TMI Tax Updates - e-Newsletter
June 4, 2014

Case Laws in this Newsletter:

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

Articles

1. Pre- Budget - Suggestions for Revenue Augmentation & Reforms

   By: Madhukar N Hiregange

2. AUDIT COMMITTEE UNDER NEW COMPANY LAW

   By: Dr. Sanjiv Agarwal

News

1. Tamil Nadu Chief Minster Ms. J. Jayalalithaa Calls on the Union Finance minister Shri Arun Jaitley

2. Indian Revenue Service (Income Tax) Association Presents a Cheque of Rs. 10.00 Lakhs to the Finance Mininster for Rehabilitation and Reconstruction Work in Uttarakhand

3. RBI cancels Certificate of Registration of three NBFCs

4. RBI Reference Rate for US $ and Euro

5. Second Bi-Monthly Monetary Policy Statement, 2014-15 By Dr. Raghuram G Rajan, Governor Monetary and Liquidity Measures

6. First Meeting of the SIT held Today; Detailed Modalities of Proceeding Further with the Supreme Court Mandate were Discussed and Roadmap Decided; Next Meeting of the SIT to be Convened Shortly

Circulars / Instructions / Orders

SEZ

1. INSTRUCTION NO. 80 - dated 3-6-2014

Clarification on FTWZ issues – Amendment to Instruction No. 71 regarding.

Highlights / Catch Notes

Income Tax

• High Court Rules Penalty for Income Concealment Unlawful Without Explicit Direction in Revisional Order u/s 271(1)(c.

  Case-Laws - HC : Levy of penalty penalty u/s 271(1)(c) after remand - AO could not have in the first instance, after remand, without any direction or indication in the revisional order initiate the penalty proceedings - HC
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• Section 269SS: No Penalties for Book Entry Transactions; Applies Only to Acceptance of Money u/s 271D.

  Case-Laws - HC : Penalty u/s 271D - The ambit of the Section 269SS is clearly restricted to transaction involving acceptance of money and not intended to affect cases where a debt or a liability arises on account of book entries - HC
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• Tribunal Error: Commission Payments to Directors Wrongly Excluded u/s 36(1)(ii) of Income Tax Act.

  Case-Laws - HC : Personal guarantee furnished to bank for facilitating loan - Tribunal erred in holding that the payments of commission to the Directors fell within the exclusionary limb of Section of 36(1)(ii) - HC
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• Charitable activities at registration time irrelevant for section 12AA. Focus is on objectives for granting registration.

  Case-Laws - HC : Carrying on of charitable activities at the time of registration and the utilization of the funds etc. are not relevant and once the objects of the institution are found to be charitable in nature, registration u/s 12AA has to be granted - HC
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• Exemption Granted: Advance Payment for Residential Flat Recognized as Investment u/s 54F of Income Tax Act.

  Case-Laws - AT : Claim of exemption u/s 54F - as per AO advance payment made for the purchase of residential flat has not been treated as investment/utilization of the capital gain in the purchase of a residential house - exemption allowed - AT
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• Keyman Insurance Premiums with Investment Plans Not Deductible as Business Expense, Affecting Financial Statements.

  Case-Laws - AT : Disallowance of premium paid for Keyman Insurance Policies – investment plans with accompanying insurance benefits - cannot be claimed as business expenditure - AT
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• TDS Not Required on Sub-Contractor Commissions for Recharge Coupons Due to Principal-to-Principal Relationship, Says Court.

  Case-Laws - AT : TDS on commission paid to Sub Contractors/ Sub Distributors from sale of Recharge of coupons and Top-ups - relationship with BSNL is different from the relationships of sub-franchisee and is on principal to principal basis - no TDS u/s 194H required - AT
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Customs

• High Court Overturns Tribunal, Condones Appeal Delay; Tribunal's Jurisdiction Finding Deemed Unjustified.

  Case-Laws - HC : Condonation of delay in filing of appeal - the finding of the Tribunal that it intentionally approached authorities who did not possess jurisdiction does not appear to be justified. - delay condoned - HC
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Service Tax

• Appellant's Services Classified as Intellectual Property, No Tax Applicable for Pre-September 10, 2004 Services.

  Case-Laws - AT : Classification of service - Consulting Engineer services or Intellectual Property Service (IPR) - As the services by the appellant were provided during the period prior to 10.09.2004, therefore, no service tax is leviable upon the appellant as services are of IPR - AT
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Central Excise

• Court Grants Partial Stay in CENVAT Credit Case on Goods Sent for Job Work, Inputs Marked for Another Unit.

  Case-Laws - AT : CENVAT Credit - sending goods on Job work without receiving the goods in factory premises - inputs marked for another unit - stay granted partly. - AT
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• Central Excise Registration Amendment Denied for Pipeline from Wadinar, Gujarat to Bina Refinery, Madhya Pradesh.

  Case-Laws - AT : Application for amendment in approved ground plan of Central Excise registration to include the pipeline laid down from Wadinar (Gujarat) state to the refinery at Bina (M.P.) - amendment denied - AT
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• Deadline Extension for Deposits Falling on Holidays: Make Payments on the Next Working Day Allowed by Law.

  Case-Laws - HC : What would be the position in law if the last date of deposit is a holiday and the amount is deposited on the next working day - amount can be deposited on next working day - HC
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Case Laws:

• Income Tax

• 2014 (6) TMI 50
  Levy of penalty u/s 271(1)(c) after remand order - originally no penalty proceedings were initiated - Satisfaction not recorded by the CIT – Held that:- Tribunal was of the view that when the revisional order was made on 29.06.2010, the Commissioner did not record any satisfaction even though he was empowered to do so u/s 271(1)(c), as amended -This aspect assumes importance even though the Revenue endeavoured to urge that the increased amount brought to tax by virtue of the revisional power implied that penalty could also be imposed while giving effect to the revisional order – the contention cannot be accepted because the basic idea of clothing the Commissioner with the primary powers to initiate penalty u/s 271 (1) was precisely to cater to such situations - the initiation of penalty proceedings is based upon the satisfaction of one who is empowered to do so - it was open to the Commissioner to initiate the proceedings in exercise of its powers u/s 271 or even indicate that such power was available to the AO, while working out the revision effect - Not having done so, the AO could not have in the first instance, after remand, without any direction or indication in the revisional order initiate the penalty proceedings – as such no substantial question of law arises for consideration – Decided against Revenue.

