TMI Tax Updates - e-Newsletter
July 11, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws FEMA Service Tax Central Excise Indian Laws

Articles

1. EXEMPTION TO RESTAURANT SERVICES

   By: Dr. Sanjiv Agarwal

2. Reversal of Cenvat credit for Trading

   By: JAMES PG

3. WORKS CONTRACT - NEGATIVE LIST- UNANSWERED QUESTIONS

   By: Pradeep Jain

4. EXEMPTION TO TRANSPORT OF PASSENGERS SERVICES.

   By: Dr. Sanjiv Agarwal

5. Clarification on Point of Taxation for Works Contract Services & open issues

   By: Bimal jain

News

1. CBEC issues Clarification Regarding Leviability of Service Tax on the Remittance of Foreign Currency in India from Overseas.

2. Deductors Must Comply with their Obligations to Ensure Correct Credit to Persons from Whose Income Tax is Deducted at Source.

3. India’s North Eastern Region to see better Road Connectivity through ADB Loan.

4. $67.6 million ADB Loan to Boost Investment for Agribusiness Infrastructure in Bihar.

5. ADB Extends $150 million loan to Develop India’s Railway System.

6. Government of India, Government of Bihar and World Bank Sign US$ 100 Million Agreement for Additional Financing for Rural Livelihoods Project in Bihar – Expected to Directly Benefit 1.5 Million Households.

7. Net Direct Tax Collections During April-June 2012 up by 47.16%.

8. Election of CCI Chairperson as Chair of UNCTAD's IGE on Competition law and policy.

9. Jyotiraditya M Scindia Calls for Closer Economic Engagements with Colombia Columbia Assures Early Ratification of DTAARaises Issues Faced by ONGC Videsh and Indian it CompaniesUnveils a Bust of Gurudev Rabindranath Tagore in Bogota.

Notifications

Customs

1. 35/2012 - dated 10-7-2012 - ADD

Provisional anti dumping duty on all imports of Vitrified/ Porcelain Tiles originating in or exported from China PR

Circulars / Instructions / Orders

Service Tax

1. 163/ 14/2012 - dated 10-7-2012

Clarification on service tax on remittances - regarding.

Highlights / Catch Notes

Income Tax

• Income from ISO 9000 Certification Not Considered Technical or Consultancy Service Under Indo-German DTAA.

  Case-Laws - AT : Indo German DTAA - ISO 9000 certification income - services are mostly in the nature of 'audit work' on basis of which certificate is granted. Nowhere from such services, it can be inferred that the assessee has been providing technical, managerial or consultancy services. - AT
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• Section 54 Deduction: House Construction Must Finish Within Time Limit for Long-Term Capital Gains Eligibility.

  Case-Laws - AT : Long-term Capital gains - deduction u/s 54 - for claiming deduction u/s 54, the construction of the house should be completed within the prescribed time limit and date of commencement of construction is not material for claiming deduction - AT
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• Section 40(a)(ia) Disallowance: No Lessor-Lessee Relationship Found; Section 194-I TDS on Rent Not Applicable.

  Case-Laws - AT : Dis-allowance u/s 40(a)(ia) - there was no lessor and lessee relationship between the holding company and assessee where the provisions of section 194-I are attracted - AT
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• Order Rectification u/s 143(1)(a) Overturned Due to Lack of Opportunity for Assessee to Respond to Disallowance.

  Case-Laws - AT : "Prima facie" adjustment - Rectification of order passed u/s 143(1)(a) - As disallowance made without giving an opportunity to the assessee, the same is not sustainable. - AT
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• Section 41(1) Inapplicable: Assessing Officer Fails to Prove Cessation of Liability Without Write-Off in Books.

  Case-Laws - AT : Deemed income - the assessee has not written back the liability and Assessing Officer failed to demonstrate that liability has ceased. Unless the liabilities are written off in the books of account, provisions of section 41(1) cannot be applied - AT
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• Assessment Officer's Inconsistent Stance on Section 54EC Exemption and Indexed Cost in Property Sale Evaluation.

  Case-Laws - AT : Profits from the sale of the property - Considering the statement of total income shows that in treating the business income, the A.O. himself has accepted (a) index cost of acquisition and (b) exemption u/s.54EC. The A.O. cannot blow hot and cold in the same breath - AT
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• Taxpayer's Land Rights Transfer Income Considered Capital Receipt, Not Taxable Without Specific Asset Sale.

  Case-Laws - AT : Treating the income from transfer of the rights enjoyed by the assessee as capital receipt -. In the absence of sale of a particular asset, revenue cannot assume that the sums are taxable on transfer of land. - AT
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• Tax Authority Rightly Applies 10% Net Profit Rate on Contract Receipts Over Limit u/s 44AD.

  Case-Laws - AT : Applying net profit rate of 10% on the contract receipts - Section 44AD - where the turnover was exceeding the prescribed limit, the CIT(A) was justified in estimated 10% profit on the gross contract receipts - AT
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• Detention Charges Classified as Demurrage Subject to Disallowance Under Income Tax Regulations.

  Case-Laws - AT : Disallowance of detention charges - the payment is nothing but in the nature of demurrage and simply because it is paid to the custom department, the nature cannot be changed - AT
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• Section 80IB: Shared Processes Don't Disqualify Separate Industrial Undertakings for Tax Deductions.

  Case-Laws - AT : Deduction u/s 80IB - Unit-2 & Unit-3 - The same product or same location, common procurement, manufacturing and common employees cannot be the basis to hold that the assessee was not an industrial undertaking viable and separate undertaking. - AT
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• Income Addition Due to Non-Production of Bills and Supplier Non-Appearance u/s 133(6) of Income Tax Act.

  Case-Laws - AT : Addition on account of non production of bills and non appearance of suppliers u/s 133(6) - un-served notice with the remarks “party left” means that earlier this party was there - AT
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• ICAI Accounting Standards Must Be Strictly Followed for Accurate Income Tax Accounting Practices.

  Case-Laws - AT : Method of accounting - accounting standards reflecting the views of a professional body, viz., the ICAI are entitled to the highest respect and have to be followed and applied. - AT
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• Windmill Projects: No TDS on Composite Work Contracts for Supply and Installation u/s 194C.

