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Newsletter: Where Service Meets Reader Approval. TMI Tax Updates - e-Newsletter June 7, 2016 Case Laws in this Newsletter: Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax TMI SMS In the absence of rules being framed u/s 102(2)(z) r.w.s 59(2) of DVAT, Commissioner cannot call to produce books of accounts u/s 59(2) - HC Self adjustment of Excess service tax paid in May 2011 with the dues of July 2011 is in order - the term month includes months - Tri Articles 1. ADJUDICATION OF SHOW CAUSE NOTICE UNDER SERVICE TAX PROVISIONS By: DR.MARIAPPAN GOVINDARAJAN Summary: The article discusses the adjudication process of show cause notices under service tax provisions. It outlines the procedure for responding to a show cause notice, which typically includes demands for service tax, interest, and penalties. The article highlights the importance of personal hearings, as mandated by Section 33A of the Central Excise Act, and the necessity for the Adjudicating Authority to provide such hearings if requested. It emphasizes the principles of natural justice, noting that decisions made without proper hearings or consideration of evidence can be overturned. The article also addresses the importance of timely adjudication and proper service of orders to ensure compliance and the right to appeal. Circulars / Instructions / Orders Income Tax 1. [F.NO.279/MISC/M-61/2016, - dated 1-6-2016 Designated Authority - Under Direct Tax Dispute Resolution Scheme, 2016 Summary: The Direct Tax Dispute Resolution Scheme, 2016, established by the Finance Act, 2016, offers a mechanism for resolving disputes pending before Commissioners of Income Tax (Appeals) as of February 29, 2016. The scheme mandates the notification of a "designated authority" by the Principal Chief Commissioners of Income Tax. This authority is the jurisdictional Principal Commissioner or Commissioner of Income Tax, as determined under section 120 of the Act. The notification must immediately include all relevant tax authorities, with compliance reported by June 2, 2016. Highlights / Catch Notes Income Tax Court Rules Social Welfare Laws Take Precedence Over Taxation Laws in TDS Provisions Case, Prioritizing Public Interest. Case-Laws - HC : TDS provisions under the Income Tax Act, 1961 - If there is a conflict between a social welfare legislation and a taxation legislation, then, this Court is of the view that a social welfare legislation should prevail since it subserves larger public interest - HC Visit to Get Source High Court Decides: Compensation and Interest from Motor Accident Claims Not Subject to TDS as Income. Case-Laws - HC : TDS on compensation and interest awarded by the Motor Accident Claims - Compensation cannot be categorized or even described as income - TDS is not liable to be deducted - HC Visit to Get Source Court Rules Revenue's Adjustment of Deceased Taxpayer's Refund Invalid Due to Section 245 Violation. Case-Laws - HC : Grant of refund due to the deceased Assessee - Adjustment of demand with the refund - By issuing a notice on 21st March 2016 under Section 245 of the Act, two months after the notice was issued in the present petition, the Revenue cannot seek to correct the fatal error arising from the clear violation of the mandatory requirement under Section 245 of the Act. - HC Visit to Get Source Court Rules No Additions for Cash Deposits u/s 40A(3); No Tax Evasion Found in Business Transactions. Case-Laws - AT : Disallowance / addition us 40A(3) - cash expenditure - business expediency - Amount was directly deposited the cash in the account of the companies - there is no evasion of tax by claiming the bogus expenditure in cash. - No additions - AT Visit to Get Source Foreign Salary to NRE Account Taxable in India: Income Tax Act Section 5(2)(a) Clarifies Tax Liability. Case-Laws - AT : Remuneration received directly remitted from foreign to the NRE account - accrual of income - salary received in India is taxable in India in terms of section 5(2)(a) - AT Visit to Get Source Reassessment Invalid: AO Failed to Specify Method of Awareness for Unaccounted Loan u/s 147. Case-Laws - AT : Reassessment - unaccounted loan received - when AO did not describe how and what manner it came to his knowledge that the assessee receive the accommodation entries, the reopening done by the AO u/s 147 was not valid - AT Visit to Get Source Section 40(a)(ia) TDS Disallowance Applies Only to Business Income Computation, Not Other Income Categories. Case-Laws - AT : Non deduction of TDS - provisions of section 40(a)(ia) of the Act can be invoked only for the purposes of computing the income under the head "business income". Since the income is not computed under this head, the provisions of section 40(a)(ia) of the Act cannot be invoked - AT Visit to Get Source Dividend Stripping Losses Before April 1, 2002, Valid Despite Being Pre-Planned; Not "Abuse of Law" Per Section 94(7). Case-Laws - AT : Loss arising in the course of dividend stripping transaction before the introduction of claim u/s.94(7) w.e.f. 1.4.2002 cannot be disallowed; dividend stripping transaction cannot be said to be “abuse of law” even if it is pre-planned - AT Visit to Get Source Notice Invalid: Wrong Section Used for Income Tax Assessment - Section 158BD vs. Section 148. Case-Laws - AT : Validity of notice / proceedings u/s.158BD - AO of the searched person himself is not sure as to under which provision of the Act, action should be taken - notice in the instant case could have been issued only u/s.148 and not u/s.158BD - AT Visit to Get Source Multiplex Theatre Tax Deduction Denied if Either Cinema Operations or Commercial Shops are Missing u/s 80IB. Case-Laws - AT : Deduction u/s IB(7A) - The definition of multiplex theatre includes both the activities of running multiplex cinemas and commercial shops. In the absence of either, the assessee is not entitled to claim the deduction under section 80IB - AT Visit to Get Source Section 14A Disallowance: Rs. 10 Lakh Expenditure Linked to Tax-Free Dividend Income. Case-Laws - AT : Disallowance u/s 14A earning tax free dividend income - it cannot be said that no expenditure has been incurred by the assessee for earning the tax free income - disallowance of ₹ 10 lakhs on adhoc basis ordered - AT Visit to Get Source Customs Section 111 lacks clarity on seizing postal parcel imports, making redemption fines and penalties legally questionable. Case-Laws - AT : Since the provisions of Section 111 do not specifically deal with seizure of goods imported through post parcel, therefore, imposition of redemption fine and penalty are not in conformity with the statutory provisions - AT Visit to Get Source Service Tax Service Tax Adjustment Across Multiple Months Deemed Lawful u/s 13 of General Clauses Act 1897. Case-Laws - AT : Short payment of Service tax in the month of July, 2011 due to the adjustment of service tax paid in excess in the month of May, 2011 - Section 13 of the General Clauses Act, 1897 provides that singular include the plural. Accordingly, month includes months - Self adjustment is in order - AT Visit to Get Source Central Excise Refund Claim Denied Due to Unjust Enrichment as Duty Burden Passed to Customers; Duty Paid Under Protest Noted. Case-Laws - AT : Refund claim - payment of duty under protest - at the time of clearance the duty payment has been shown in the invoice - there is no doubt that the burden of duty has been passed on to the customers in such cases - The provisions of unjust enrichment have been rightly invoked - AT Visit to Get Source Body Plus Powder Tariff Classification: Branded vs. Non-Branded Goods Affecting Excise Duties Under CTH 2108.91 and 2108.99. Case-Laws - AT : Classification of the product (powder) called Body Plus - 2108.91 covering goods not bearing brand name and 2108.99 covering goods other than those not bearing brand name, which means CTH 2108.99 covers only those goods which bear brand name - AT Visit to Get Source Cenvat Credit Approved Despite Missing Service Provider Registration Number and Invoices Addressed to Head Office. Case-Laws - AT : Cenvat credit on various input services - registration number of service provider not indicated in the invoices - invoices issued by the service provider in the name of the Head Office - Credit allowed in both the cases - AT Visit to Get Source Appellant's Lack of Specifics on General Use Items Risks Revenue Loss and Penalties in Cenvat Credit Assessment. Case-Laws - AT : Cenvat credit - Appellant has not taken care to give details of the items which are of general use for which the revenue should not suffer, and at the same time the appellant also should not suffer for not furnishing certain details which are required by the revenue - AT Visit to Get Source Demand for Goods Removal Overturned Due to Lack of Corroborative Evidence; Discrepancies Found in Non-Statutory Records. Case-Laws - AT : Clandestine removal of goods - Mis-match between the entries in the log book of the packing department and entries in the RG-I - demand is made only on the basis of certain comparison between a non-statutory record without bringing any corroborative evidences - Demand set aside - AT Visit to Get Source Superintendent to Calculate Cenvat Credit for Trading Activities Using Rule 6(3D)(c) Method for Normal Period. Case-Laws - AT : Cenvat credit on trading activity - Superintendent directed to compute the value/amount of credit of common input services attributable to trading activity falling within the normal period as per the method provided in Rule 6(3D)(c) of CENVAT Credit Rules as applicable to trading. - AT Visit to Get Source Exemption Granted for Army Mobile Operation Theatre Air Conditioning Systems Under Notification 10/97 for Military Use. Case-Laws - AT : Entitlement to claim exemption under Notification 10/97 dated 01.03.199 - AC system are specially designed and modified for use in specialised mobile operation theatres for use by the Indian Army in the field - benefit of exemption allowed - AT Visit to Get Source VAT Court Rules Commissioner Needs Specific Rules Under DVAT Act Sections 102(2)(z) & 59(2) to Demand Documents. Case-Laws - HC : In the absence of any rules being framed u/s 102(2)(z) read with Section 59(2) of the DVAT Act, the power of the Commissioner under Section 59(2) of the DVAT Act to call upon a person to produce the books of accounts and other documents cannot be exercised. - HC Visit to Get Source Case Laws: Income Tax 2016 (6) TMI 240 TDS on compensation and interest awarded by the Motor Accident Claims - whether the deduction of TDS on interest accrued on deposits in terms of Orders passed by the Courts in Motor Accident cases is legally sustainable or not? - Held that:- Compensation cannot be categorized or even described as income as the intention of the legislature in awarding compensation to the victims of Motor Accident cases is to restitute them and rehabilitate them. If there is a conflict between a social welfare legislation and a taxation legislation, then, this Court is of the view that a social welfare legislation should prevail since it subserves larger public interest. The Motor Vehicle Act is one such legislation which has been passed with a benevolent intention for compensating the accidient victims who have suffered bodily disablement or loss of life and the Income Tax Act which is primarily intended for Tax collection by the State cannot put spokes in the effective and efficacious enforcement of the Motor Vehicles Act. In fact, if one might deeply analyse, it could be seen that there is no direct conflict between any provisions of the Income Tax Act and the Motor Vehicles Act and it is only by the interpretation of the provisions the concept of compulsory payment of TDS has crept into the realm of compensation payment in Motor Vehicle Accident cases. This Court arrives at the conclusion that the compensation awarded or the interest accruing therein from the compensation that has been awarded by the Motor Accident Claims Tribunal cannot be subjected to TDS and the same cannot be insisted to be paid to the Tax Authorities since the compensation and the interest awarded therein does not fall under the term 'income' as defined under the Income Tax Act, 1961. - Decided in favour of assessee. 