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• 2014 (6) TMI 49
  Reopening of assessment – Validity of computation of deduction u/s 10A of the Act – Relevant materials not produced – Held that:- The Tribunal was of the view that the AO has referred only to the notes to account, assessee's statement and have used the words ‘should not have been claimed and there is a mistake’ - the Tribunal had merely followed its previous decision, thus, no substantial question of law arises for consideration – Decided against Revenue.

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• 2014 (6) TMI 48
  Rejection of application of exemption u/s 10(23C)(vi) of the Act – Activities of the Society ceased to be charitable as defined u/s 2(15) r.w section 11and 13 of the Act – Held that:- Exemption u/s 10(23C)(vi) of the Act can be claimed by an assessee without applying for registration u/s 12A of the Act as it is not required to fulfil the conditions mentioned u/s 11 of the Act while claiming exemption u/s 10(23C) (vi) of the Act - the registration was cancelled only on the ground that the Society did not solely exist for charitable purpose - There is no whisper that the assessee did not fulfill any of the conditions mentioned in Section 12-AA(3) of the Act, namely, that the activities of such trust was not genuine or was not being carried out in accordance with the objects of the trust – thus, there was no error in the order of the Tribunal and as such no substantial question of law arises for consideration – Decided against Revenue.

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• 2014 (6) TMI 47
  Validity of order of Penalty u/s 271D of the Act – Bar of limitation as provided in Section 275(1)(c) of the Act – Violation of section 269SS of the Act - Held that:- The ambit of the Section 269SS is clearly restricted to transaction involving acceptance of money and not intended to affect cases where a debt or a liability arises on account of book entries. - passing book entries does not involve acceptance of any loan or deposit of money. Applicability of provisions of section 275(1) - Held that:- The penalty sought to be imposed on the assessee is for alleged violation of Section 269SS of the Act - a penalty under the provision is independent of the assessment - The action inviting imposition of penalty is granting of loans above the prescribed limit otherwise than through banking channels and as such infringement of Section 269SS of the Act is not related to the income that may be assessed or finally adjudicated - Section 275(1)(a) of the Act would not be applicable and the provisions of Section 275(1)(c) would be attracted – Relying upon The Rajasthan High Court in the case of Commissioner of Income-Tax v. Hissaria Bros. [2006 (7) TMI 163 - RAJASTHAN High Court] - Decided against Revenue.

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• 2014 (6) TMI 46
  Disallowance of commission paid to directors u/s 36(1)(ii) of the Act - Personal guarantee furnished to bank for facilitating loan – Rejection of application u/s 254(2) of the Act – Rectification of order – Held that:- The act of the Directors in providing their personal guarantees and undertaking the attendant risks is clearly beyond the scope of their services as employees of the assessee - the transactions is for which commissions were paid by the assessee to its Directors are real - the Directors have provided their personal guarantee have acted beyond the call of duty as employees of the assessee - the assessee in its commercial wisdom has agreed to pay a commission for the furnishing of such guarantees cannot be flawed - it is assessee’s discretion as to which expenditure is necessary and to what extent - it is not within the jurisdiction of the AO to impose his views with regard to the necessity or the quantum of the expenditure undertaken by an assessee. The Directors would not be entitled to receive the amount paid to them as commission, as dividends because even if it is assumed that nonpayment of commission would add to the kitty of distributable profits the same would have to be distributed pro-rata to all the shareholders and not selectively to the Directors - Dividend is paid by a company as distribution of profits to its shareholders in the ratio of their shareholding in the company - the Directors were not the only shareholders of the company – thus, in the event the Commission had not been paid by the assessee it could not have been distributed to them as dividends - Relying upon AMD Metplast P. Ltd. Versus Deputy Commissioner of Income-tax [2011 (12) TMI 320 - Delhi High Court] - the Tribunal erred in holding that the payments of commission to the Directors fell within the exclusionary limb of Section of 36(1)(ii) of the Act – thus, the order is rectified to the limited extent that it upholds the disallowance of expense paid as commission to the Directors – the disallowance and the additions made is set aside – Decided partly in favour of Assessee.

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• 2014 (6) TMI 45
  Reassessment proceedings - proceedings based upon the DRI investigations – failure to issue notice u/s 143(2) – Held that:- Tribunal was of the view that the CIT (A) has also made his observations regarding the non-maintainability of the disallowance made by the AO in the reassessment accepting contention of the assessee in this regard - The decision of the Tribunal is based upon its consideration of the CIT(A) order - the AO seems to have been entirely influenced by the allegations envisaged in the DRI report as to the unjustified drawback claimed by the assessee - There was otherwise no independent material to support the conclusions of the AO in the reassessment proceedings-a fact which persuaded the CIT(A) to set aside the reassessment – no substantial question of law arises for consideration – Decided against Revenue.

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• 2014 (6) TMI 44
  Allowability of registration u/s 12AA of the Act –Genuineness of charitable institution - Charitable activity u/s 2(15) of the Act - The Tribunal was of the view that the objects which were filed by the assessee were charitable in nature and none of the objects were otherwise than charitable - even the AO had recommended that the assessee should be granted registration - the genuinity of the society was not in doubt and carrying on of charitable activities at the time of registration and utilization of funds etc. was not relevant considerations to be scanned at the time of grant of registration - the carrying on of charitable activities at the time of registration and the utilization of the funds etc. are not relevant and once the objects of the institution are found to be charitable in nature, registration u/s 12AA has to be granted – there is no merit in the reasoning of Commissioner to reject registration - The applicant society is not required to prove its case that the project is to be run under its name in a charitable manner - The genuinity of the society is not in doubt - the reasons given by Commissioner for refusing registration u/s 12A are not legally valid – the order of the Tribunal is upheld – no substantial question of law arises for consideration – Decided against Revenue.