  Case-Laws - AT : TDS u/s 194C - supply of plant and machinery of windmill, for civil/electrical works and erection and commission of windmill, is a composite work contract - No TDS - AT
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• Section 40A(3) of Income Tax Act: Cash Payments Over Rs. 20,000 Restricted, Bearer Cheques Not a Justification.

  Case-Laws - AT : Applicability of provisions of sec. 40A(3) - cash payments exceeding Rs.20,000 - hardship or inconvenience - payments made by bearer cheques which had to be encashed in the banks only and, therefore, the argument that the payment had to be made in cash to the agriculturists is not acceptable. - AT
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Customs

• Provisional Anti-Dumping Duty Imposed on Chinese Vitrified and Porcelain Tiles to Protect Domestic Industry from Unfair Pricing.

  Notifications : Provisional anti dumping duty on all imports of Vitrified/ Porcelain Tiles originating in or exported from China PR - Notification
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• Court Rules Bagging Charges Excluded from Bills of Entry; Decision Favors Assessee in Customs Dispute.

  Case-Laws - AT : Non inclusion of cost of bagging charges in the Bills of Entry - bagging has been done before out of charge in the Customs area - decided in favour of assessee - AT
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• High Court Rules Zircon is "Ore," Allowing Duty-Free Importation; Impacts Zircon Classification and Taxation on Imports.

  Case-Laws - HC : Import of Zircon - Whether Zircon is “Ore“ - Zircon Ore and Concentrate - Permission to clear goods in question without payment of CVD - permission granted - HC
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FEMA

• Supreme Court Reviews Constitutionality of COFEPOSA Act's Section 3(1) on Detention Orders for Foreign Exchange Conservation.

  Case-Laws - SC : Constitutional validity of Section 3(1) of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (‘COFEPOSA’) to the extent it empowers the competent authority to make an order of detention against any person ‘with a view to preventing him from acting in any manner prejudicial to the conservation or augmentation of foreign exchange’ - SC
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Service Tax

• Clarification Issued on Service Tax for Remittances: Guidance Provided to Eliminate Confusion and Ensure Compliance with Tax Rules.

  Circulars : Clarification on service tax on remittances - regarding. - Circular
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• Referral Charges from Banks Taxed as Business Auxiliary Services u/s 65 (105) (zzb) and Section 65 (19.

  Case-Laws - AT : Referral charges which was the consideration received by appellant from the banks for promoting and marketing their services – Section 65 (105) (zzb) read with Section 65 (19) warrants taxation of the consideration as business auxiliary service- AT
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• Discounts and Incentives for Advertising Agencies Exempt from Service Tax, Providing Clarity and Relief in the Industry.

  Case-Laws - AT : Taxability - discounts/incentives received by appellant as an advertising agency from the Media - will not be liable for service tax - AT
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• Road Repairs and Toll Shed Construction Not Classified as 'Commercial or Industrial Construction Service' for Tax Purposes.

  Case-Laws - AT : Services of repair, renovation, widening of roads and construction of toll sheds, providing electrification of high mast poles at toll sheds etc. – not covered under the category of "commercial or industrial construction service" - AT
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• Appellant Manufacturer Entitled to CENVAT Credit; No Duty Evasion Intent, Extended Recovery Period Not Invoked.

  Case-Laws - AT : When the situation is revenue neutral and the appellant manufacturer is entitled to CENVAT Credit, it cannot be said that there was an intention to evade duty and extended period can be invoked - AT
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• Refunds Under Notification No 41/2007 Shouldn't Be Denied for Technical Errors if Substantively Justified.

  Case-Laws - AT : Refund of the service tax, - Notification No 41/2007 - Grant of refund of duty or any other sum due to an assessee should not be denied for mere technical or procedural lapses if it is otherwise due substantively on merits - AT
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• TDS Amount Must Be Included in Gross Value for Service Tax When Payer Bears TDS Burden.

  Case-Laws - AT : Valuation under service tax - inclusion of TDS (withholding tax) where burden born by the recipient (payer) in the gross value - Amount of TDS is required to be included in gross value - AT
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Central Excise

• Refund Claim for Education Cess on Paper Denied Due to Time Limit Under Central Excise Laws.

  Case-Laws - AT : Period of limitation - rejection of refund claim of Education and Senior Higher Education cess paid on paper and paper board - Rejection of refund claim upheld - AT
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• Applicants Must Deposit Credit Amount Claimed Without Duty-Paying Documents, Based Only on Xerox Copies of Invoices.

  Case-Laws - AT : Credit availed without any duty paying documents/on the strength of xerox copies of invoice – applicants directed to deposit the credit of amount availed without any duty paying documents - AT
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• Cenvat Credit Disallowance for Offsite Storage Deemed Technical Breach; Substantial Benefits Shouldn't Be Denied.

  Case-Laws - AT : Storage of inputs outside the factory premises - Dis-allowance of Cenvat Credit - for a mere technical breach, the substantial benefit cannot be denied - AT
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• State-Owned Manufacturing Unit Qualifies for SSI Exemption Under Notification No. 8/2002, Explanation (E) Supports Classification.

  Case-Laws - AT : SSI Exemption - Notification No.8/2002 - Since, respondent is a manufacturing unit owned and controlled by the State Government, hence respondent is squarely covered under Explanation (E) to the above referred Notifications - AT
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Case Laws:

• Income Tax

• 2012 (7) TMI 222
  Scope of assessment u/s 153A - search and seizure - whether it encompasses additions, not based on any incriminating material found during the course of search - Held that:- In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately. In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means – (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. Deduction u/s 80IA(4) - CFS - dis-allowance on ground that ICDs, and CFSs are not ‘ports’ located on any inland water way, river or canal and therefore they cannot be classified as "inland ports" for the purpose of section 80(IA)(4) - assessee had been operating the CFS at Jawahar Lal Nehru Port Trust - Held that:- In the case at hand it is clear that the assets of the CFS are not to be handed over to the Port Trust at any point of time as it is not built on BOT & BOLT Scheme. The CFS is also not located at the Port. CBDT has furnished opinion that ICDs and CFSs are not entitled to such deduction as they do not constitute inland ports, however High Court in the case of Container Corporation of India Ltd (2012 (5) TMI 260 (HC)) held that an ICD is not a port but it is an inland port. The case of CFS is similar situated in the sense that both carry out similar functions, i.e.,ware housing, customs clearance, and transport of goods from its location to the seaports and vice-versa by railway or by trucks in containers. Thus, the issue is no longer res-integra. Respectfully following this decision, it is held that a CFS is an inland port whose income is entitled to deduction u/s 80IA(4) - Decided in favor of assessee.