2016 (6) TMI 217 Grant of refund due to the deceased Assessee - Adjustment of demand with the refund - Held that:- In the present case although the refund voucher uses the word ‘adjustment to be made’ as far as the Petitioner is concerned, the refund issued was after the adjustment was made. The explanation offered by the Revenue that it was merely 'withholding' Rs. 36,34,267 pending verification and not ‘adjusting' it is not acceptable. The Revenue is fully aware that the demand raised for AY 2008-09 had been challenged by the Petitioner before the CIT (A) and an application for stay of recovery of the demand had also been filed. The Revenue in fact does not dispute that both the appeal and the application are pending for disposal before the CIT (A). Therefore, it cannot be said that the withholding of the above amount was pending ‘verification’ of the demand for AY 2008-09 or AY 2010-11. Incidentally the show cause now issued to the Assessee under Section 245 of the Act is dated 21st March 2016, i.e., two months after notice had been issued by this Court in the present petition. Whatever the demand may be for the AYs 2008-09 and 2010-11, the fact remains that prior making the adjustment of such demand against the refund due to the Petitioner, no notice was issued to the Petitioner as mandatorily required under Section 245 of the Act. By issuing a notice on 21st March 2016 under Section 245 of the Act, two months after the notice was issued in the present petition, the Revenue cannot seek to correct the fatal error arising from the clear violation of the mandatory requirement under Section 245 of the Act. - Refund allowed with directions to CIT(A) - Decided in favor of assessee. 2016 (6) TMI 216 Disallowance / addition us 40A(3) - cash expenditure - business expediency - Held that:- From the submission of the assessee we find that the assessee was the only authorized dealer in Asansol for the supply of country liquor and authorized Excise Vendors. The assessee can take the delivery of the goods only after depositing the payment with the company. The assessee was to keep sufficient stock of country liquor as prescribed by the Excise Department and in case stock falls short of the prescribed limit otherwise the Department used to impose penalty. Therefore the assessee avoided the process of depositing the cash in his bank account and thereafter getting the demand draft in the name of the company in order to keep the stock within the prescribed limit at all the times. It is also important to note that the company was also not accepting the account payee cheque of the assessee as it will take couple of day time in clearance. So in our considered view the exception provided in the provisions of section 40A(3) with regard to the business expediency then applicable for the assessment year 2008-09 is met by the assessee. The primary object of enacting section 40A(3) were two folds, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to be fallen on account of non-observation of Section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions being free from vice of any device of evasion of tax is relevant consideration. With regard to the purpose of bringing the provisions of section there is no doubt about the identity of the party. The ld. AR has directly deposited the cash in the account of the companies and has produced the sales bills of the company. The AO has also verified the transactions from the companies by issuing notice under Section 133(6) of the Act. So in the instant case, there is no evasion of tax by claiming the bogus expenditure in cash. Thus we are inclined to reverse the order of lower authorities. - Decided in favour of assessee 2016 (6) TMI 215 Remuneration received directly remitted from foreign to the NRE account - accrual of income - Held that:- The income in the present case did not suffer tax in any other jurisdiction nor was it received in any other tax jurisdiction. The receipt in the NRE account in India is the first point of receipt by the assessee and prior to that it cannot be said that the assessee had control over the funds that had deposited in the NRE account from the employer. To sum up, the facts of the instant case directly fits into the facts of the Third Member decision relied upon by the Learned DR 2001 (12) TMI 873 - ITAT MUMBAI and respectfully following the same , we hold that the salary received in India is taxable in India in terms of section 5(2)(a) - Decided against assessee. 2016 (6) TMI 214 Validity of the reassessment proceedings u/s 147 - unaccounted loan received - Held that:- AO in the reasons recorded mentioned that it had come to his knowledge that the persons from whom amount was received were entry operator and provided the entries to the assessee after receiving the amount in cash, however, nothing was brought on record that how and in what manner the persons from whom the assessee received the loans were entry operator and that as to how the cash was paid by the assessee. In fact the aforesaid conclusion of the A.O. is unhelpful in understanding as to whether the AO applied his mind to the material, particularly when he did not describe how and what manner it came to his knowledge that the assessee receive the accommodation entries. We, therefore, by keeping in view the ratio laid down in Principal Commissioner of Income-tax vs. G & G Pharma India Ltd.[2015 (10) TMI 754 - DELHI HIGH COURT ], are of the view that the reopening done by the AO u/s 147 of the Act was not valid and accordingly the subsequent assessment framed by the AO was void-ab-initio and therefore the same is quashed. - Decided in favour of assessee 2016 (6) TMI 213 Disallowance u/s 40(a)(ia) - non deduction of TDS - Held that:- assessee is a registered trust - Held that:- The undisputed facts of the case are that in the assessment year 2008-09, the assessee was registered under section 10(23C)(iv) of the Act and claimed exemption under the said Act. Similarly, in assessment years 2009-10, 2010-11, since the assessee was registered under section 12AA of the Act, the income was claimed to be exempt under section 11 of the Act. It is also a fact on record that on the impugned payments, the assessee have not deducted tax, as required under the provisions of the Act. Since the income of the assessee is exempt in view of these sections, the income of the assessee is not taxable under the head "income from business or profession", appearing in Chapter-IV of the Income Tax Act. Section 40(a)(ia) of the Act is a part of Chapter-IV for the purposes of computing the income under the head "business income". We are in agreement with the submissions of the assessee and also the findings of the learned CIT (Appeals) that the provisions of section 40(a)(ia) of the Act can be invoked only for the purposes of computing the income under the head "business income". Since the income is not computed under this head, the provisions of section 40(a)(ia) of the Act cannot be invoked. - Decided in favour of assessee 2016 (6) TMI 212 Penalty u/s 271(1) (c ) - G.P. estimation - Held that:- The assessment was completed by applying 5% as net profit of gross receipts which was estimation basis thus in the case of estimation of profit penalty u/s 271(1) (c ) was not imposable. - Decided in favour of assessee. 2016 (6) TMI 211 Levy of penalty u/s. 271(1)(c) - withdrawal on last date of cash deposit - Held that:- in the absence of details as to cash withdrawals and deposits during the immediately preceding year, the claim as to the opening balance cannot be verified or opined upon. In fact, the cash utilized for personal/household purposes would also have to be factored there-into. Why, we wonder the assessee could not furnish, similarly, the said details for the immediately preceding year as well. Continuing further, the cash utilized for personal/household purposes for the months of April to July 2004 is admittedly at Rs. 1.90 lacs (PB pgs. 1 – 2), which we accept in-as-much as the AO has not made any addition on account of low or inadequate household/personal withdrawals. This would, accordingly, consume almost the entire withdrawal of Rs. 2.15 lacs made from during this period. In fact, another Rs. 40,000/- to Rs. 50,000/- would be required toward such monthly expenses for the month of August 2004, being generally drawn at the beginning of the month, so that the surplus of Rs. 0.25 lacs (2.15 lacs -1.90 lacs) can be regarded as toward the same. The explanation of the withdrawals being the source of the deposit would thus not hold for Rs. 2.50 lacs deposited in bank account on 30.7.2004. The explanation offered (qua this deposit) is not valid; rather, cannot be under the circumstances regarded as an explanation at all. The penalty in respect of the addition to this extent thus stands rightly levied, and is accordingly confirmed. For second block of withdrawals i.e., beginning August 18, 2004, up to 09.11.2004 the acceptability or otherwise – in whole or in part, of the assessee’s explanation thus hinges critically on this fact and the concomitant expenditure incurred thereat. It may well be that the assessee spent the surplus (Rs.2.50 lacs) or similar amount on the said treatment, depositing the balance (Rs.14 lacs) in end-December, 2004, upon full recovery, so that there was no imminent need for cash. If the operation, which is stated to be for the same problem, costs Rs. 1.02 lacs a year later, the same would cost the assessee – who is even otherwise covered by insurance, a similar amount – with we observing the assessee to have funds – despite the deposits, cash at Rs. 2.50 lacs for the purpose. The question, however, is: Why does not the assessee state so, revealing the truth of the matter? Is it that only a balance of Rs. 15,000/- was left with the assessee after the treatment, which he deposits in bank on 13/12/2004. The facts having already been taken cognizance of, would require being substantiated and cannot be overlooked or dismissed as not relevant. The matter being factually indeterminate, has been accordingly restored back, i.e., with regard to the explanation for Rs. 14.00 lacs deposited in December, 2004. - Decided partly favour of assessee for statistical purposes. 