributor or marketing agent of M/s Amway India Enterprises Pvt. Ltd. - Held that:- While prima facie the service rendered by the appellant clearly fell under the scope of business auxiliary service, it is seen that CBEC vide Circular No. 80/10/2004-ST dated 17.9.2004 stated that while the scope of the existing taxable service (viz. business auxiliary service) has been expanded to include activities relating to procurement of inputs, production of goods (not amounting to manufacture), provisions of services on behalf of a client, the tax is leviable only when the service provider is a commercial concern. - circular further clarify that "service tax is however being restricted to only those cases where the service provider is a factory governed by the Factory Act, 1948, the company established by or under the Companies Act, 1956 or corporation or a body corporate established by or under any law, partnership firm, societies registered under Societies Registration Act, 1860 or under any law and any cooperative society established by or under any law - appellant had a reasonable basis to presume that they being an individual would not be covered for the purpose of levy of service tax. We must clarify that Board's circulars do not have any legal enforceability and are mere administrative interpretations of law but when the policy making body [CBEC] itself considered individuals to be outside the purview of taxability under business auxiliary service, it cannot be sustainably alleged that an individual was guilty of suppression/mis-statement if he thought alike. Thus, prima facie, the entire demand is hit by time bar. - Stay granted.

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• Central Excise

• 2015 (6) TMI 46
  Duty demand - Clandestine removal of goods - Confiscation of seized goods - Imposition of redemption fine - Held that:- Statements recorded from the Managing Partner and also from the Proprietor of SCM and Managing partner of AP & Sons, cannot be said to be recorded in duress or by force. These statements were voluntarily made by the deponents before the central excise officers. Even if any of the statements were retracted subsequently, it cannot be held as invalid as in the instant case none of the statements were retracted immediately. In the case of clandestine removal as evident from their modus operandi as discussed above, the respondent had cleverly master minded with the connivance of SCM and AP & Sons for clearance of the processed fabrics without accounting in their records without payment of duty and ensured all evidences are destroyed immediately after the transaction is complete. The department had clearly established from interception of van carrying fabrics and seizure of 11069.30 mts. dyed woven fabrics cleared without payment of duty and established past clearances with the ledgers, private records, white sheets and white papers of the respondent co. These white papers are not unsigned papers but they contain the details of quantity, colour and amount which are duly signed by Shri C. Manikandan, which was recovered from the supplier confirms the delivery of the processed fabrics and receipt of job charges in cash. Decision in the case of Commissioner of Central Excise, Mumbai Versus M/s. Kalvert Foods India Pvt. Ltd. & Ors. [2011 (8) TMI 24 - SUPREME COURT OF INDIA] followed. Demand raised in the SCN dated 17.07.2001 is confirmed after allowing the cum-tax benefit and after applying correct rate of duty for 2000-2001 and on revised quantity for 2000-2001 in respect of clearance of goods to SCM - Demand of interest is confirmed under Section 11AB on the revised demand - Penalty imposed on the respondent M/s. SSP under Rule 173 Q of CER read with Rule 25 of CER under Section 11AC of CE Act equivalent to the revised demand - Decided partly in favour of assessee.

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• 2015 (6) TMI 45
  Exemption claim - Captice consumption - whether National Calamity Contingency Duty (NCCD) is leviable on Partially Oriented Yarn (POY) and FDY when used captively in the manufacture of the goods falling under CETH 54.02 exempted under Notification No.46/2003-CE, dt.17.05.2003 - Held that:- the judgment of the Tribunal [2008 (12) TMI 722 - CESTAT AHMEDABAD] in relation to clearance under Notification No.108/95 can be applied and therefore, NCCD is not leviable in respect of clearance to 100% EOUs also. - Decided in favour of assessee.