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• 2012 (7) TMI 221
  Penalty u/s 271(1)(c) - failure to deduct tax at source - assessee, a non-resident company having its principal place of business at Honkong, did not deduct tax at source on payments made to various Channel Companies, which are also non-resident companies based in Honkong - assessee contended non-requirement to deduct TDS on the payment made by a non-resident to a non-resident u/s 195 - In view of the decision in the case of Eli Lilly & CO. Ltd (2009 (3) TMI 33 (SC)), wherein it was held that if the assessee had a bonafide belief that it was not required to deduct tax at source even if the amount is held taxable later on will not result in levy of penalty u/s 271C, it is held that no penalty u/s 271C can be levied - Decided against Revenue.

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• 2012 (7) TMI 220
  Indo German DTAA - ISO 9000 certification income - Revenue contended part of the income to be taxable as per Article 12 of DTAA as royalty and "fees for technical services" and other part of income and expenses reimbursed which are linked with FTS, to be taxable, being part of gross receipts - applicability of Section 44D - assessee( German company) having a branch in India, engaged in the business of audit and procedure of norms for ISO 9000 Certification - Held that:- The assessee's case does not in any manner comes within the meaning of 'royalties', as there is no right to use of any other items described therein. Further, services are mostly in the nature of 'audit work' on basis of which certificate is granted. Nowhere from such services, it can be inferred that the assessee has been providing technical, managerial or consultancy services. Technical services require expertise in technology and providing the client such technical expertise which in this case no technology is transferred. Managerial services is used in the context of running and management of the business of the client, which herein this case, there is no management of client's business, but evaluation of standards as per international guidelines. Consultancy is to be understood as advisory services wherein necessary advise and consultation is given to its clients for the purpose of client's business. In an audit work there may be some incidence of advise at the time of evaluation but certainly it cannot be termed as pure consultancy services as in the audit work the auditor has to only evaluate the quality system and environmental system. Thus, the entire nature of services and activities carried out by the assessee comes within the realm of 'professional services' and not within the meaning of 'FTS' as provided in the Article 12(4) and Section 9(1)(vii). Consequently income cannot be determined by applying the provision of Section 44D. It has to be computed in view of the Article 7(1) and resultantly as per Section 28 to 43 of I tax Act - Decided in favor of assessee. Interest u/s 234B - Held that:- When a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee.

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• 2012 (7) TMI 219
  Alleged bogus purchases on ground of discrepancies in mentioning vehicles nos. on gate pass - question of fact decided in favor of assessee by Tribunal - Held that:- Revenue could not point out any perversity in the finding of Tribunal that production and the sales have not been doubted. Payments were made to the concerned parties through cheque and the delivery of goods was duly taken from the concerned traders. It was also noted that the assessee had adopted the proper procedure for receiving the goods supported by the gate-pass and goods were subject to lab testing, weighment etc. and they were duly recorded in the stock register. The payments were made by account payee cheque which were deposited in the Bank. Thus the issue which Revenue is raising in respect of bogus nature of purchase, is concluded against the Revenue by the finding of fact which has been noted above. The appeal does not involve any question of law and is accordingly dismissed - Decided against Revenue.

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• 2012 (7) TMI 218
  Long-term Capital gains - deduction u/s 54 - partial denial on ground that deduction is available against construction of house property, if the same is constructed after the transfer of capital asset and completed within three years from the date of transfer of the capital assets - assessee purchased and invested Rs 26.19 lacs in construction of residential property before transfer of capital asset - Held that:- It is undisputed that assessee sold his residential house on consideration of sum of Rs. 35 lacs on 03.11.2007 and has spent a sum of Rs. 30.44 lacs on purchase of plot and on construction of a residential house thereon. The construction of this residential house was completed in the month of March, 2008. Since the construction was completed within three years of transfer of capital asset, the ratio as laid down in the case of Subramaniya Bhat (1986 (6) TMI 7 (HC)) is applicable to the facts of this case as it has been clearly held in that case that for claiming deduction u/s 54, the construction of the house should be completed within the prescribed time limit and date of commencement of construction is not material for claiming deduction - Decided in favor of assessee.

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• 2012 (7) TMI 217
  Dis-allowance u/s 40(a)(ia) - non-deduction of tax at source on reimbursement of rent by assessee to its holding company - rent for the whole premises paid directly by the holding company to the Lessors and tax deducted u/s 194-I - Revenue contended such arrangement to fall under Explanation (i) of section 194-I - Held that:- Assessee is paying rent to the holding company as reimbursement since last many years, which has been accepted by the department all through. The lease deed provides for use of the premises by the subsidiary companies. The actual payments made by the holding company to the lessor and necessary tax was deducted therefrom. The holding company has also not debited the whole of rent to its books of account. It has only debited the rent which pertains to the part of the premises occupied by it. Therefore, there was no lessor and lessee relationship between the holding company and assessee where the provisions of section 194-I are attracted. Deletion of addition made u/s 40(a)(ia) is sustained - Decided against Revenue

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• 2012 (7) TMI 216
  Additions made by AO u/s 68 - CIT(A) deleted the additions - Held that:- The donor was real sister of donee and she received the amount from her NRI son who was doing business in Hong Kong with a proper license of business and the assessee not only established identity, creditworthiness of the donor but also established her source of funds showing her genuine capacity to donate Rs. 10 lakh to the donee assessee - thus establishing genuineness of gift it cannot be treated to be from undisclosed sources u/s 68 - in favour of assessee.