2016 (6) TMI 210 Allowance of loss to be set off against the other capital gains - Held that:- The provisions of sec.94(8) provide that the loss arising out of ‘bonus stripping of units’ is to be ignored after 1.4.2005. The phraseology of sec.94(8) of the Act, itself reveals that the parliament in its wisdom restricted the scope of ‘bonus stripping’ under sec.94(8) of the Act from 1.4.2005. It may be noticed that u/s.94(8) of the Act, no disallowance to be made on account of ‘bonus stripping’ for the assessment year 2004-05 as it was came into effect on 1.4.2005 and the assessment year involved is 2004-05, there is gap in the law which appears to have been exploited by the assessee. The legislature appears to have been recognised the lacuna in this law and taken steps to rectify by introducing sec.94(8) w.e.f. 1.4.2005. Even the judgment of the Supreme Court in the case of CIT v. Walfort Share and Stock Brokers P. Ltd. (2010 (7) TMI 15 - SUPREME COURT ), also confirms that even assuming that transaction was pre-planned, there is nothing to impeach the genuineness of the transaction. Hence, loss arising in the course of dividend stripping transaction before the introduction of claim u/s.94(7) w.e.f. 1.4.2002 cannot be disallowed; dividend stripping transaction cannot be said to be “abuse of law” even if it is pre-planned. Being so, the finding of the CIT(Appeals) is based on the law, as it stood in the relevant asst. year and it cannot be said that there is any infirmity in the order of the CIT(Appeals). - Decided against revenue TDS u/s 195 - non deduction of TDS on the ‘foreign commission payments’ made to the non-resident - disallowance u/s.40(a)(i) - Held that:- In the present case, the assessee had not established that the non-resident had rendered services abroad and there was no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or correspondence took between the parties. Without examining these details, one is not in a position to decide the nature of services rendered by the non-resident agent.Therefore, it is appropriate to remit the entire issue back to the file of the Assessing Officer with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad. Addition made u/s.40(a)(i) on the payment of foreign service charges - Held that:- The above issue is identical to the issue of foreign commission payment. As such, we remit this issue is also to the file of the AO as discussed in earlier para with similar direction. Disallowance u/s 14A - estimation of expenses by the AO for earning the exemption income @ 0.5% of the average investments of the year under the step II of the Formula given in Rule 8D should be taken - Held that:- As decided in case of M/s. Marg Ltd. v. JCIT [2016 (4) TMI 1135 - ITAT CHENNAI] any expenditure incurred for earning any income which was not taxable under the Act was not an allowable expenditure. Dividend income was exempt under section 10(33) of the Act and the dividend earned by the assessee on the shares acquired by her with the borrowed funds did not constitute part of the total income in the hands of the assessee. Disallowance by applying section 14A, squarely applied to the interest paid on the borrowed funds because it was on record that the entire funds borrowed were utilised for the acquisition of shares by the assessee in the company. The assessee would be entitled to deduction of interest under section 36(1)(iii) of the Act on the borrowed funds utilised for the acquisition of shares only if shares were held as stock-intrade and that would arise only if the assessee was engaged in trading in shares. So far as the acquisition of shares was in the form of investment and the only benefit the assessee derived was the dividend income which was not assessable under the Act, the disallowance under section 14A was squarely attracted and the Assessing Officer rightly disallowed the claim - Decided against assessee 2016 (6) TMI 209 Penalty under section 271(1)(c) - difference between the reported and the assessed income - inadvertent mistake - exchange rate difference on repayment of Term loan capitalized to the cost of assets in terms of section 43A of the Act not added back to the total income - Held that:- Ostensibly, in all cases where there is a difference between the reported and the assessed income, penalty under section 271(1)(c) of the Act cannot be justified. As because there is a difference between the reported and the assessed income, it would not justify imposition of penalty under section 271(1)(c) of the Act. So far as the present controversy is concerned, it relates to an inadvertent error on the part of the assessee in not adding back a sum of Rs. 13,70,387/- representing exchange rate difference on repayment of Term loan capitalized to the cost of assets in terms of section 43A of the Act but the same was not added back to the total income, as it was already debited in the Profit & Loss Account. The circumstances explained by the assessee, which have not been doubted by the Revenue, clearly establish that it is a case of an inadvertent mistake and not a deliberate attempt to conceal the income or furnish inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. The judgment of the Hon’ble Bombay High Court in the case of Bennett Coleman & Co. Ltd.(2013 (3) TMI 373 - BOMBAY HIGH COURT) clearly supports the stand of the appellant that an inadvertent mistake on the part of the assessee while filing the return of income cannot be construed as liable for penalty under section 271(1)(c) of the Act. In view of the aforesaid discussion, we hereby set-aside the order of the CIT(Appeals) and direct the Assessing Officer to delete the penalty imposed under section 271(1)(c) of the Act. - Decided in favour of assessee 2016 (6) TMI 208 Transfer pricing adjustment - existence of associate enterprises - connection between the two concerns by way of management, control or capital in either of two enterprises - Held that:- The assessee had entered into a purchase agreement with Cummins for the supply of Shroud Plates in August, 2005. The perusal of terms of the agreement reflects the understanding between the assessee with its purchaser Cummins for the supply of goods within time frame and the pricing of said goods. The pricing has been fixed as per mutual understanding of the parties and further, there was a clause to negotiate the price in the event of any engineering changes. In this regard, the assessee has stressed that in assessment year 2007-08, when there was design change made by Cummins, the additional cost for the same was reimbursed by it by way of one time additional cost settlement. Much emphasis has been laid on clause 4.7 of the said agreement, under which it was agreed upon that the supplier i.e. assessee had to offer goods at competitive market rates and in case an alternate supplier was found, who offers more competitive cost, then the assessee would get 30 days time to respond to the competitive threat and in case, the assessee is unable to meet the competitive threat and then, mutually acceptable phase out would be negotiated between the parties. The aforesaid clause agreed upon between the parties is used by the authorities below to imply that Cummins regulates the price at which the goods have to be sold and hence, it fulfills the conditions of deemed AE as provided in section 92A(2)(i) of the Act. We find no merit in the said stand of revenue authorities, where the understanding between the parties is for the purpose of carrying on the business at competitive rates and where there is an alternate provided in the purchase agreement to determine the cost of goods, the same does not lead to the conclusion that the price is controlled by purchaser. In any case, the total exports of the assessee to Cummins constitute 18.76% of the total turnover and the extent of exports cannot be held to influence the price of assessee’s goods. The TPO while starting the TP proceedings had observed that the assessee has shown total earning in foreign currency at Rs. 9.40 crores, against which the export sales made to Cummins were to the tune of Rs. 9.33 crores. However, in view of the entirety of the facts, where the exports to Cummins constitute about 18.76% of the total export turnover, we find no merit in the stand taken by the Revenue authorities. In the present case the total turnover of the assessee was Rs. 48.45 crores. However, Cummins Turbo Technologies, USA was a subsidiary of Cummins INC, USA, which is a Multinational Fortune 500 Companies, whose turnover of Turbo chargers was close to about Rs. 3500 crores. In the entirety of the above said facts and circumstances, we hold that since both the enterprises have not fulfilled the conditions laid down in section 92A(1) of the Act and where there is no connection whatsoever by way of participation in management or control or capital by the entities or its subsidiaries, either directly or indirectly the assessee and Cummins cannot be said to be associate enterprises in order to apply the provisions of Chapter X of the Act. In the absence of assessee having entered into any international transactions with any associate enterprises, there is no requirement for making a reference to the TPO in the present facts of the case. Accordingly, reference made by the Assessing Officer though with the prior permission of CIT-III, Pune is not justified since the assessment to be completed in the hands of assessee was a normal assessment, hence the assessment order should have been passed by 31.12.2010. However, the present assessment order having been passed on 30.12.2011 is barred by limitation and is invalid. Before parting, we would like to clarify herein that admittedly, in case the two concerns satisfy the conditions of section 92A(1) of the Act to be deemed associate enterprises of each other, then on fulfillment of such preliminary conditions, the Assessing Officer has the power on prima facie satisfaction that the international transaction between two such enterprises is required to be benchmarked, can make a reference to the TPO, but the first condition to be satisfied is whether the connection between the two concerns by way of management, control or capital in either of two enterprises makes them associate enterprises. In the absence of such finding, the reference made by the Assessing Officer to the TPO even with prior permission of the concerned CIT would not justify the action of Assessing Officer in this regard. Accordingly, we hold so. Consequently, the addition made in the hands of assessee does not stand. Apportionment of Rs. 3 lakhs out of administrative expenses to the EOU unit does not survive in view of our holding the assessment order passed to be beyond limitation. - Decided in favour of assessee. 2016 (6) TMI 207 Validity of notice / proceedings u/s.158BD - recording of the satisfaction by the AO - AO of the searched person himself is not sure as to under which provision of the Act, action should be taken - Held that:- In the instant case, the paper was seized from the place of Shri Tayyab Habib Chotani during the course of search which contain the amounts received in cash by him. He has already admitted such cash as his undisclosed income, a fact recorded by the CIT(A) and not disputed by the Revenue. Further, the satisfaction note sent by the AO of Shri Tayyab Habib Chotani to the AO of Shirish C. Karis speaks of action to be taken u/s.158BD/148. Therefore, we find merit in the submission of the Ld. Counsel for the assessee that the AO of the searched person himself is not sure as to under which provision of the Act, action should be taken. In our opinion, since the paper was found containing cash payments and cheque payments received by Shri Tayyab Habib Chotani from Shri Shirish C. Karia and Shri Tayyab Habib Chotani has admitted such unaccounted cash as his undisclosed income, therefore, there remains no undisclosed income belonging to any other person other than the searched person. Under these circumstances, the proper course of action here should have been notice u/s.148 and not notice u/s.158BD since the AO of the searched person himself is not sure as to how and under which provisions the notice should be issued. Thus as Shri Tayyab Habib Chotani has already admitted such cash payments as his undisclosed income, therefore, the provisions of section 158BD cannot be applied to the case of the assessee and the proper course of action should have been issue of notice u/s.148. We therefore find merit in the submission of the Ld. Counsel for the assessee that the notice in the instant case could have been issued only u/s.148 and not u/s.158BD. Therefore, the additional ground raised to be decided in favour of the assessee. 