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• 2014 (6) TMI 43
  Compensation for late handing over of possession of property – Capital receipt or not – Held that:- Tribunal was of the view that there is no finding by the AO that possession of the property was handed over to the assessee - It was a compensation for delay in completion of the construction – AO should have verified that who is the tenant over the property but no such steps were taken by the AO – Relying upon DDA Vs ITO [1995 (1) TMI 126 - ITAT DELHI] - though the nomenclature is interest but it is not the interest as such, it is a compensation on account of delay in the construction of the developed units and the term 'interest' used only as a measuring of quantification - The Tribunal took note of its previous decisions - the tax effect is less than the prescribed amount of Rs. 10 lakhs - the decision of the Tribunal need not to be interfered – Decided against Revenue.

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• 2014 (6) TMI 42
  Deletion of penalty u/s 271(1)(c) of the Act – Debt not written off even after the amendment of Section 36(1) (vii) and 36(2) of the Act - No material to show that the Government had refused to pay any amount - Held that:- The Tribunal was of the view that the assessee has credited a sum of Rs. 3.5 crores towards interest on advances given to Government of Punjab and CONWARE – Relying upon South India Surgical Co. Limited [2006 (1) TMI 111 - MADRAS High Court] - penalty proceedings are not automatic in the sense that once addition is made, the same will not be followed by penalty - the assessee has furnished the explanation which seems to be bonafide before the AO for making this entry for provision towards interest - The penalty 'cannot be levied unless and until there is concealment or when the explanation which has been filed before the AO and which is found not bonafide - wherever assessee might have made a claim on bonafide basis and that claims is ultimately found to be incorrect, the same will not lead to the penal consequence. The Tribunal noticed that the entry towards interest on advances given to Government of Punjab and CONWARE was made by the assessee - principal amount due from Punjab Government as well as CONWARE was written off in the next subsequent year i.e. AY 2005-06 - The assessee was not hoping to recover the interest and entry of interest was made only for memorandum purposes - the explanation furnished by the assessee appeared to be bonafide in making entry for provision towards interest - The assessee provided the interest on accrual basis but simultaneously made a debit entry against such interest which was accepted to be purely bonafide – thus, the order of the Tribunal is upheld – Decided against Revenue.

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• 2014 (6) TMI 41
  Inclusion of interest income in book profits – Computation of salary of partners – Allowability of deduction u/s 40(b) of the Act – Interest income not within the ambit of section 28 of the Act – Held that:- Following M/s. BG. Chitale Versus DCIT, Cir-1, Sangli [2010 (9) TMI 986 - ITAT PUNE] - The book profit adopted for purpose of calculating the allowable salary/remuneration included interest income - This amount consisted of interest received on FDs with various Banks, MSEB deposits on SD, on other parties and income-tax refund - Before the CIT, the assessee explained that the deposits on which interest has accrued were made out of business compulsion and expediency - CIT did not agree with this explanation and held that there is no direct nexus between the interest income earned by the firm and the business of assessee - the interest income in question ought to have been treated as income from other sources and same should not have been considered for working of the book profit - CIT was of the view that the assessment order to be erroneous and prejudicial to the interest of the Revenue with direction to the AO to modify the order assessing interest income as income from other sources and excluding the interest income while allowing claim of remuneration to partners – There was no infirmity in the order of the CIT(A) allowing the claim of the assessee - Decided against Revenue. Obligation to deduct TDS – Whether the treating the hiring of truck to supply the milk in isolation as work contract to attract the provisions of sec. 194C of the Act - Held that:- Following M/s. BG. Chitale Versus DCIT, Cir-1, Sangli [2010 (9) TMI 986 - ITAT PUNE] - purchase of milk was predominant factor in the transaction and not the hiring of truck to transport the same to the assessee - the predominant factor in the contract was sale of milk, the contract cannot be turned as for carrying out any work to invoke the provisions of Sec. 194C of the Act – CIT was not justified in treating the hiring of truck to supply the milk in isolation as work contract to attract the provisions of Sec. 194C of the Act without appreciating that predominant fact behind was purchase/sale of milk – Decided against Revenue. Setting of losses prior to initial AY – Calculation of deduction u/s 80IA of the Act – Held that:- Following Preetam Enterprises Versus Jt. CIT Range 1, Kolhapur [2011 (4) TMI 1230 - ITAT PUNE] - losses and depreciation of the years earlier to the initial AY which have already been absorbed against the profits of other business cannot be notionally brought forward and set off against the profits of the eligible business for computing the deduction under section 80-IA - Nothing contrary was brought by the revenue – thus, the order of the CIT(A) is upheld – Decided against Revenue. Deletion made u/s 40(a)(ia) of the Act – Non-deduction of TDS on wheeling charges and Computer development and maintenance charges – Held that:- CIT(A) gave part relief to the assessee on the ground that the assessee has shown that the computer maintenance expenses were incurred towards purchase of consumable items - out of the expenses incurred towards computer development charges, he had given a finding that assessee has deducted tax at source paid to Yantra Automation Pvt. Ltd. for the services done by them - an amount was incurred towards JA Solutions for outright purchase of a graphic design on which VAT was also paid by the assessee and therefore no TDS is deductible from this amount - revenue could not controvert the factual findings given by the CIT(A) – thus, there was no infirmity in the order of the CIT(A) deleting the disallowance on account of computer maintenance charges out of the disallowance on account of computer development charges. CIT(A) has given the reasons as to why the provisions of section 194J/194C will not be applicable to the payments made to MSEB on wheeling charges - provisions of section 194J will not be applicable to the assessee company since usage of transmission lines for transmitting power has not resulted into any technical services being rendered to the assessee - the provisions of section 194C will also be not applicable since the payment on transmission and wheeling charges does not involve carrying out of any work and hence would be outside the purview of section 194C - CIT(A) was right in deleting the addition made by the AO on account of wheeling charges paid to MSEB and computer expenses u/s.40(a)(ia) for non-deduction of tax at source – Decided against Revenue.