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• 2012 (7) TMI 215
  Rectification of order passed u/s 143(1)(a) - AO adjustments in regard to the particulars of capital expenditure written off (debited under operational expenses)on the basis of observations of the auditor in the tax audit report - CIT(A) deleted additions made by AO - Held that:- Considering the provisions of sec. 143(1)(a) that unless the return or the accompanying documents or accounts show that the deduction, allowance or relief claimed therein is prima facie inadmissible on the basis of information available in the said documents, such deduction or allowance claimed cannot be disallowed. Only those adjustments can be made under the said clause which on the basis of return and documents accompanying it are "prima facie" inadmissible - it is not open to the AO to make any adjustment in the returned income by disallowing any claim for deduction, allowance or relief, unless he is satisfied on the basis of information available in the return, documents, and the accounts accompanying it that such a claim is inadmissible on the face of it and there is no possibility of any debate thereon on such claim. As disallowance is made without giving an opportunity to the assessee to explain his view point in support of the deduction or allowance, and additional tax on the increased amount is charged from him arbitrarily neither proof in support of a claim can be requisitioned nor nature of expenditure can be judged in proceedings u/s 143(1)(a) no basis to interfere with the findings of the CIT(A) - in favour of assessee.

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• 2012 (7) TMI 214
  CIT(A) deleted the addition made by the AO u/s 144 - Held that:- As the assessee did not produce any books of account before the AO despite number of notices issued seeking various details and documents as a result assessment was completed u/s 144 - AO attributed 10% of the stock of glass sold outside the books by way of profit while the CIT(A) without giving an opportunity to the AO reduced the addition by 50% on the ground that the business of trading in glass was discontinued. There is nothing to suggest as to whom the stock was sold and what was the margin- Despite being fully aware that assessment was completed in this case u/s 144 CIT(A) did not allow any opportunity to the AO before reducing the addition by 50% or deleting the addition on account of commission from trading in shares or allowing telescoping the income on sale of glass and returned income, against unexplained cash deposited in the bank. CIT(A) while allowing set off of amount of Rs. 2 lacs on account of sale of old stock of glass and returned income of Rs. 5,06,170/- did not refer to any evidence that sale of old glass or returned income had any nexus with the cash deposited in the bank account ,especially when the assessee did not produce relevant books of account - order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision - decided in favour of revenue.

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• 2012 (7) TMI 213
  Trading liability - addition made u/s 41 on belief that liabilities have ceased to exist whereas assessee contended them to be existing liability - Held that:- Section 41 applies where a trading liability was allowed as a deduction in earlier years in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in later year by way of remission or cessation of the liability. In the present case, the assessee has not written back the liability and Assessing Officer failed to demonstrate that liability has ceased. Unless the liabilities are written off in the books of account, provisions of section 41(1) cannot be applied - Deletion of addition justified - Decided in favor of assessee.

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• 2012 (7) TMI 212
  Profits from the sale of the property - AO treated it to be as business income pointing to the object clause of the partnership deed which include objects such as carrying on business as dealer, contractor, proprietor and the dealer in land, building, shops - assessee treated it as “Long Term Capital Gain” - Held that:- As the partners have resolved to discontinue the business after 1994 and replace the same with the objective of investment in the real estate or other investment in which the benefits of receiving the income from such investment as well as appreciation in the investment is more. During the said period of the business activity, the assessee had undertaken only one project. Thereafter, the assessee has not done any activity except for purchasing the property at Khetwadi with 72 tenants in November, 1997 - as decided in CIT vs. Suresh Chand Goyal [2007 (1) TMI 90 (HC)] that an isolated transaction or activity can also be part of business, but to consider the question of business, there must be regular activity of purchasing and selling. Considering the statement of total income shows that in treating the business income, the A.O. himself has accepted (a) index cost of acquisition and (b) exemption u/s.54EC. The A.O. cannot blow hot and cold in the same breath - in favour of assessee.

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• 2012 (7) TMI 211
  Applicability of Rule 8D - dividend income - assessee claimed the same as a case of exempt income u/s 10(33) of the Income Tax Act, 1961 – Held that:- AO has not specifically dealt with the claim of the assessee to the effect that no expenditure had been incurred in the AY in hand particularly in view of the fact that the shares in question had been purchased long back - issue in hand has to be remitted back to the AO who shall re-decide the instant ground in view of the evidence if any lead by the assessee by following the principles of reasonable computation as it existed before the insertion of Rule 8D after affording the assessee opportunity of hearing. Interest free security deposit - assessee company had received non-interest bearing security deposit - Refundable at the time of termination of lease - assessee has included the amount as miscellaneous income. But immediately after realizing the mistake it also filed its revised computation – Held that:- Interest free security deposit to be paid back, the same can never termed as income - AO has also not examined this issue – matter remanded to AO

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• 2012 (7) TMI 210
  Dis-allowance u/s 14A of interest expenditure under Rule 8D(2)(ii) and 0.5% of the average value of investments under Rule 8D(2)(iii) - Held that:- It is observed that major portion of interest is paid on vehicle loan taken by the assessee and the other payments are either to the tax department or to the bank. Thus, Rule 8D(2)(ii) is not applicable in the instant case and hence disallowance of proportionate interest expenditure is not in accordance with law. However, since assessee made huge investments in shares, it is not possible to ascertain the ratio of expenditure which is relatable to exempt income, it is found that AO has rightly applied the formulae of 0.5% of the average value of investment for dis-allowance, which is in accordance with law - Decided partly in favor of assessee Foreign travel undertaken by the Director and his wife for business purpose - dis-allowance - travel scheduled from 22.04.2008 to 05.05.2008 - AY 08-09 - Held that:- Following matching principle, expenditure deserves to be considered in subsequent year and not in the year under consideration. Dis-allowance of amount paid to SEBI for non compliance of certain regulations of SEBI on the ground as levy for infraction of statutory law - assessee contended that non-compliance do not result in any harm to investors, promoters or any other parties - Held that:- No material was placed to contradict the claim of the assessee. In light of decision in case of CIT vs. Prasad and Co (2012 (2) TMI 124 (HC)) amount paid to SEBI is allowable as deduction.