2016 (6) TMI 206 Partial denial of deduction under section 80-IB(7A) - Leave and Licence Agreement entered - Held that:- In the facts of the present case, the assessee had entered into a Leave and Licence Agreement with Pantaloon Retail (India) Ltd. on 01.03.2008, copy of which is placed at pages 80 to 93 of the Paper Book. As per the Leave and Licence Agreement, the assessee acknowledged to have constructed a shopping mall on the land owned by it and the same was agreed to be leased out to the lessee for running retail outlet under the name and style of Big Bazaar. The terms of the lease were agreed upon between the parties and the assessee Lessor received lease money from the said party. In addition to the said lease agreement, an asset usage agreement was executed between the parties on 01.03.2008 itself, under which it was agreed that in addition to the lease money received per month, the assessee was to received usage right of Rs. 4,20,000/- per month. The obligation of assets owner was to install and handover the assets to Pantaloon on which it was also to provide the insurance. Further, it was agreed that the owner shall install the nominal upgrades as required by Pantaloon at Pantaloon’s cost. Further, Pantaloon had undertaken the operation and maintenance of the said assets and also exercised the usage rights in terms of usage guidelines. Further, it was agreed that Pantaloon shall promptly inform the owner any damage caused to the assets We are of the view that where the assessee has build and constructed an area with specifications of lessee, who in turn, is to occupy the same for carrying out commercial activities and further, where the assessee has provided certain other facilities as required by the lessee, then it is the case of commercial exploitation of assets by the assessee and such income is assessable as business income in the hands of assessee. It is not the case of mere letting out of asset owned by the assessee, income from which, is assessable under the head ‘Income from property’. It may be kept in mind that the assessee had developed his project for a multiplex theatre, where the basic requirement is not only building, owning and running the cinema but also commercial establishments along with it. Merely because those commercial areas are exploited by leasing out the same to the third party does not mean that the assessee has not commercially exploited the same. In the totality of the above said facts and circumstances, we hold that where the assessee has fulfilled the conditions of building owning and running the requisite number of cinema theatres and commercial shops by way of leasing the same through an integrated activity of leasing not only the premises but also other facilities for which it has received remuneration over and above lease charges, we hold that the assessee having fulfilled the conditions laid down in section 80IB(7A) of the Act read with Rule 18DB of the Rules, the assessee is entitled to claim the deduction under section 80IB(1) of the Act. The CIT(A) has already allowed the deduction under section 80IB of the Act against the running of multiplex cinemas, but the definition of multiplex theatre includes both the activities of running multiplex cinemas and commercial shops. In the absence of either, the assessee is not entitled to claim the deduction under section 80IB of the Act. Merely because the assessee has prepared two separate Profit & Loss Accounts for each of the activity and had later filed consolidated financial statements for the two activities does not distinguish the title of the assessee from claim made by it under section 80IB(1) of the Act. Accordi ngly, we direct the Assessing Officer to allow the claim of assessee. - Decided in favour of assessee Disallowance of cost of improvement on sale of plots which was declared as short term capital gains - Held that:- In the entirety of the above said facts and circumstances, in case expenditure has been incurred by the assessee may be in cash, which in turn, is recorded in the books of account of assessee, then there is some merit in the claim of assessee. Further, the assessee during the course of appellate proceedings has furnished confirmation by way of additional evidence which has not been admitted as these were not filed before the Assessing Officer. Thus we direct the assessee to furnish necessary details and also establish its case by way of entries in the books of account before the Assessing Officer, who shall afford reasonable opportunity of hearing to the assessee and look into the merits of claim of assessee. It may be clarified here that the Assessing Officer in the first round had already allowed 25% as allowable in the hands of assessee and the CIT(A) has further allowed Rs. 3,91,755/-, against which the Revenue is not in appeal. Hence, the same stands explained and allowed in the hands of assessee. In respect of balance, the Assessing Officer shall decide after affording reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes. Revaluation of closing stock by the assessee - Held that:- The perusal of Balance Sheet of Adinath Developers at page 22 of the Paper Book does not reflect any closing stock, but work-in-progress, cash in hand and negative capital account of proprietor had been declared in the Balance Sheet as on 31.03.2009. The plea of the assessee before us was that the work-in-progress is the cost of flats and the same has been re-worked. The opening work-inprogress was Rs. 26,95,000/- and closing work-in-progress was Rs. 3,95,000/- and the assessee had booked business loss of Rs. 23 lakhs. In the entirety of the above said facts and circumstances, where the assessee had exercised the option to rework its business assets, then the said loss is business loss and not capital loss. The assessee has sold the said flats in the succeeding year for sum of Rs. 6,50,000/-. The revaluation is on the basis of scientific method i.e. the report of valuer and the loss booked by the assessee is allowable as business loss in the hands of assessee - Decided in favour of assessee 2016 (6) TMI 205 Disallowance u/s 14A - investment in shares/mutual funds/partnership firms, the income of which is tax free - disallowance of indirect expenditure for earning tax free dividend income - Held that:- Since the assessee in the instant case has conclusively proved that it s own capital and free reserves is far more than the investment in shares/mutual funds/partnership firms, the income of which is tax free, therefore, respectfully following the decision of the Hon’ble Bombay High Court in the case of HDFC Bank Ltd. [2016 (3) TMI 755 - BOMBAY HIGH COURT ] we hold that no disallowance u/s.14A r.w. Rule 8D(2) is called for on account of disallowance of interest. So far as the disallowance of indirect expenditure for earning tax free dividend income is concerned we find there is no objective satisfaction recorded by the AO which is one of the mandates of section 14A(2) of the I.T. Act. Neither there is any discussion by the AO nor any specific query raised by the AO to the assessee on this issue. At the same time, there is no suo moto disallowance made by the assessee on account of the expenditure attributable to earning of the exempt income other than the expenditure on account of IPO. Although the assessee has neither disallowed any expenditure on this account in the computation statement presumably on the ground that no expenditure has been incurred and although the AO has also not specifically discussed this issue in the body of the assessment order, however, it cannot be said that no expenditure has been incurred by the assessee for earning the tax free income. Considering the totality of the facts of the case, we are of the considered opinion that disallowance of Rs. 10 lakhs on adhoc basis on account of expenditure attributable for earning tax free income will meet the ends of justice - Decided partly in favour of assessee 2016 (6) TMI 204 Acquisition of property - The fair market value of the property in question was determined at Rs. 73,72,495/- and since it exceeded the declared consideration by 30.48%, the conditions of Section 269 UD were held to be satisfied. - Rejection of bid - whether the ITD was agreeable to re-auction the property - Held that:- Respondent No. 3 for rejecting the bid of the Petitioners by the order dated 4th October, 2013 by the CCIT are several. One was that the sale was never confirmed on account of the interim order of this Court. The second was that by the letter dated 11th October 2004, the bidders, in fact, requested for refund of the earnest money along with interest @ 12% per annum. Thirdly, although the ITD had requested the Court to confirm the sale, the Court did not. In its order dated 27th September 2012, the Court enquired whether the ITD was agreeable to re-auction the property. The CCIT contends that the Petitioners were aware of the interim order dated 14th February 1995 and despite that participated in the auction. Fourthly, it is pointed out that while adjusting the value using the cost inflation index the price of the property in 2013 would be Rs. 5.07 crores. Further using the cost inflation index the original sale consideration worked out to Rs. 2.04 crore in 2013. It is mentioned that the present value on balance consideration using the cost inflation index worked out to Rs. 4,48,65,348. It is further pointed out that a re-auction is required to discover the current market price. Lastly a reference is made to the terms and conditions in terms of which the CCIT has a right to reject any bid. Reference is also made to Clause 15 of the terms and conditions of the auction under which a bidder is required to pay 25% of the bid amount, i.e. Rs. 35 lakh, within thirty days, i.e. by 16th March, 1995. The CCIT concludes that the earnest money ought to be refunded to the Petitioners in terms of Clause 11 of the terms and conditions of the auction. The only relief that can be granted to the Petitioners is to direct the ITD to return the earnest money to the Petitioners forthwith and in any event not later than four weeks from today. However, considering that the Petitioners' bid was rejected only in 2013, nearly 18 years after the bid it was first made, it appears to be reasonable to direct the ITD to refund to the Petitioners the earnest money of Rs. 16.25 lakhs deposited by them together with interest @ 12 per cent per annum from 15th February 1995, till the date of the refund, which shall not be later than four weeks from today. 2016 (6) TMI 203 Transfer pricing adjustment - selection of comparables - Held that:- FAR analysis of the assessee and the comparables reveal that they are not similar in any of the three fields. Therefore, comparing it with both these companies was not justifiable at all. One more important issue is of non availability of data in the public domain of NDTV for the year under appeal. The assessee had specifically raised this issue before the FAA, but he had not dealt with it. It is not known as to how and from where the TPO had got the data. He did not reveal the assessee the source of his information thought a specific request was made by it. The non-supply of basic data vitiate the whole TP exercise. As a quasi judicial authority TPO is required to follow the principles of natural justice. The TPO ignored them and the FAA allowed the violation of them. Tax liability cannot be fastened to an assessee in that manner. Being a representative of the Sovereign the TPO should have supplied the information to the assessee if he wanted to use it to against it. Collecting information behind the back is permissible but using the same without confronting the assessee is impermissible. The FAA had also missed a very important fact that during the year under appeal NDTV was a pure content producer. Therefore, selection of NDTV, as a comparable in our opinion was not justified. Similarly, he should not have selected CL as a comparable because it was supplying contents to various entities including the assessee. Thus, there were two basic flaws in the approach of the TPO and the FAA. First to hold that the assessee was a producer of contents and secondly to include NDTV and CL in the list of the comparables. If both these comparables are taken out of the list no TP adjustment will be required. - Decided in favour of assessee Deductibility of license fee - Held that:- As decided in assessee's own case for the AY.2002-03 the Assessing Officer has disallowed the entire claim of payment of licence fee without looking into the merits of the case and the relevant provisions of the Act. In the impugned assessment year the claim of the assessee should have been examined in the light of the report of the Transfer Pricing Officer and the evidences filed by the assessee but the Assessing Officer as well as the