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• 2014 (6) TMI 40
  Claim of exemption u/s 54F of the Act – Long Term Capital Gains – as per AO at the time of acquisition of land, the assessee owned more than one residential house. - further as per AO advance payment made for the purchase of residential flat has not been treated as investment/utilization of the capital gain in the purchase of a residential house - Held that:- Investment & ownership are two distinct terms which have their meanings and connotations in different ways - The investment of capital gains is a beneficial provision and 'ownership' at the time of transfer of the original asset is to be interpreted strictly as per law - both the stages cannot be dealt with in the same manner - the proviso 54F(1)(b)(b) to the section postulates that such residential house, other than the residential house owned on the date of transfer of the original asset is chargeable under the head "income from house property" - Section 54F is a beneficial provision for promoting the construction of residential houses and requires an assessee to construct houses and for achieving that purpose to intent of the Legislature is to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of the law – the assessee cannot be treated owner of Noida/Chandigarh flats on 05/06/2010 - he to be allowed benefit of section 54F because he has invested the capital gain as per the requirement of the Act. The intention of the Legislator is to encourage investment in the acquisition of residential houses and section 54F of the Act prescribes and proscribes the conditions for availing its benefit - The terms/words used in this section have been very selectively & prudentially used by the legislature - the benefit is against the capital gain arising out of transfer of any long term capital asset not being a residential house and which has been referred to as an 'original asset' subject to a condition that if the 'net-sale-consideration' is invested either in purchasing/constructing a residential house or in constructing the same within the period prescribed - if the assessee owned more than one residential house other than the new asset on the date of transfer of the original asset, this benefit is not available to him - the assessee had sold a capital asset in the form of land on 03/10/2008 and earned long term capital gain as there was some error in the computation filed by the assessee with the return because in the indexing of the cost of land in F.Y. 1991-92, the assessee's half share was not considered - The assessee has claimed exemption u/s 54F (1)(b) of the Act - the assessee did not own more than one residential house on the date of transfer of the original asset. Relying upon Sardarmal Kothari [2008 (6) TMI 15 - MADRAS HIGH COURT] - Owning of a residential house at the time of transfer of the original asset has different meaning and connotation and acquisition of new asset 'which is equivalent to purchase of new residential house' has entirely different meaning and connotation - CIT(A) has misdirected himself in giving the same meaning to the residential house owned at the time of transfer of the original asset and the investment made out of the capital gain in the purchase or construction of new house, which has been defined as 'new asset' in the Act - any payment made towards acquisition of a new residential house by way of making payment in advance even by booking or by paying installments within the prescribed has to be is treated as investment towards purchase / construction of a new house - the assessee is entitled for exemption u/s 54F of the Act of LTCG – Decided in favour of Assessee.

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• 2014 (6) TMI 39
  Disallowance of premium paid for Keyman Insurance Policies – investment plans with accompanying insurance benefits - AO was of the view that the assessee has invested in Unit Linked Insurance Plan under Keyman Insurance Plan and it is not Keyman Insurance Policy as per the meaning given in the Income Tax Act - Held that:- As per definition of “Keyman Insurance Policy”, a person purchasing life insurance can only do so to the extent of his insurable interest in the assured - the policies have been taken from Unit Linked Investment Plan is investment plan, premium of which has been put into growth fund and it is not a Pure Life Insurance Policy on the life of another person - the policy itself does not fall under the definition of Keyman Insurance Police as defined under explanation to clause (c) of section 10(10D) of the Act - Unit Linked Insurance Plan, an Investment Plan, the purpose of which is guaranteed returns on the premium amount through investment in Units and Unit Linked Insurance Plan for which the premium is paid though wrongly claimed as an expenditure, which is not allowable as an expenditure - The Circular of IRDA has clarified the position and the arguments made by the ld. counsel that it is prospective in nature, cannot be accepted since the circular is clarificatory in nature. It is not a ‘term Assurance Policy Plan” as per IRDA guidelines - A nominal amount is being charged for mortality charges for life cover and balance amount has been deployed to purchase Units as per assessee’s choice - only a fraction of the total premium is meant for risk premium, the balance is for the deployment of purchase of units i.e. Investment in Units which in fact, cannot be claimed as business expenditure, which query, has never been explained by the assessee - It does not fulfill the condition of policy taken by a person on the life of another person as per definition of explanation to clause (c) of section 10(10D) of the Act – thus, there was no infirmity in the order of the CIT(A) who has rightly upheld the order of AO – Decided against Assessee.

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• 2014 (6) TMI 38
  TDS u/s 194H - TDS on commission paid to Sub Contractors/ Sub Distributors/ Sub-Franchise from sale of Recharge of coupons and Top-ups - assessee is a franchisee of BSNL - purchasing SIM cards and Recharge coupons from BSNL against payment and resells them to Sub Contractors/Sub Distributors/Sub-Franchise - Assessee in default u/s 201(1) and 201(1A) of the Act – Submissions not appreciated – Assessee contended that the transactions were on principal to principal basis and no commission was paid and therefore provisions of TDS were not applicable - Held that:- The role of Franchisee is limited to booking of new connections i.e. Subscriber Identification Module cards and sale of Recharge - Booking of new connections i.e. SIM cards. Contributes to less than5% of total business - the assessee’s role is limited to booking of new connections only and commission after deducting TDS is given on new connections by BSNL and similarly, TDS is deducted and deposited on commission disbursed to Sub-Franchisee on account of new connections booked by them - sale of Recharge contributes more than 95% of business and only dispute is with regard to Recharge of coupons and Top-ups. The BSNL does not recoup the loss to the assessee, which is clearly mentioned - The assessee has sold the Recharge coupons to the Sub-Distributors so that they also earn some margin of profit and such Recharge coupons once sold become the property of the said Sub- Distributor and such Sub-Distributor is free to sell the same at a price as he deems fit though the maximum price has been fixed by the BSNL with regard to the market condition - there shall not be any partnership, joint venture, employment or relationship of principal and agent between parties. The assessee is not a service provider, as he purchased recharge coupons from the service provider i.e. BSNL and not provides any service to the subscribers - The assessee simply sells recharges to the sub-distributors, which is on principal to principal basis and there is no relationship of principal and agent - there is no written agreement with the sub-distributors - The sale bills are issued to the sub-distributors and copies were produced - The books of account are audited and transactions has been shown as sale and purchase - None of the conditions referred to in section 194H to Explanation (i) is fulfilled - But equal margin earned/profit earned as commission i.e. the sub-distributor is not receiving the payment on behalf of the assessee but on his own and he is not accountable to the assessee - once the assessee has sold the SIM cards or Recharge coupons, the assessee has no control or liability towards the sub-distributors - A copy of the bills filed before the authorities below issued by the BSNL show that BSNL has allowed the discount in some cases and allowed commission in other cases. The relationship with BSNL is different from the relationships of sub-franchisee and is on principal to principal basis because the assessee has no control over the sub franchisees whatsoever - The sub franchisees are from to sell SIM cards and Top Ups to any customer at any price and once these are sold the assessee loses its control over the same - Relying upon Berger Paints India Ltd. vs. CIT [2004 (2) TMI 4 - SUPREME Court] - the assessee is a ‘Trader’ and relationship is that of the principal to principal and the authorities are not justified to hold relationship of principal and that of an agent - the assessee is not liable for the provisions of Section 201(1) & 201(1A) of the Act – thus, the order of the CIT(A) is set aside – Decided in favour of Assessee.