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• 2012 (7) TMI 209
  Treating the income from transfer of the rights enjoyed by the assessee as capital receipt - AO stated that the income should be taxed under the head capital gain - Execution of will - dispute over property - assessee in the capacity of Administrator - Held that:- sale proceeds and advances were accumulated over the years and during the relevant year assessee received certain sums out of distribution of such sale proceeds as well as advances. The assessee had not sold any particular piece of land during the year and, therefore, Ld. CIT(A) has correctly held that the receipts would not be chargeable to income tax. In the absence of sale of a particular asset, revenue cannot assume that the sums are taxable on transfer of land. Liability of beneficiary to tax where administrator has paid tax - Held that:- once the taxes are paid by the estate, naturally, the beneficiary receiving any distribution of such sale receipts could not have been taxed again by the revenue, thus, it is clear that sale receipt against which conveyance deed was already executed and which were assessed in the hands of estate of EFD, were not subjected to tax again. constituting the transaction as adventure in the nature of trade there has to be some business relationship or some commercial features in the transactions. Since assessee was not owner of the properties, there is no question of transferring any rights in such properties. Further, the administrator could not distribute the proceeds from sale of the properties unless the administration was complete i.e. expenses and taxes of the estate were paid - mere receipt of sale proceeds by the assessee from the estate of EFD would not amount to any extinguishment of his rights and, accordingly, the receipt of the sum cannot be taxed under the head ‘capital gains'- the assessee had invested in 55 companies during the year and these figures, by no stretch of imagination, would lead us to a conclusion that the assessee is not the investor but a trader in shares - decided in favour of assessee.

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• 2012 (7) TMI 208
  Applying net profit rate of 10% on the contract receipts declared by the assessee - the assessee did not produce books of account nor furnished the details called for - Held that:- The assessee's claims to derive income from contractor ship business is not acceptable as no proof of having done any contract work was submitted by the assessee - as per provisions of Section 44AD even if assessee does not maintain books of account where the turnover is less than Rs. 40 lakhs, maximum profit which can be estimated is 8 %. However, in the instant case there exists no dispute to the fact that the assessee was engaged in civil construction work and even no proper books of accounts are maintained, where the turnover was exceeding the prescribed limit, the CIT(A)was justified in estimated 10% profit on the gross contract receipts - against assessee.

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• 2012 (7) TMI 207
  Deduction u/s 80HHC - reduction of export turnover to the extent of the amount not received in convertible foreign exchange within the statutory period - assessee in view of aforesaid contending proportionate reduction in direct cost and indirect cost in relation to trading of goods in export - Held that:- Expenditure both direct and indirect are incurred for export of the commodity and nothing of it is attributable to the receipt of amount through banking channels. Petition of assessee dismissed.

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• 2012 (7) TMI 206
  Petition against dismissal of stay application filed u/s 220(6) during pendency of appeal before the Tribunal - Held that:- Since appeals are pending consideration before the third respondent for more than one year, hence, it is for the third respondent to consider the appeals and pass final orders on merits. Petition dismissed.

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• 2012 (7) TMI 205
  Denial of deduction u/s 80IB(10)- Held that:- As exists no dispute to the provisions of law relevant to assessment year 2007-08 and 2008-09 that for claim of deduction u/s 80IB(10) the housing project which have been approved prior to 31st March, 2005, the same are required to be completed by 31st March, 2009, and certificate of completion is to be issued by the Municipal Authorities in this regard - Since the certificate for giving approval of the project was dated 29.3.2005, assessee’s eligibility for claim of deduction u/s 80IB(10) is to be judged with reference to the date of this certificate and merely because certificate provides issue of no dues certificate issued subsequently on 1.4.2005 and dispatched to the assessee on 5.4.2005, it cannot be held that building permission was given only after 1st April, 2005 - Thus as per this permission letter dated 29.3.2005, the assessee was required to complete project by 31st March, 2009, whereas the assessee has completed the project by 31st March, 2010 - denial of deduction is hence warranted - decided against assessee.

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• 2012 (7) TMI 204
  Disallowance of detention charges - A.O. stated that such detention charges are penal in nature and therefore cannot be allowed as deduction - Held that:- The expenditure incurred by the assessee for delay in returning the containers is a normal and regular procedure of custom and as such the payment is nothing but in the nature of demurrage and simply because it is paid to the custom department, the nature cannot be changed - the disallowance made by the AO was not justified - favour of assessee. Disallowance of commission - Held that:- As the assessee has duly explained the nature of services rendered by the companies to whom commission was paid by account payee cheques. Such commission is a normal business expenditure keeping in view the nature of business the assessee was engaged, dis - allowance is not warranted - in favour of assessee. Treatment of profit of sale of shares - whether as Short term capital gain or business income - Held that:- As the AO himself has accepted that the assessee had made investment in limited number of shares and that profit on shares held for more than 12 months as long term capital gain no point to treat the gain arising out of same class of shares held for less than one year as business income - in favour of assessee.

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• 2012 (7) TMI 203
  Addition on account of unexplained deposit into bank as reduced by CIT(A)- Held that:- As the A.O. asked for details of persons from whom the cheques were received by the assessee and to whom the cheques were issued by the assessee so that peak credit in her account could be arrived at and the same be taken for making addition for deposits made by the assessee in her bank account through cheques. Since this information was not given by the assessee, the addition was curtailed to give relief to the assessee simply by accepting the submission of the assessee - remand the matter back to issue speaking order.

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• 2012 (7) TMI 198
  Credit availed without any duty paying documents/on the strength of xerox copies of invoice – Application for waiver of pre-deposit of duty, interest and penalty in view of the financial hardships - Held that:- The applicants availed credit of Rs.4362547/- without any duty paying documents and remaining credit on the strength of Xerox copies of invoices which is not a case for total waiver of dues – in METAL BOX INDIA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, MUMBAI[2003 (4) TMI 111 (SC)] it was held that waiver of pre-deposit covered under Sec.35F of the Central Excise Act does not fall under any of the enumerated categories in Sec.22 of the Sick Industrial Companies (Special Provisions) Act, 1985, protection thereunder not available to the assessee - the applicants are directed to deposit the credit of amount availed without any duty paying documents within a period of eight weeks - on deposit of the aforesaid amount, pre-deposit of the remaining amount of duty, interest and penalty is waived for hearing of the appeal.