CIT(A) have not adjudicated the issue in accordance with law. We, therefore, are of the view that this issue requires fresh adjudication. Since the report of the Transfer Pricing Officer has already been obtained and the issue requires proper examination by the Assessing Officer in the light of the report of TPO, detailed analysis of licence fee paid and other evidences filed by the assessee, we set aside the order of the CIT(A) in this regard and the matter is restored to the file of the Assessing Officer to readjudicate the issue in terms indicated above. Deductibility of advertisement and publicity expenses - Held that:- This issue is covered in favour of the assessee by the decision of the Tribunal for Assessment Year's 1997-98 to 1999-2000 wherein it has been held that such expenditure was incurred wholly and exclusively for the purpose of business and therefore no disallowance could be made in this regard. Since the matter is covered by the earlier decision of the Tribunal in assessee's own case we have refrained ourselves from narrating the necessary facts and details in this regard. Following the decision of the Tribunal for earlier years, the issue is decided in favour of the assessee Addition made on account of point of accrual of commission income - Held that:- We do not find any material difference since under both the agreements, the commission is to be paid on the basis of amount collected by the assessee. Clause (E)(4) specifically provides that no commission shall be due to the assessee against the amounts not received. Therefore it is clear from the terms of both the agreements that commission income accrued to the assessee only when the invoiced amount was received by the assessee on behalf of principle. Therefore there is no reason to deviate from the earlier order of the Tribunal. Following the said decision of the Tribunal for earlier years, the issue is decided in favour of the assessee by holding that accrual of commission income arose in the year in which the invoiced amount were received by the assessee even under the Mercantile System of accounting Net commission and net miscellaneous income from the profit of business while computing deduction u/s.80HHF - Held that:- Similar issue was decided by the Tribunal against the AO in the appeal filed for the AY.2000-01 to 2002-03. As decided in ACG Associated Capsules(P.) Ltd., (2012 (2) TMI 101 - SUPREME COURT OF INDIA) if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head “Profits and gains of business or profession”, ninety per cent. of such quantum of the receipt cannot be deducted under Explanation (baa) to section 80HHC . . that ninety per cent. of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head “Profits and gains of business or profession”, was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business - Decided in favour of the assessee Depreciation of computer peripherals like servers, cable connection, KVM switches etc - Held that:- All the items were necessary to run the computers, thus in the circumstances of the case, are to be included in the block of 'computer' entitled to depreciation @ 60 per cent. See Datacrafts India Ltd.( 2010 (7) TMI 642 - ITAT, MUMBAI ) and BSES Rajdhani Powers Ltd (2010 (8) TMI 58 - DELHI HIGH COURT).- Decided in favour of the assessee 2016 (6) TMI 202 Disallowance made under Section 14A - Held that:- When the Assessing Officer has not expressed or recorded any satisfaction by identifying the expenditure which has been incurred by the assessee for earning the dividend income the disallowance under Section 14A on account of indirect expenditure is not sustainable and the same is disallowed. Disallowance of interest in respect of work-in-progress - Held that:- In view of the contention of the learned Authorised Representative that the assessee is having its own fund sufficient for the expenditure incurred being part of the work-in-progress, we are of the considered opinion that this is a factual aspect of the matter and requires a proper examination and verification. Accordingly, we set aside this issue to the record of the Assessing Officer for limited purpose of verification of availability of non-interest bearing fund with the assessee and thereafter the Assessing Officer has to adjudicate the issue in accordance with the above observations. Disallowance of interest on account of interest free advances given to related parties - Held that:- The assessee was having its own fund which was sufficient for this additional investment in the sister concern. Therefore, we do not find any error or illegality in the order of CIT (Appeals) in deleting the disallowance made by the Assessing Officer on account of interest expenditure under Section 14A. Disallowance of interest in respect of capitalization of work-in-progress - Held that:- It clear from the finding of the CIT (Appeals) that the interest rate of 11% as calculated by considering all the relevant amounts of loan and interest. Therefore, in the absence of any contrary fact brought before us, we do not find any reason to interfere with the finding of the CIT (Appeals) on this issue. 2016 (6) TMI 201 Reopening of assessment - reasons to believe - Held that:- From the reasons recorded by the AO it reveals that there is no whisper about what material facts the assessee had failed to disclose fully and truly. The reopening has been done on the basis of facts and material which were already on record. There is no allegation that there was any failure on the part of the assessee to disclose fully and truly any material fact, necessary for the completion of assessment. Even, there is no such mention of any failure on the part of assessee to disclose any material fact in the notice dated 30.03.10 served on the assessee under section 148 of the Act. The AO in the reasons recorded has mentioned about the fact and circumstances already available on the record. The reopening in this case, thus, is hit by the 1st Proviso to section 147 of the Act as discussed above. Thus the very reopening in this case is bad in law and the same is set aside - Decided in favour of assessee Customs 2016 (6) TMI 225 Import of button cells and watch parts through post parcel - Mis-declaration of goods - Confiscation of seized goods - Imposition of redemption fine and penalty - Held that:- it is an admitted facts that the goods were imported through EMS Speed Post, which were not liable to seizure/ confiscation in terms of Section 111 of the Customs Act, 1962. Since the provisions of Section 111 do not specifically deal with seizure of goods imported through post parcel, therefore, imposition of redemption fine and penalty are not in conformity with the statutory provisions followed by Sandhya Jewelers vs Comm. of Customs (Ahmadabad) [2013 (8) TMI 779 - CESTAT AHMEDABAD]. - Decided in favour of appellant 2016 (6) TMI 224 Confiscation of goods and imposition of penalty - Violation of principles of natural justice - reasonable opportunity of being heard not afforded - variation in the declaration made by the assessee in the shipping bills and goods found loaded in the trucks. Held that:- whatever may be the reason for appellant for not placing the defence reply on record and not contesting the issue on merits the fact remains the said reply is not on the record. As such it can be safely concluded that the impugned order stands passed ex partee. Though we also note that though the appellant made a prayer in writing and also at the time of hearing that the proceedings may be kept in abeyance and when such a request was made by the assessee was not accepted, he was under the legal obligation to intimate about the same to the assessee so as to enable them to put forth their defence on record. In such a scenario we are of the view that the impugned order stands passed in violation of principle of natural justice and is required to be set aside on the said ground. Accordingly, impugned order is set aside and remanded the matter back to the adjudicating authority for fresh decision. - Appeals allowed by way of remand 2016 (6) TMI 223 Allowability of refund of SAD - Notification No.102/2007 - Unjust enrichment - appropriate endorsement was not in the invoice as to non-availment of Cenvat credit in respect of the goods covered by such invoice - some discrepancy both in bill of entry and the sales invoices that causes anxiety to Revenue as to whether the goods imported were actually sold or not to get the refund of Additional Duty of Customs. Held that:- so far as the no declaration of allowance of Cenvat credit of the duty paid is concerned, the appellant gets relief on that count. But, in the case of discrepancy between the bill of entry and the sales invoice, reconciliation has to be carried out. So far as the unjust enrichment is concerned, the Adjudicating Authority shall take care of that examination. To carry out the aforesaid exercise, the appellant has to make an application to the Adjudicating Authority by the end of May, 2016 for fixation of the date of hearing during 2016. On the date fixed, without taking adjournment, the appellant shall provide relevant evidence for reconciliation and testing of the unjust enrichment issue. Upon examination and granting reasonable opportunity of hearing to the appellant, the authority shall pass appropriate order by end of July, 2016. With the aforesaid direction all the appeals are disposed allowing on certain points and remanding on certain points. - Appeals are partly allowed and partly remanded. 2016 (6) TMI 222 Confiscation in lieu of redemption fine and imposition of penalty - Mis-declaration of value of goods - exporter had not stated value of import for which the appellant was prevented to declare that in the bill of entry - no mens rea involved - Held that:- prior to clearance of the goods, while the goods were in bonded warehouse, the error committed in disclosing the proper value of the import was disclosed by appellant to Customs and appropriate duty there on was paid. Learned Adjudicating Authority opined that there was no mens rea involved in this case. Looking to the gravity of Section 112(a) of the Customs Act, 1962, this is not a justifiable case to exonerate the appellant from redemption fine and penalty fully. Therefore, it is considered proper that while the goods were in bonded warehouse and proper duty was realised it is proper to order redemption fine of Rs. 1,00,000/- (Rupees One Lakh only) and penalty of Rs. 20,000/- (Rupees Twenty Thousand only) in the interest of justice. - Decided partly in favour of appellant Corporate Laws 2016 (6) TMI 219 Scheme of amalgamation - Held that:- In view of the approval accorded to the scheme by the shareholders and creditors (i.e secured and unsecured) of the petitioners and, given the fact, that the RD and the OL have not articulated any objections, to the scheme, in opinion, there appears to be no impediment in the grant of sanction to the scheme. Consequently, sanction is granted to the scheme in terms of Section 391 and 394 of the Act. The petitioners will, however, comply with all statutory requirements, as mandated in law. A certified copy of the order, sanctioning the scheme, will be filed with the ROC, within thirty (30) days of its receipt. Resultantly, it is directed that the petitioners will comply with all provisions of the scheme 2016 (6) TMI 218 Investigation u/s 235(2) to investigate the affairs of a company - CLB quashed the investigation proceedings - Maintainability of appeal - Held that:- The present appeal oversteps its statutory applicability. What is undisputed is that the appellant fails to meet the threshold of 10% share of the total voting power as is necessary under section 235 of the Act. Therefore, that is his first impediment in directing an investigation and the application under section 235 as well as this appeal would not be maintainable. Furthermore, in section 397 and 398 of the Act, which deals with application for relief in cases of oppression and mismanagement respectively, required