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• 2014 (6) TMI 37
  Deletion of disallowance made u/s 14A of the Act r.w. Rule 8D of the Act – Expenses incurred for earning dividend income – Held that:- In the absence of any materials regarding incurring of expenditure, the Tribunal was justified in confirming the order of the CIT(A) that deduction of 2% managerial expenses had to be made while calculating the deduction u/s 14A of the Act – thus, the AO is directed to restrict the deduction to 2% of the dividend income earned by the assessee as expenditure attributable for earning dividend income – Decided partly in favour of Revenue.

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• 2014 (6) TMI 36
  Estimation of income – Failure to produce the documents – Held that:- The AO estimated net profit at 5% of the turnover by holding that the attitude of the assessee was non-cooperative during the assessment proceedings - the AO estimated 5% of turnover as net profit of the assessee without any basis and without considering previous year’s results of the assessee and also without taking any comparable - the observations of the CIT(A) that in absence of any specific adverse observation with regard to any claim of the expenses of the assessee, the book results of the assessee cannot be rejected, are wrong and unsustainable - the authorities below adopted a wrong approach in deciding taxable income of the assessee and we find it just and proper that the entire issue pertaining to the assessment should be examined and adjudicated at the end of AO – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Jurisdiction to pass order – Held that:- As the matter has already been remitted back to the AO, the legal objection of the assessee regarding jurisdiction is also restored to the AO for adjudication - Decided in favour of Assessee.

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• 2014 (6) TMI 35
  Validity of Direction given by CIT(A) - GP additions – Direction for re-computation of profits – Held that:- Assessee is in the business of purchase and sale of cars as a dealer of Maruti Udyog Ltd., and there is no scope for any business outside the books of account in this line of business of the assessee - CIT(A) has directed the AO to make a uniform addition worked out at 1% of the sales declared by the assessee, net of the sales tax - CIT(A) has noted that the AO has not brought forth any evidence to bring on record specific details of discrepancy or the unaccounted capital employed by the assessee or the modus operandi of tax evasion - the assessee has not been able to explain all the discrepancies noticed and reconcile the differences noticed with regard to purchases and sales - the average net profit rate arrived at by the assessee in each of the years works out to 0.16% - thus, the order of the CIT(A) is modified and the AO is directed to restrict the additions in each of the years, so as to result in a net profit of 0.16% on the differential turnover, over and above the profit declared by the assessee – Decided partly in favour of Assessee. Addition u/s 43B and section 40A(3) of the Act - Estimation of income from business – Held that:- The contention of the assessee is accepted that the income of the assessee from business, having been determined by resorting to estimation, there is no scope for any separate addition – Relying upon Indwell Constructions V/s. CIT [1998 (3) TMI 121 - ANDHRA PRADESH High Court] – thus, the additions are set aside - the income that may be determined by the AO for each of the years, shall not fall below the income returned by the assessee for the relevant year, and in case returned income is higher for any year(s), returned income shall be accepted – Decided partly in favour of Assessee.

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• Customs

• 2014 (6) TMI 51
  Condonation of delay in filing of appeal - due to filing revision application at wrong forum - Denial of drawback claim - inputs used on the exported product - Held that:- the Tribunal, as would be apparent from the impugned order, took rather a strict view on limitation and inferred that the petitioner caused deliberate delay. In the present case the show-cause notice and the order-in-original made in 2009 had proposed recovery of penalty amount of Rs. 60 lakhs and Rs. 75 lakhs. Under the circumstances, the finding of the Tribunal that it intentionally approached authorities who did not possess jurisdiction does not appear to be justified. Having regard to the peculiar circumstances, the petitioner”s appeal before the CESTAT being [2013 (5) TMI 712 - CESTAT NEW DELHI] shall be taken up for consideration uninfluenced by the question of delay - Delay condoned.

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• Corporate Laws

• 2014 (6) TMI 54
  Winding up of company - Inability to pay debts - Goods supplied but payment not made - respondent alleges that goods supplied by the petitioner were defective, hazardous and substandard and the petitioner is not entitled to any payment in respect thereof - Held that:- defense raised is clearly unsustainable and has been raised at a later date only to avoid the payments due to the petitioner. Indisputably, the orders for the goods had been placed by the respondent on the petitioner. The goods had, thereafter, been dispatched and also cleared by the respondent. There is no possible explanation as to what compelled the respondent to place the order for the goods and thereafter, accept the same by clearing the goods from customs and accepting the delivery of the same. Having accepted the delivery of the goods it is not open for the respondent to contend that the goods had been thrust upon the respondent against its will. This is clearly not a defense which is sincere or bonafide. The fact that the respondent had requested for deliveries to be deferred was only for the reason that the respondent wanted to test the products in the market. The fact that the respondent was not successful in reselling the goods was attributed by the respondent to high prices and local competition. These defenses are certainly not available for a purchaser to avoid payments of the goods purchased by him. The petitioner is certainly not responsible for the inability of the respondent to resell the goods or any difficulty faced by the respondent in its business. The fact that respondent has not initiated any action for recovery of the amount claimed in the said notice also indicates that the respondent was not serious in respect of the claims made in the said notice - Decided in favour of appellant.