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• 2012 (7) TMI 190
  Constitutional validity of insertion of conditions in the third and the forth provisos to Section 80 HHC(3) by amendment of Taxation Laws (Second Amendment) Act, 2005 with retrospective effect - petitioner contended such amendment to be violative of Article 14 of the Constitution of India as it is arbitrary and unreasonable on ground that two assessees of similar description having export turnover of more than Rs.10 Crore are discriminated inasmuch as the assessees whose assessments have become final is not required to comply with the two conditions and would avail deduction u/s. 80 HHC as against the assessees whose assessments are pending and who would be required to comply with the two conditions - Held that:- In the matter of completion of assessment, the assessees have little role to pay. After the assessees have submitted their returns within the time fixed by law, if for any reason the respondent delays in making the assessment, taking advantage of their own delay, the Revenue cannot deprive a class of the assessees of the benefit whereas other assessees of the same class whose assessment have already been completed would get the benefit. Therefore, discrimination based on two classes, first, whose assessments have become final and secondly, whose assessment are pending, definitely violates Article 14 of the Constitution of India as there is no rationale nexus with the object of the amendment, and, therefore, such classification fails the test of Article 14 of the Constitution, being a case of ‘palpable arbitrariness’. Further, Revenue has failed to discharge that burden by pointing out the reason for making classification based on the above two aspects which have no reasonable connection with the object of amendment. Legislature is not bound by the doctrine of promissory estoppel and thus proposed amendment cannot be struck down on the ground that the same is violative of principles of promissory estoppel although individually an assessee can take the plea of promissory estoppel if the amended provision adversely affects such an assessee. Substantive amendment cannot be made with retrospective operation - Held that:- Present amendment has been made at a point of time when the application of section 80HHC has already been exhausted and the same was not even in the statute book. In such situation, it is not permissible to take away the benefit already granted through a concluded scheme by introducing fresh amendment by virtue of which an expired scheme has been revived with benefit conferred upon only a limited section and snatching the same from some other sections. Hence, impugned amendment is quashed only to this extent that the operation of the said section could be given effect from the date of amendment and not in respect of earlier assessment years of the assessees whose export turnover is above Rs. 10 Crore. In other words, the retrospective amendment should not be detrimental to any of the assesses.

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• 2012 (7) TMI 189
  Transfer of Capital asset u/s 2(47)(v) - land given to developer for development - assessee contended non-chargeability of capital gains in respect of the land, which was not 'transferred' but only given for development, hence not coming within preview of Section 2(47)(v) - Held that:- In instant case, owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and thereafter if the transferee has taken any steps in relation to construction of the flats, then it is to be considered as transfer u/s. 2(47)(v). The fact that the legal ownership continued with the owners to be transferred to the developer at a future distant date really does not affect the applicability of s. 2(47)(v) since definition of "transfer" not merely prescribes allowing of possession but to be retained in part performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Thus, if the possession and control of the property is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer u/s. 2(47)(v). In our opinion, the real intention of the parties herein to be seen, accordingly, issue is set aside to file of the CIT(A) to decide the same afresh in light of the above observations and decision in case of Chaturbhuj Dwarkadas Kapadia v. CIT (2003 (2) TMI 62 (HC)) and Dr. Maya Shenoy v. ACIT (2008 (10) TMI 262 (Tri)) - Appeal allowed for statistical purposes.

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• 2012 (7) TMI 188
  Deduction u/s 80IB - dis-allowance on ground that Unit-2 & Unit-3 were not separate and independent industrial undertakings and it was the case of extension of business of Unit-1 for which deduction u/s 80IB is not available being eleventh year of operation u/s 80IB - assessee engaged in the business of manufacturing of Pesticides and Agro Products at its three units which are based at Jammu - Held that:- Expansion of an industrial undertaking is not a bar for claim of deduction u/s 80IB. The same product or same location, common procurement, manufacturing and common employees cannot be the basis to hold that the assessee was not an industrial undertaking viable and separate undertaking. What is important is that there must be a set up of independent and separate viable undertaking. In this regard, the assessee has placed on record that it has made separate investment in the plant & machinery account and the building. Provisions of Section 80IB do not provide in any way separate registration or maintenance of separate records for claiming deduction. The requirement u/s 80IB(1), 80IB(2) and 80IB(4) is that profit must derive from an industrial undertaking. Therefore, it cannot be held that undertakings are not eligible to claim deduction u/s 80IB. Refund of excise duty - Revenue contended ineligibility for deduction u/s 80IB on ground that same being income 'not derived from the industrial undertaking' but the income attributable to the receipt of excise duty refund from the industrial undertaking - Held that:- Issue stands covered by the decision in the case of Shree Balaji Allows v. CIT [2011 (1) TMI 394 (HC)] wherein it has been held that the Excise Duty Refund is to be treated as 'capital receipt' and not liable to be taxed. Depreciation - dis-allowance on ground that construction material used comes within preview of building and no P&M - Held that:- Once the said expenditure is part of the plant and machinery, which is not under dispute, such expenditure necessarily has to be part of plant and machinery and depreciation as claimed has to be allowed. Dis-allowance u/s 43B - employees contribution to Provident Fund - payment before due date of filing return - omission [deletion] of the second proviso to Section 43-B - Held that:- In view of decision in case of CIT v. Alom Extrusions Ltd. [2009 (11) TMI 27 (SC)], the entire employees contributions to provident fund paid during the year, which is under dispute, has to be allowed. Interest u/s 234B - assessee contended non-levy of interest as per Notification No.275/12/2007 dated 26.04.07 providing waiver of interest u/s 234B upto the AY 2007-08 in respect of the assessee residing in Kashmir and having their principal place of business in the Kashmir Valley - Held that:- Such interest u/s 234B in the present case cannot be levied. Set off of a loss of 100% EOU, against the income arising from other units under the same head of profits and gains of business - Held that:- In view of decision in case of CIT v. Galaxy Surfactants Ltd. reported in [2012 (3) TMI 101 (HC)] it is evident that the assessee is entitled to set off of loss 100% EOU with the profits of other undertaking - Decided in favor of assessee.