the applicant to have at least 10% of the issued share capital. It is only in applications under Section 397 and 398 of the Act, where the challenge in such applications is to reduction of the issues share capital itself, through oppression or mismanagement then the threshold of 10% would not be applicable. The impugned order has recorded that, according to the respondents, there was some deed of settlement signed on 12.07.2010 and that the respondents had invested an amount of Rs. 12.7 crores whereas the appellants had made investment of only Rs. 1 lakh at the time of incorporation of the said company, which amount has already been paid back to him by the investors' group of companies. Any investigation under Rule 235 of the Act would be a fact finding process and such power would be administrative in nature. However, since the facts were already known to the parties, through the statutory filings of the company, no further information would come out from the investigation. Indeed the said information has already been placed before the various law enforcing agencies by the appellants for them to carry out their respective necessary action. Evidently, the impugned order takes into account all the relevant facts and has come to the conclusion that the circumstances under Section 237 do not exist to warrant an investigation. Service Tax 2016 (6) TMI 239 Short payment of Service tax in the month of July, 2011 due to the adjustment of service tax paid in excess in the month of May, 2011 - Erection and Commissioning, Maintenance and repair, BAS, GTA, Consulting Engineer, Sponsorship services etc. - Held that:- it is a well settled legal principle that the statue should be interpreted as it is even if the intention is imperfect, imprecise or there is an obvious omission. Even though the appellants have not specifically intimated the department in this regard, but adjustment was declared in their ST3 returns, accordingly intimation of such adjustment stands made to the department. Even if it is not adhered to, at the most it is a procedural lapse and merely for this procedural lapse the excess amount paid could not be deviated and cannot be permitted to be retained by the government. Section 13 of the General Clauses Act, 1897 provides that singular include the plural. Accordingly, month includes months. Further the various case laws relied on by the appellants are squarely applicable to the facts of the present case. The excess amount paid in the month of May, 2011 adjusted by the appellants in the subsequent months tax liability is absolutely in order. Therefore, invoking Section 73(1) for a non-existing short payment is not sustainable. - Decided in favour of appellant with consequential relief 2016 (6) TMI 238 Period of limitation - Denial of refund claim - banking services received for their authorized operations in SEZ - refund is allowed in terms of Notification No 9/2009 ST as amended - whether a separate application is required to be filed along with refund for seeking extension of time for filing the refund application or the ground for extension of stay along with the refund application is sufficient to condone the delay in filing the application. Held that:- on the basis of appellant's argument that since the scheme was new and there was lot of confusion regarding the same on account of lack of knowledge, a separate application along with refund claim was not filed and keeping in view the decision of the Tribunal in the case of Rallies India Ltd Vs CC [2006 (6) TMI 280 - CESTAT, NEW DELHI], the impugned order is liable to be set aside and I do the same and remand both the appeals to the adjudicating authority to decide the claim of the appellant on merits and the appellant should produce before the adjudicating authority all the documentary evidence which is in his possession to claim the said refund. - Appeal allowed by way of remand 2016 (6) TMI 237 Demand of Service tax prior to 06.11.2006 - Commission received from various financial institutions - Held that:- the similar issue was decided by the Apex Court in the case of Jaiprakash Inds. Ltd. vs. CCE [2002 (11) TMI 92 - SUPREME COURT OF INDIA] and Suchitra components vs. CCE [2007 (1) TMI 4 - SUPREME COURT OF INDIA]. Therefore, we are of the view that First Appellate Authority has correctly followed the ratio of the Apex Court and the Board circular and confirms the demand post 06.11.2006 in respect of the commission received from financial institutions and in respect of the demand of service tax on the profit sharing received AutomartIndia Ltd. We noted that it is recorded in the balance sheet as a profit received from business enterprises undertaken. - Decided against the revenue 2016 (6) TMI 236 Condonation of delay - 178 days - Impugned order passed on 27.02.2015 was issued on 08.05.2015 but the same was sent to the applicant which was received by one Shri Mahesh who was Class D employee of the applicant who was medically not fit and was under medication. The illness was diagnosed as ‘Diffuse axonal injury’ and he had undergone treatment between 03.06.2014 and 07.07.2014 and thereafter joined his duty but continued to have loss of memory now and then, therefore, he misplaced the order without intimating to the applicant - Held that:- the delay has not been caused deliberately and intentionally and therefore we condone the delay subject to the appellant paying the cost of Rs. 10,000/- (Rupees Ten Thousand only). - Delay condoned 2016 (6) TMI 235 Condonation of delay - in making pre-deposit - due to great difficulty, the applicant could manage to arrange the funds and deposited in installments with a delay of 27 days for an amount of Rs. 2,00,000/- (Rupees Two Lakhs only), 220 days for an amount of Rs. 2,00,000/- (Rupees Two Lakhs only) and 241 days for an amount of Rs. 8,00,000/- (Rupees Eight Lakhs only) - Held that:- we allow the application and condone the delay in making the pre-deposit. - Delay condoned Central Excise 2016 (6) TMI 234 Rejection of refund claim on the grounds of unjust enrichment - payment of duty under protest on broken glass bottles - Held that:- In respect of all the invoices in which at the time of clearance the duty payment has been shown in the invoice, there is no doubt that the burden of duty has been passed on to the customers in such cases. The provisions of unjust enrichment have been rightly invoked in such cases. In respect of first category mentioned by the learned Counsel where they have paid the duty under protest for the past period, the facts are slightly different. In that case the appellant had paid the duty for the past period and not issued the excise invoices but had issued only the commercial invoices. In respect of other payment of duty the appellants have claimed that they have not recovered the same from the customers. The appellants have also produced Chartered Accountant's certificate in the Tribunal, the same was not produced before the Commissioner (Appeals). Thus find that while the impugned order deals with the second situation, it is silent about the first situation. In view of the above, upheld the impugned order so far as it relates to the clearances made on payment of duty. However, in respect of refund claim on the duty paid for the past clearances, the impugned order is set aside and the matter is remanded to the Commissioner (Appeals) for giving his findings on the issue. Further, since the Chartered Accountant’s certificate has been produced for the first time in the Tribunal and it was not produced before the Commissioner, the same may also be considered along with other evidence. 2016 (6) TMI 233 Reversal of CENVAT credit - denial on the ground that the said credit has been taken without receiving the goods from the parties who had issued the respective subsidiary gate passes - Held that:- There is no clear cut attempt to correlate the purchase made by the appellant with the subsidiary gate passes received by them. The Commissioner (Appeals) has observed that there is no correlation in documents to link the goods received by the appellant with the sales made by the importer/manufacturer. In this regard, it is felt that the specific case to case correlation of each subsidiary gate passes is necessary to reach any conclusion. The lower authorities have failed to appreciate the earlier order of the Tribunal and have given vague findings. In view of the above, the matter is again remanded to the lower authority to examine the correlation between the purchases made by the appellant of the subsidiary gate passes on case to case basis. The appeal is allowed by way of remand. 2016 (6) TMI 232 Manufacturing of a product (powder) called Body Plus - Classifiable under CTH 2108.99 or 2108.91 - rate of duty - Held that:- The goods covered under CTH 2108.91 are those not bearing a brand name and CTH 2108.99 covers “other” goods, which means goods bearing brand name. Thus, notwithstanding the statement of the Managing Director, it is clear from the foregoing analysis that as the impugned goods cleared from Maksi Road factory did not bear any brand name, the question of their classification under CTH 2108.99 would not arise as CTH 2108.99 covers goods other than those not bearing brand name. Needless to say that show cause notice classified the goods under 2108.99 which means that as per show cause notice, the impugned goods were falling under category “other” mentioned below CTH 2108.40 and the said “other” has two parts, 2108.91 covering goods not bearing brand name and 2108.99 covering goods other than those not bearing brand name, which means CTH 2108.99 covers only those goods which bear brand name. Consequently the impugned goods, even going by the implication of the show cause notice, would at best be covered under CTH 2108.91 which attracts nil duty. In these circumstances without going into any other aspect of case when the duty leviable on the impugned goods is nil the question of any evasion simply does not arise and consequently the question of any penalty on the appellants would also not arise. - Decided in favour of assessee. 2016 (6) TMI 231 Entitlement to claim exemption under Notification 10/97 dated 01.03.1997 - whether air conditioners are not used for scientific and research purpose? - Held that:- AC system are specially designed and modified for use in specialised mobile operation theatres for use by the Indian Army in the field. We also find the basic design of the Auto Air-conditioning was that of the Australian foreign collaborator and it was modified to suit the requirement of Ministry of Defence. We are of the considered opinion that the appellant are entitled for the exemption under Notification 10/97 dated 01.03.1997 because the institution to whom the appellant has supplied the goods is a public sector institution and they have also furnished the requisite and they are not engaged in any commercial activity and the said goods are required for research purposes. - Decided in favour of assessee 2016 (6) TMI 230 Irregularly availing credit on trading activity - how to arrive at the quantum used for trading when no separate accounts are maintained - Held that:- The Commissioner(Appeals) has directed the lower authority to recompute the CENVAT credit as trading became exempted service only after 01/04/2011. Prior to 01/04/2011 the only method of computation available was the method in case of exempted services and original authority adopted such method. The computation method taken by the appellant to arrive at the figure Rs. 2,74,122/- is the method for computing in case of trading w.e.f. 01/04/2011. As this is the formula/method provided by legislature for computing value in case of common inputs/input services used for trading activities when there is no separate accounts, the view that application of this method to arrive at the value would be more appropriate though it was introduced w.e.f. 01/04/2011 only. Therefore, direct the jurisdictional Superintendent to compute the value/amount of credit of common input services attributable to trading activity falling within the normal period as per the method provided in Rule 6(3D)(c) of CENVAT Credit Rules as applicable to trading. Thus hold that the appellant is liable to reverse such amount and interest thereon. The original authority has imposed equal amount of penalty. In the present case, as there is no suppression of facts or willful misstatement, the imposition of penalty is totally unjustified. Therefore the appellant is liable to pay the recomputed amount of credit attributable to trading along with interest only. The imposition of penalty is set aside. 