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• Service Tax

• 2014 (6) TMI 68
  Non deposit of service tax - Tax collected from customers - Held that:- In the show-cause notice dated 24.07.2005 the only allegation against the respondent is that the respondent has paid the service tax with a delay. Therefore, demand of interest and a penalty was also proposed for the period from April 2002 to October 2003. In the show-cause notice date d03.10.2007 also the demand is for the same period from April 2002 to October 2003, and the allegation is that the respondent has not paid the service tax in time. On perusal of the annexure to the show-cause notice, it appears that there is no short payment made by the respondent. In these circumstances, as there is no short payment of service tax, the show-cause notice dated 03.07.2007 was not required to be issued as for the same period, proceedings against the respondent has already been commenced through a show-cause notice dated 24.07.2005, In these circumstances, I do not find any infirmity with the impugned order and the same is upheld - Decided against Revenue.

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• 2014 (6) TMI 67
  Penalty u/s 76, 77 & 78 - Simultaneous penalty u/s 76 & 78 - Held that:- As held by the Hon'ble Karnataka High Court in the case of Motor World (2012 (6) TMI 69 - KARNATAKA HIGH COURT) penalties under section 76 and 78 cannot be imposed simultaneously. Therefore, penalty imposed under section 76 is dropped. Further I find that no option was given to the appellant to pay 25% of duty as penalty. As they have paid the service tax along with interest before the issuance of show-cause notice, as per the provisions of section 11AC of the Act, the penalty is reduced to 25% of duty which is to be paid within 30 days from today failing which they would be liable to pay 100% of the duty amount as penalty - Decided partly in favour of assessee.

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• 2014 (6) TMI 66
  Classification of service - whether the services provided by the appellant can be considered to be one of the Consulting Engineer services or whether the same has to be considered as Intellectual Property Service - Held that:- Even if it is presumed that the agreement for sale of knowhow also includes some element of consideration for imparting Consulting Engineer services then also the same is required to be quantified by the Revenue and brought out for making the demand which is not done by the Revenue. At the same time it is apparent from the relied upon judgments that an agreement for sale of technical knowhow has to be considered only as Intellectual Property Service under Section 65(55A) of the Finance Act, 1994 and cannot be considered as scientific or technical sale consultancy services as defined under Section 65(92) of the Finance Act, 1994 - service provided by the appellant belong to the category of Intellectual Property Service which was made effect from 10.09.2004. As the services by the appellant were provided during the period prior to 10.09.2004, therefore, no service tax is leviable upon the appellant in the present proceeding - Following decision of Kopran Ltd. Versus Commissioner of Central Excise, Raigad [2011 (3) TMI 224 - CESTAT, MUMBAI] - Decided in favour of assessee.

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• 2014 (6) TMI 65
  Waiver of penalty u/s 80 - Penalty u/s 76, 77 & 78 - Banking and Other Financial services - Held that:- Respondent is a Government of Madhya Pradesh Undertaking and it is difficult to believe that nonpayment of service tax was on account of their intention to evade the service tax. Moreover, the Respondent’s activity became taxable in the budget of 2004-2005 and it is very much possible that they were not aware that their activity would attract the service tax. In view of this, we are satisfied that the non-payment of service tax by the respondent was not due to any mala fide intention on their part and, hence, this is a fit case for invoking the provisions of Section 80. Therefore, we do not find any infirmity in the impugned order setting aside the penalty on Respondent under Sections 76 and 78 of the Finance Act, 1994 - Decided against Revenue.

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• 2014 (6) TMI 64
  Waiver of pre deposit - Short payment of Service Tax - Take over of company - Held that:- though M/s. Satcom Network had been taken over by the appellant, Service Tax liability in respect of the value of the services provided was not being fully discharged. However, if during the years in respect of which the exemption under Notification No. 6/2005-S.T. as sought to be denied to the appellant and Service Tax is demanded, they would be entitled for Cenvat credit in respect of input services. However, even if the Cenvat credit in respect of input service is allowed, there would be some net Service Tax demand. In view of this, this is not the case for total waiver - Conditional stay granted.

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• Central Excise

• 2014 (6) TMI 62
  Waiver of pre depsoit - CENVAT Credit - sending goods on Job work without receiving the goods in factory premises - inputs marked for another unit - Penalty under Rule 15 - Held that:- Prima-facie, we find that the Assessee is given facility of sending the inputs out and out to the job workers without receiving the same in their factory for certain processes so as to same expenditure on account of transport charges. In the present case, the Applicants have not followed the prescribed procedure, even though, they have purchased un-slitted coils of 1260 mm from M/s SAIL and before receiving the same in their factory, sent to the job workers for slitting it into different sizes so as to make it suitable for its use in the factory for further manufacture. Prima-facie, we find that at the time of slitting of the coils, the Applicants themselves were aware of the fact that some slitted coils cannot be used in the Garia factory, where the cenvat credit were to be taken, but to be used at their Falta Unit meant for export. Prima-facie, we also find that subsequent clearances of the slitted coils meant for Falta Zone, were not unloaded in the factory and consequently, not in accordance with law and the procedure laid down under the Cenvat Credit Rules, 2004, namely, Rule 4 (5)(a) of the said Rules. At this stage, it is difficult to appreciate that whether the procedures followed by the Applicants are leading to revenue neutral situation or otherwise. Hence, in our opinion, the Applicants are not able to make out a prima-facie case for total waiver of predeposit - Conditional stay granted.