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• 2012 (7) TMI 187
  Dis-allowance u/s 40(a)(ia) - failure to deduct tax at source u/s 194C - amounts stood paid during the instant year itself - Held that:- Provisions of Section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS. See Merilyn Shipping & Transports vs. ACIT (2012 (4) TMI 290 (Tri)) - Decided in favor of assessee.

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• 2012 (7) TMI 186
  Justification to allow deduction u/s 40(a)(ia) being 25% of the royalty paid - AO stated that as the assessee fails to comply its liability to TDS u/s. 194J the entire amount paid as royalty warrants disallowance - Held that:- As the payment in question was made by the assessee for obtaining certain rights over the film Boa and Passion including rights of distribution and exhibition of cinematographic films and also satellite TV protecting rights. In view of the specific provisions of Explanation 2, clause (v) of section 9(1)(vi) consideration for distribution or exhibition of cinematographic films are excluded from the purview of definition of royalty. The CIT(A) bifurcated the value of the rights acquired by the assessee and has attributed 25% of the payments made as attributable to TV rights which would be royalty taxable in the hands of the non-resident in India - in favour of assessee. Additions on Payment made on Studio Hire Charges - CIT(A)deleted additions made by AO - Held that:- As the assessee had utilized the services of dubbing studio by using their equipments as well as the artists who were working for Studio, the assessee had thus carried out the work of dubbing by engaging services and the same was of the nature of getting work done through a sub-contractor - that the provisions of section 194C were applicable and the assessee has rightly deducted tax at source at 2% treating the payment as a payment to subcontractor for carrying out a work - in favour of assessee.

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• 2012 (7) TMI 185
  Computation of deduction u/s 10A - AO excluded the interest income,disposal of assets and miscellaneous income from the profit of business - Held that:- Regarding profit on disposal of assets and interest on bank deposit in the computation of income these incomes were already reduced by assessee for calculation of exempt income, therefore, these cannot be reduced again As regards misc. income AO had not given any finding about the nature of income credited under the head misc. income as the inclusion or exclusion of misc. income in the exempt income u/s 10A will depend upon the nature of misc. income - remit the case to the file of AO on this point to first give a finding on the nature of misc. income and allow it accordingly as per law - partly in favour of assessee.

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• 2012 (7) TMI 184
  Addition on account of non production of purchase bills & vouchers - CIT(A) deleted the additions - Held that:- it is seen that the Assessing Officer had made the addition because of one point and i.e. non production of bills and non appearance of suppliers u/s 133(6) and CIT(A) has rightly observed that un-served notice with the remarks “party left” means that earlier this party was there - AO in his assessment order has ignored to note That the payment of purchases were made through Account Payee cheques only,there was certificate from site In-charge certifying utilization of material and that out of six suppliers which were summoned u/s 133(6) only one supplier did not appear - if the information u/s 133(6) is not furnished, the claim of deduction cannot be denied only on the ground - in favour of assessee. Addition of Rs.3,00,000 on account of labour charges and verifiable expenses - Held that:- AO had not made any specific finding to reach at the figure of disallowance as the addition is an ad hoc addition and while making the addition he had ignored the fact that percentage of labour charges to gross turnover had come down to 13.73% as against 16.99% in the preceding year - CIT(A) has rightly restricted the disallowance to 1.00,000 - in favour of assessee. Addition on account of random checking of vouchers from which he found that payments for an amount of Rs. 90,537/- were not available. The assessee had explained that due to work at various sites these might have been lost. The Assessing Officer had made a finding in respect of Rs. 90,567/- only in which the vouchers were not available. Therefore, Ld CIT(A) had rightly restricted the disallowance to Rs. 90,537 - in favour of assessee.

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• 2012 (7) TMI 183
  Dis allowance of Prior Period Expenses - Held that:- the assessee is following mercantile system of accounting. It is well settled that accrual of a statutory liability depends upon the terms of the relevant statute and the quantification or ascertainment cannot postpone its accrual to the extent of admitted liability - the assessee did not furnish any evidence before the AO or CIT(A) that the liability for the expenses shown as prior period expenses crystallized in the respective years under consideration. In the absence of any basis dis allowance is warranted - against assessee. Disallowance of an amount of Rs. 34.31 lakhs debited to P/L a/c & Rs. 5,34,79,358/- included in the inventories - Held that:- As the amount of Rs. 534.79 lakhs was included in the closing stock for the year under consideration as detailed in the impugned order, thus the plea of the DR on this aspect is devoid of any merit - As regards amount of Rs.34.31 lakhs mentioned in the audit observation neither any evidence was furnished before the AO nor CIT(A) in support of this amount, thus in the absence of any reconciliation or evidence in support of the amount the amount is need to be disallowed - against assessee. Disallowance for want of reconciliation - Accounts with Indian Airlines Ltd., the parent company, have neither been reconciled nor confirmed - Held that:- Since no reconciliation has been submitted either before the AO or before the CIT(A), in the absence of any basis, no alternative left but to uphold the findings of the ld. CIT(A)to warrant disallowance - against assessee. Addition on account of grant received - AO has taken the entire grant received for the year as the revenue of the assessee, which has been vehemently contested - Held that:- It is not in dispute that the grant given to the assessee was Rs. 35 crores for the year which was based on the MOU between the assessee and NEC (North Eastern Council). As per the MOU, the total sanction from the government was Rs. 175 crores over a period of 5 years for improving air connectivity in the north east region - the assessee has been following the accounting standards as prescribed by ICAI which cannot be faulted for this. It is not a matter of dispute here is that the government grant given to the assessee was based on operations from which a net expenditure/income had to be arrived at after deducting the expenditure. In such circumstance, if the assessee has shown only an amount of Rs. 7.29 crores, the same has to be sustained. The amount cannot be the total receipt of Rs. 35 crores or the figure of Rs. 27.71 crores - in favour of assessee. Disallowance of aircraft lease handling and maintenance charges to its holding company - Held that:- Assessee did not furnish any explanation whatsoever before the AO nor the CIT(A). Thus in view of the aforesaid observations of CAG pointing out that excessive payment had been made to Indian Airlines to the extent of Rs.3.92 crores, the CIT(A) upheld the disallowance and in the absence of any basis, especially not even evidence or explanation was placed before the AO or the CIT(A) no alternative but to uphold the findings of the CIT(A) - against assessee. Addition on a/c of change in the method of accounting - Held that:- As there is nothing to suggest that the change made in the method of inventory valuation by the assessee was not with a bona fide intention it is thus apparent that only with a bona fide intention the assessee changed the method of stock valuation in the light of relevant accounting standard prescribed by ICAI. As a result of the change made in the method of stock valuation, the income of the assessee has reduced as any change in any method of stock valuation is bound to make some change in the taxable income. Simply because, by virtue of the change introduced by the assessee, the income has been reduced, by no stretch of imagination, it can be said that the assessee had an intention to deliberately undervalue its stock so as to reduce its tax burden - against revenue. Disallowance of insurance reserve - Held that:- The assessee is consistently following the prescribed accounting policy by crediting the reserve account on account uninsured risk and this method has been accepted earlier by the Revenue. The CIT(A) found that the assessee made the provision on the basis of actuarial valuation and DR did not place any material suggesting that the liability was contingent in nature - in favour of assessee.