2016 (6) TMI 229 Cenvat credit on various input services - registration number of service provider not indicated in the invoices - input services do not qualify as input services and are not related to manufacturing process - invoices issued by the service provider are in the name of the Head Office and not the factory where the credit is availed. Held that:- the various input services involved in the present case are related to the business of the appellant. As far as Custom House Agent Services are concerned, it is found that these services are used for export of finished goods and therefore they qualify as “input service” and the service tax paid on CHA services are eligible as Cenvat credit as held in CCE, Mysore Vs. Chamundi Textiles Ltd. [2010 (4) TMI 450 - CESTAT, BANGALORE] and CCE, Rajkot Vs. Rolex Rings Pvt. Ltd. [2008 (2) TMI 770 - CESTAT, AHMEDABAD]. In view of the various judgments and circular issued by the CBEC dated 20.10.2014, mere non-mentioning of the registration number of the service provider on invoices is not fatal to the case of the appellant as it is only a procedural violation and substantive rights cannot be denied on mere procedural violations. I also hold that the appellant cannot be denied the cenvat credit with regard to the service tax paid on the invoices issued to the Head Office rather than the factory which has actually utilized the services so long as the inputs services are received and utilized by the appellant. This at best can only be termed as procedural violation which is not fatal to the right of the appellant. Therefore keeping in view the submissions made by both the parties and the law cited at bar, I am of the considered opinion that the impugned order is not sustainable in law and the same is set aside. - Decided in favour of appellant with consequential relief 2016 (6) TMI 228 Cenvat credit availed on capital goods - eligibility - procedure irregularity - Demand of interest and imposition of penalty - Section 11AC of Central Excise Act, 1944 - Held that:- merely levelling an allegation based on presumption without actual verification, will not help the case of the revenue to deny credit to the appellant - the Chartered Engineer's certificate produced by the appellant in their defence to prove that the impugned inputs have been used in the furnace and consumed in due course accepted - credit allowed. Procedural irregularity - Held that:- appellant had not declared the fabrication of any capital goods /sub-assemblies of capital goods in the ER-1 filed during the relevant period. When the appellant was aware that such goods, on which credit was being taken, were items of general use , they were expected to maintain proper records like issue slip, records showing details of various capital goods / machinery items fabricated during the relevant period , quantity of material issued for fabrication, quantity of scrap generated , documents evidencing installations etc. to show beyond the receipt, consumption and inventory of such goods (MS items) as mandatorily required under Rule 9(5) of the CCR , 2004. Appellant has not taken care to give details of the items which are of general use for which the revenue should not suffer, and at the same time the appellant also should not suffer for not furnishing certain details which are required by the revenue - Decided in favor of assessee by way of remand. 2016 (6) TMI 227 Central excise duty evasion on yarn by way of unaccounted clearance - shortage of excisable goods - Held that:- As decided in Commissioner of Central Excise & Service Tax , Ludhiana Vs. Anand Founders & Engineers (2015 (11) TMI 1166 - PUNJAB & HARYANA HIGH COURT ) clandestine removal cannot be established only on the basis of shortage of materials detected at the time of stock taking by the officers. Mere shortage detected cannot ipso facto lead to the allegation and findings of the clandestine removal. In the present case, as noticed that even the shortage originally found on stock taking was later adjusted in the de novo proceedings, which only shows that the original stock taking and demand notice based on such verification was not fully correct. When the appellant sought re-verification by the Bond officer, the very next day along with the reasons for their request, it is apparent that such re-verification could have brought out the truth of the correct stock clearly. Appreciating the available evidence in the case, the demand of central excise on account of clandestine removal solely based on the alleged shortage of excisable goods cannot be sustained. Mis-match between the entries in the log book of the packing department and entries in the RG-I - Held that:- As already noted, 7 out of 14 entries indicate higher quantity of production entered in the RG-I when compared to the log book in the packing department. No comments or examination of such entries are found in the impugned order. Further, find that the log book in the packing department shows two entries for packing during day/night. Further, the log book maintained in the packing department is apparently due to the requirement of ISO Standards and the quantity mentioned as per older version of the format is for instructions of packers. In any case, if reliance has to be placed on the log book for issue of packing materials, for alleging clandestine removal of excisable goods without entering in the records, corroboration is required to support such allegation. In the present case, there is absolutely no corroboration and the demand is made only on the basis of certain comparison between a non-statutory record maintained for packing materials and the entries in the statutory records, RG-I. Find that no corroboration of any nature has been brought out by investigation to support the allegation of clandestine removal of unaccounted goods. As such, the impugned order is not legally sustainable and accordingly, the same is set aside. - Decided in favor of assessee. 2016 (6) TMI 226 Disallowance of Cenvat or modvat credit - credit availed after more than 6 months of the date of document - Held that:- The appellant is entitled to Cenvat credit and the same cannot be denied on the ground that Cenvat credit have been availed after more than 6 months of the date of document, as the documents are dated prior to 26/06/95 when the period of 6 months was introduced. It have also been so held by Hon’ble Supreme Court in the case of Raghuvar (India) Ltd. (2000 (5) TMI 40 - SUPREME COURT OF INDIA ). So far the credit on bill of entry/IGM number 1239/23 dated 2/5/94 is concerned as find that although there is some discrepancy in documents and/or some document is missing, it is admitted fact by the revenue that the appellant have received the goods in question. Accordingly, remand this issue for re-determination to the adjudicating authority. The appellant is also directed to appear before the authority within a period of 75 days from the date of receipt of a copy of this order along with all supportings. They want to rely and seek an opportunity of hearing. CST, VAT & Sales Tax 2016 (6) TMI 221 Deposit of 50 per cent of demand during pendency of appeal - Petitioner has no balance amount towards credit in his bank account - Learned Tribunal has wrongly held that the petitioner has sufficient funds in his bank account and he shall deposit 50 per cent of the demand - Held that:- as the consistent view taken by this Court from time to time, I am of the view that the petitioner shall deposit 20 per cent of the demand raised during pendency of the first appeal and the First Appellate Court shall decide the appeal expeditiously. - Trade tax revisions disposed of 2016 (6) TMI 220 Validity of notices issued during the pendency of this petition - Section 59(2) of the Delhi Value Added Tax Act, 2004 - Call for production of records, books of accounts, registers and other documents etc. - No rule had been framed under Section 102(2)(z) of the DVAT Act in regard to the exercise of the power under Section 59(2) thereof - whether in the absence of such a rule, the exercise of the powers under Section 59(2) of the DVAT Act can not be precluded. Held that:- the provision of Section 59 of the DVAT Act indicates that the Commissioner can exercise the powers under Section 59(2) of the DVAT Act to call upon the dealer or any other person to produce records, books of accounts etc. for (i) the proper administration of the DVAT Act and (ii) subject to such conditions "as may be prescribed.” The expression 'as may be prescribed' has to be interpreted as requiring Rules to be framed in the matter of inspection of production of records. The Commissioner has to exercise the power for 'the proper administration' of the DVAT Act, he has to make assure that what is being asked to be produced, in the form of books of accounts and other documents, are "related to the activities" of either the person to whom such notice is issued or any other person as the Commissioner may deem necessary. The Commissioner has to decide what document should be asked to be produced. It is another matter that there have been instances of misuse of the powers. The Court has had to step in to correct such misuse. That by itself, however, does not make the provision bad in law. It also does not mean that in the absence of a Rule, the power under Section 59 (2) is incapable of being exercised. It is in this context that the language used in Section 45 of TNHRCE Act or Section 45 of the Maharashtra Cooperative Societies Act, 1960 or Section 38 of the Bangalore Development Authority Act, 1976 became relevant. In each of the above instances, the language of the provision was such that the exercise of the power was dependent on the framing of the Rules. However, Section 59 (2) of the DVAT Act is so worded that it can be given effect to even in the absence of the rules. Therefore, in the absence of any rules being framed under Section 102(2)(z) read with Section 59(2) of the DVAT Act, the power of the Commissioner under Section 59(2) of the DVAT Act to call upon a person to produce the books of accounts and other documents cannot be exercised. Issued of direction to the Respondent to frame rules in exercise of the power under Section 102(2)(z) of the DVAT Act - Held that:- there are a few limitations on the scope of the powers of this Court under Article 226 of the Constitution. One such limitation is the inability to issue a mandamus to the Respondent/Executive to frame a rule in respect of any particular topic or issue and in a specific manner. That is the prerogative of the Executive. However, that does not preclude the Petitioner, along with other dealers, to make a representation to the Government of NCT of Delhi and in particular to the DT&T that Rules in terms of Section 102(2)(z) read with Section 59(2) of the DVAT Act should be framed. They can draw the attention of the GNCTD to the provisions in the ten other states which have VAT statutes. If such representation is made, the Court has no doubt that it will receive adequate and serious consideration in the hands of GNCTD and specifically, the DT&T, particularly since such a rule will serve the salutary purpose of guiding the officers in the exercise of their powers and serve to also act as a check on the possible abuse of powers. - Petition disposed of
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Newsletter: Where Service Meets Reader Approval.