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• 2014 (6) TMI 61
  Application for amendment in approved ground plan of Central Excise registration to include the pipeline laid down from Wadinar (Gujarat) state to the refinery at Bina (M.P.) - Held that:- A combined reading of ‘factory’ and ‘manufacture’, makes it clear that while obtaining registration for carrying out any manufacturing activity, the approval of the ground plan would relate to manufacturing premises or factory - the factory ‘premises’ and ‘precincts’ have been interpreted to mean all building or complex with its surroundings where manufacturing activity is taking place. The transportation of the crude oil through the pipelines which travel through various States of India cannot be held to be a process integrally connected with the final manufacturing so as to include the same with the refinery functions. The Larger Bench of the Tribunal in the case of Vikas Industrial Gas Vs. CCE Allahabad - [2000 (4) TMI 60 - CEGAT, NEW DELHI] has held that pump used for delivering water from the reservoir through pipeline to factory located a K.M. away from the factory cannot be held to be as falling within the factory precinct nor the bringing water from reservoir to the factory located at a K.M. away constitutes part of the manufacturing process. The definition of factory covers the premises and precincts of factory and not the premises or precincts beyond the factory premises and a dam reservoir located away from the factory cannot be treated as within the factory premises. Similarly in the case of CCE, Coimbatore Vs. Southern Iron & Steel Co. - [2000 (5) TMI 100 - CEGAT, CHENNAI] it was held that a pump house located 15 Kms. Away from the assessee’s factory used for drawing and pumping of water cannot be treated as extension of the factory - pipelines laid down beneath the land for transportation of the crude, travel through various States and is primarily meant for transportation of the raw material. The entire area of the pipeline is around 900 Kms. of length. To allow the registration of the same by holding the same to be a factory premises or precinct thereof would meant to allowing the road area used by transportation of the raw materials by a truck - Decided against assessee.

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• 2014 (6) TMI 60
  Duty demand - What would be the position in law if the last date of deposit is a holiday and the amount is deposited on the next working day in which case, whether, the petitioner has committed any default or not - Held that:- whenever a period is prescribed by a statute for the purpose of an act in a court or office and the period expires on a holiday, then according to Section 10 of the General Clauses Act, the act should be considered to have been done within the period prescribed if it is done on the next working day on which the court or office is open - petitioner deposited the amount on the next working day i.e. 5th November, 2005 and consequently did not commit any default in depositing the excise duty under Rule 8 of the Central Excise Rules, 2002. Consequently, we find that the impugned order cannot be sustained and is quashed - Decided in favour of assessee.

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• 2014 (6) TMI 59
  Waiver of pre deposit - Qauntum of deposit - Held that:- appellant has already deposited a sum of Rs. 25 lacs, we are of the opinion that the ends of justice would be met if the Tribunal is directed to hear the appeal on merits without insisting for pre-deposit of the remaining amount - Decided in favour of assessee.

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• 2014 (6) TMI 58
  CENVAT Credit - Whether the respondents are eligible to avail CENVAT credit for the service tax paid on freight for outward transportation from the place of removal during the period March 2006 to June 2007 - Held that:- CENVAT credit is eligible on service tax paid on GTA service prior to 1.4.2008 - Following decision of CCE, Bangalore Vs. ABB Ltd. [2011 (3) TMI 248 - KARNATAKA HIGH COURT] - CCE Vs. Parth Poly Wooven Pvt. Ltd. [2011 (4) TMI 975 - GUJARAT HIGH COURT] - Decided against Revenue.

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• 2014 (6) TMI 57
  Reversal of CENVAT Credit - Interest - Penalty - Whether the reversal of entire amount of CENVAT Credit availed on the common input services is enough compliance of the provisions of Rule 6; when an assessee manufactures and clears dutiable as well as exempted product - Held that:- though the appellant has produced some kind of evidence before us which would indicate that the appellant had started manufacturing the exempted cotton yarn from 18.01.2007, we find that the issue is unverifiable and the adjudicating authority has recorded that the appellant did not produce any evidence before him. Keeping in mind the elapsed time, we are of the view that if the appellant is directed to reverse this amount of Rs.1,22,606/-, it would meet the ends of justice and also the compliance of the law under Rule 6 of CENVAT Credit Rules, 2004. We direct the appellant to reverse an amount of Rs.1,22,606 within 30 days from the date of receipt - appellant also needs to be directed to pay interest on both the amounts i.e. Rs.3,26,554/- and Rs.1,22,606/-. Lower authorities will calculate the interest in accordance with the provisions of law and inform the appellant accordingly, and the appellant within 10 days of such amount being intimated, will pay the same into the Government treasury - However, penalty is set aside - Decided partly in favour of assessee.

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• 2014 (6) TMI 56
  Waiver of pre-deposit - Valuation of goods - Transaction value or MRP based - supply has been made to institutional/industrial buyers - Determination of value under Section 4 of the Central Excise Act, 1944 or under Section 4A - Held that:- Even though the quantity is supplied in bulk, it is clearly indicated in the purchase orders that the goods have to be supplied in boxes of 15 tiles. This indicates that the supplies are made in retail packs on which MRP is printed. Further, we notice there is hardly any time-gap between receipt of the purchase order and effecting the supply, which would also show that the supplies are made out of the quantity already manufactured by the appellant, packed and kept ready for sale. In this view of the matter, and also considering the decision of this Tribunal in the case of H & R Johnson, cited [2013 (11) TMI 1185 - CESTAT BANGALORE], the appellant has made out a case for grant of stay - Stay granted.

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• 2014 (6) TMI 55
  Denial of CENVAT Credit - input service credit on the services name CHA services, Insurance of employees, repair and insurance of employees, repair and insurance of motor vehicles, waste management service, AMC of telephones and computers, Pest control etc - Denial on the premise that these services do not qualify as input service as per the Rule 2 (l) of CCR, 2004 - Held that:- any service availed by the manufacturer of excisable goods in the course of their business activity of manufacturing, they are entitled to take input service credit. In these circumstances, I hold that the appellants are entitled to take CENVAT credit on the above services. Accordingly the impugned order is set aside - Following decision of Ultra Tech Cement Ltd. reported in [2010 (10) TMI 13 - BOMBAY HIGH COURT ] - Decided in favour of assessee.

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• 2014 (6) TMI 52
  Duty demand - Demand of 10% of the value - Non maintenance of separate accounts in respect of ‘inputs’ and ‘input services’ used in the manufacture of sugar and other products - Held that:- where waste products arises and are sold without payment of duty, there is no need to maintain separate accounts and there is no need to pay 10% of the value in accordance with Rule 6(3) of Cenvat Credit Rules, 2004 - Following decision of Rallis India Ltd. v. UOI [2008 (12) TMI 46 - HIGH COURT BOMBAY] - Decided in favour of assessee.