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• 2015 (6) TMI 44
  Duty demand - whether PSF and POY manufactured by the appellant from plastic waste pet bottles, is liable to duty during the period April 2008 to March 2013 - Held that:- PSF or PFY manufactured from plastic scrap and plastic waste were exempted as per the amendment carried under Notification No. 12/2012-CE dated 17.3.2012, an entry No. 172A was inserted by Notification No. 24/2012-CE dated 08.05.2012. So far as the period prior to 29.6.2010 is concerned, the same is covered by the decision of CESTAT in the case of CCE, Kanpur Vs. G.P.L. Polyfils Limited (2005 (1) TMI 375 - CESTAT, NEW DELHI). - HSN explanatory notes, Synthetic Filament Yarn includes Partially Oriented Yarn, Fully Oriented Yarn and Texturised Yarn of polyester which will be covered by the description PFY mentioned in Section 110 of the Finance Act, 2014, which retrospectively exempted the said goods. Therefore, the entire period is covered in the demand show cause notices, either because the duty was not leviable on PSF and POY manufactured by the appellants or the same were exempted under retrospective exemption or by introducing entry No. 172A in Notification No. 12/2012-CE dated 17.03.2012. Due to the corrective action taken by Revenue, it is held that there was no intention to charge duty on impugned PSF and POY for the period involved in these appeals. Exemption to waste and scrap under Notification No. 89/95-CE is subject to certain conditions mentioned in proviso contained in this notification. The aspect of availability of exemption is, therefore, required to be remanded back to the adjudicating authority, who will decide the same in the remand proceedings, after giving opportunity of personal hearing to the appellant. - Decided in favour of assessee.

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• 2015 (6) TMI 43
  Exemption under Notification No.108/95-CE - projects financed by the said United Nations or an International Organisation and approved by the Government of India - Actual user condition - Held that:- There was no material placed by the Revenue on the allegations of the possible misuse of the goods for unintended purposes by the sub-contractors. Secondly, being the beneficial Notification issued in public interest and the project itself being executed fully by the Contractors as per the directions of the Project Implementing Authority, the fact that the machineries were not given directly to the project implementing authority but given to the agency executing the work in fact cannot go against the assessee s claim. Thus ultimately, as the machineries had been put in use by the sub-contractors, who were given the job of execution the claim for exemption cannot be denied. The use of the phrase supplied to the projects financed by the said United Nations or an International Organisation and approved by the Government of India clearly shows that the condition for grant of exemption is supply of the goods towards the project and nothing beyond. - Following the decision of Hon'ble Madras High Court (2013 (7) TMI 244 - MADRAS HIGH COURT), the impugned order is set aside - Decided in favour of assessee.

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• CST, VAT & Sales Tax

• 2015 (6) TMI 48
  Condonation of delay - Bonafide belief - Withdrawal of appeals - Clubbing of appeals - Held that:- Contention of the petitioners that they were under bonafide belief that the appeal is still pending stands fortified from the facts narrated hereiabove and from the affidavits placed on record. It is further to be noted that though the petitioners had requested for withdrawal of appeal in part, the Appellate Authority erroneously dismissed the appeal as withdrawn in toto. By now, it is well-settled principle of law that the act of Court shall prejudice none. Reliance in this respect shall be placed on the Judgment of the Apex Court in the case of Gursharan Singh and Others vs. New Delhi Municipal Committee & Ors. [1996 (2) TMI 540 - SUPREME COURT]. The Appellate Authority acting under the said Act, acts in a quasi-judicial capacity. On account of an error which is committed by a quasi-judicial authority, and which according to the affidavit filed on behalf of the appellant, was assured to be corrected by him, but however not corrected by him, a prejudice cannot be permitted to be caused to a litigant who was acting bonafide - petitioners have made out a case of sufficient cause and as such, have made out a case for condonation of delay. However, the same shall be subject to costs which are quantified at Rs. 10,000 - Decided partly in favour of assessee.

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• 2015 (6) TMI 47
  Detention of goods - Cancellation of provisional registration - Held that:- Petitioner is ready and willing to deposit and/or produce the necessary Challans of payment of the aforesaid amount before the respondent No.4 and/or appropriate authority. - It is, therefore, that on deposit of the aforesaid amount, the respondent No.4 may be directed to release the goods detained under memo - Decided conditionally in favour of assessee.

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