TMI Tax Updates - e-Newsletter June 7, 2016

TMI SMS

Articles

1. ADJUDICATION OF SHOW CAUSE NOTICE UNDER SERVICE TAX PROVISIONS

Circulars / Instructions / Orders

1. [F.NO.279/MISC/M-61/2016, - dated 1-6-2016

Highlights / Catch Notes

Income Tax

Court Rules Social Welfare Laws Take Precedence Over Taxation Laws in TDS Provisions Case, Prioritizing Public Interest.

High Court Decides: Compensation and Interest from Motor Accident Claims Not Subject to TDS as Income.

Court Rules Revenue's Adjustment of Deceased Taxpayer's Refund Invalid Due to Section 245 Violation.

Court Rules No Additions for Cash Deposits u/s 40A(3); No Tax Evasion Found in Business Transactions.

Foreign Salary to NRE Account Taxable in India: Income Tax Act Section 5(2)(a) Clarifies Tax Liability.

Reassessment Invalid: AO Failed to Specify Method of Awareness for Unaccounted Loan u/s 147.

Section 40(a)(ia) TDS Disallowance Applies Only to Business Income Computation, Not Other Income Categories.

Dividend Stripping Losses Before April 1, 2002, Valid Despite Being Pre-Planned; Not "Abuse of Law" Per Section 94(7).

Notice Invalid: Wrong Section Used for Income Tax Assessment - Section 158BD vs. Section 148.

Multiplex Theatre Tax Deduction Denied if Either Cinema Operations or Commercial Shops are Missing u/s 80IB.

Section 14A Disallowance: Rs. 10 Lakh Expenditure Linked to Tax-Free Dividend Income.

Customs

Section 111 lacks clarity on seizing postal parcel imports, making redemption fines and penalties legally questionable.

Service Tax

Service Tax Adjustment Across Multiple Months Deemed Lawful u/s 13 of General Clauses Act 1897.

Central Excise

Refund Claim Denied Due to Unjust Enrichment as Duty Burden Passed to Customers; Duty Paid Under Protest Noted.

Body Plus Powder Tariff Classification: Branded vs. Non-Branded Goods Affecting Excise Duties Under CTH 2108.91 and 2108.99.

Cenvat Credit Approved Despite Missing Service Provider Registration Number and Invoices Addressed to Head Office.

Appellant's Lack of Specifics on General Use Items Risks Revenue Loss and Penalties in Cenvat Credit Assessment.

Demand for Goods Removal Overturned Due to Lack of Corroborative Evidence; Discrepancies Found in Non-Statutory Records.

Superintendent to Calculate Cenvat Credit for Trading Activities Using Rule 6(3D)(c) Method for Normal Period.

Exemption Granted for Army Mobile Operation Theatre Air Conditioning Systems Under Notification 10/97 for Military Use.

VAT

Court Rules Commissioner Needs Specific Rules Under DVAT Act Sections 102(2)(z) & 59(2) to Demand Documents.

Case Laws:

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TMI Tax Updates - e-Newsletter
June 7, 2016