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• CST, VAT & Sales Tax

• 2014 (6) TMI 63
  Liability to pay Entry tax – Entry Tax on import of crude oil - Constitutional validity of the UP Tax On Entry of Goods Into Local Areas Act, 2007– Issuance of Demand Notice - Held that:- The State has admitted that the assessees, for the period of 2008--2009, 2009--2010 and 2010--2011 have filed monthly returns but have not accepted the liability to pay the entry tax on the import of crude oil - It is also stated that the assessing authority has issued a pre-assessment notice u/s 9(4) - A reading of the affidavit filed by the State would indicate that for the aforesaid period, quantification of the tax liability is yet to be determined - However, it is now open to the State and its authorities to quantify the tax lia1ibity, either based on the returns filed by the assessee or on the basis of best assessment order if the Act so permits for the assessment years 2008--2009, 2009--2010 and 2010—2011 - After such quantification, the State is at liberty to issue appropriate demand notices – Decided partly in favour of assessee. Liability to pay Entry tax – Entry Tax on import of crude oil - Constitutional validity of the UP Tax On Entry of Goods Into Local Areas Act, 2007– Held that:- Assessees have paid substantial amount by way of Entry Tax to the Department - For the assessment years 2000-- 2001 to 2009--2010, the petitioners have filed appeals/revisions before the High Court/statutory authorities and those appeals are pending for consideration - The request of the assessee acceptable since it is not causing any prejudice to the department - Accordingly, petitioners/assessees granted liberty to make appropriate application/petition before the appellate authorities/revisional authorities/High Court – Respondents instructed not to resort to recovery proceedings against the petitioners till the disposal of the applications/petitions– Decided in favour of Assessee. Constitutional validity of the UP Tax On Entry of Goods Into Local Areas Act, 2007– Liability to pay Entry tax – Pre-deposit - Held that:- The operation of the impugned judgment and order is stayed subject to the appellant in each case depositing 50% of the accrued tax liability/arrears under the U.P.Act, 2007 and furnish bank guarantee for the balance amount - The appellant shall also deposit 50% of the tax liability/arrears, including interest and penalty, and furnish bank guarantee for the balance amount as and when demand notices are issued under the U.P.Act, 2007 for the past period. The Apex Court has adjusted the equities and passed a conditional stay order staying 50% of the past liability subject to bank guarantees to be kept alive - Supreme Court has granted liberty to the respondents to file appropriate application before this Court for modification of the interim orders granted, if for any reason, the appellant in this case has passed, on the tax burden on the consumers - Interim orders are not precedent to be followed, specially by the Court, which has upheld the validity of the Act of 2007 – Entertaining the writ petitions, on the basis of interim orders passed by the Apex Court, would be something like entertaining an appeal against its own judgment - The writ petitions are dismissed, with liberty to the petitioners to pursue their remedies against the notices or assessment orders – Partial stay granted.

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• Indian Laws

• 2014 (6) TMI 53
  Cancellation of lease - Conditions for termination of lease - Validity of termination notice - Prior permission for termination - Held that:- as a matter of record that the Company failed to complete the construction and start factory on the demised land. In fact, no factory could be set up at all. One plot was allotted to the Company on 21.12.1984. Second plot was allotted to the Company on 10.1.1989. When the project did not take off by the prescribed time, the Board passed two separate resumption orders, both dated 6.5.1992 in respect of these two plots. Even thereafter, the company could not start factory operations - right to purchase the land did not fructify in favour of the Company. On the contrary, while the relationship between the Company and the Board was still that of lessee and lessor, the lease came to be determined by the Board because of the breach of the covenants of lease agreement. We, therefore, cannot accept the contention of the learned Senior Counsel for the appellant that the Company had become the owner of the plots in question. Company had committed clear breach in not completing the project and setting up the factory within the time given on the Lease Agreement or the time as extended by the Board. In such circumstances, the Lease Agreement gave a definite right to the Board to terminate the lease. We are, therefore, of the opinion that the Board was very well within its right to terminate the lease as provided in the Lease Agreement - an order of cancellation of the lease-cum-sale agreement is passed by the applicant Corporation, after presentation of the Company Petition and after passing the winding up order, but without the leave of the Court, and in our opinion, any such action is void. A void order cannot be regularised and, therefore, rightly the learned Company Judge has not acceded to the request made by the applicant Corporation. No where does the Act provide for the Board taking back possession of leased plots from the lessee, without recourse to eviction proceedings, whatever be the circumstances. On the other hand, the Act contains a specific provision (Section 25) providing for application of Public Premises Act to premises leased by the Board. The absence of any provision enabling the Board to take possession from lessees and the express provision for making Public Premises Act applicable to the premises leased by the Board, leads to inescapable conclusion that termination of leases and eviction of lessees are left to be governed by contract and general law. Therefore, any act of forcible dispossession of a lessee by the Board will be an act otherwise than in accordance with law. The court further held that the power of re-entry and resumption that is reserved by the Board in the lease-cum-sale agreement, does not authorize the Board to directly or forcibly resume possession of the leased land, on termination of the lease. It only authorizes the Board to take possession of the leased land in accordance with law. It could be either by having recourse to the provisions of the Public Premises Act or by filing a Civil Suit for possession and not otherwise. Serving of cancellation notice simplicitor would not come within the mischief of this section as that by itself does not amount to attachment, distress or execution etc. No doubt, after the commencement of the winding up, possession of the land could not be taken without the leave of the Court. Precisely for this reason the Board had filed the application seeking permission. But according to us no such prior permission was required before cancelling the lease. In fact, it is only after the cancellation of the leases that the Board would become entitled to file such an application under Section 537 of the Act. Had the Board gone ahead further and taken the possession, after the cancellation and then approached the Company Judge, the situation which occurred in M/s. Anco Communication Ltd. (supra) would have prevailed. On the other hand, it would have been premature on the part of the Board to approach the Company Judge for permission to resume the land without cancelling the lease in the first instance. - termination notice dated 19.1.2002 of the Board is valid. Likewise the order of the Company Judge permitting the board to take possession of the land in question is legal and justified - Decided against Appellant.

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