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• 2012 (7) TMI 182
  Disallowance under section 14A - indirect expense incurred in earning the dividend income claimed exempt u/s 10(34)- CIT(A)restricting the to Rs.1,00,000/- as against the disallowance of Rs.16,90,103 computed by the AO - Held that:- As decided in Maxopp Investment Ltd. vs. C.I.T.[2011 (11) TMI 267 (HC)] as per-rule 8D period whenever issue of section 14A arises before an AO, he has first of all, to ascertain correctness of claim of assessee in respect of expenditure incurred in relation to income which does not form part of total income under Act and if he is satisfied on an objective analysis and for cogent reason that amount of such expenditure as claimed by assessee is not correct, he required to determine amount of such expenditure on basis of a reasonable and acceptable method of apportionment rule 8D, which is prospective in operation and cannot be regarded as being retrospective - the issue is remitted to the file of the Assessing Officer to consider the issue afresh in light of the decision - partly in favour of revenue.

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• 2012 (7) TMI 181
  Determination of arms length price - assessee contested that TPO rejected certain comparables, economic performance data - Held that:- Set of comparable companies the TPO has relied on this information gathered for non public domain by using powers u/s 133(6) and this information is neither contained in the annual reports nor in the public domain data base and is not not supplied to assessee to enable it to meet the objections - direction to TPO to arrive at the ALP after providing the assessee adequate opportunity of being heard in accordance with law -decided in favour of assessee.

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• 2012 (7) TMI 180
  Disallowance of the claim of "Bad debts" - AO stated to be existence of no valid transactions - Held that:- As assessee had purchased shares on behalf of the sub-broker and in fact paid the amount of Rs. 1,06,10,247/- and as against this amount has received only a sum of Rs.64 lacs. The brokerage which was received in the aforesaid transaction was shown as income by the assessee which was taxed as such as well by the Assessing Authority. Thus only because shares were not delivered for want of full payment it cannot be said that there was no transaction between the parties and the amount which could not recover to the extent of Rs. 41,37,881/- is to be treated as debt. As shares remained in the possession of the assessee he could sell the said shares for whatever consideration it could fetch and it would be adjusted against the balance amount of Rs. 41,37,881/- payable by the debtor, i.e. the sub broker - in favour of assessee for statistical purposes.

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• 2012 (7) TMI 179
  Non-disclosure of assets - Assessing Officer in the order of assessment holds that since as per the depreciation statement of the assessee, the addition of the fixed asset is not reflected, the value of the new car is added to the assessee’s income as undisclosed asset - Depreciation chart does not reflect the gift transaction properly and in the absence of specific mention of the newly purchased car in the addition column of the depreciation chart, the addition is justified – Held that:- No detailed examination by the learned CIT(A) of the claim of the assessee that he has purchased a new car or that his old car is not reflected in his asset statement as it has been gifted to his wife and is reflected in her assessment records which are with the very same A.O. as that of the assessee in the instant case - assessee’s claims are just brushed aside and no cross verification has been carried out - There appears to be no clarity either in the submissions made by the assessee or in the findings of the authorities below and therefore in the interest of justice we remit this issue back to the file of the Assessing Officer Interest u/s.234B of the Act - charging of interest is consequential and mandatory - Assessing Officer is however directed to recompute the interest chargeable - assessee’s appeal is partly allowed for statistical purposes.

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• 2012 (7) TMI 178
  Legal infirmities in reassessment framed u/s 147 - CIT(A)stated that the AO should have reason to believe that income had escaped assessment - Held that:- The AO while issuing intimation u/s 143(1) applied his mind and denied to allow credit for TDS as income against this TDS was not considered by the assessee in the taxable income. Such intimation u/s 143(1) was accepted by the assessee and it has become final. Then the notice u/s 148 has been issued on the basis of same note given by the assessee in the return of income and the TDS certificate which was filed in the original return. As the AO has already considered the same while issuing the notice u/s 143(1) and formed an opinion that credit for TDS is not allowable as the income was not offered. Subsequently, by issuing notice under Section 148, he changed his opinion and came to the conclusion that interest income is taxable in AY 2003-04. It is a clear case of change of opinion - no justification to interfere with the order of CIT(A)- against revenue.

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• 2012 (7) TMI 177
  Penalty u/s 271(1)(c) - assessee contested that since the return was filed in loss and there was no income therefore there is no question of concealment of income, consequently, no penalty can be imposed - Held that:- Finding in the assessment order reveals that it is a case where the sales are made to the parties which were not identifiable, therefore, the claim of the assessee, prima facie appears to be non-genuine. There is no explanation as to how the opening stock of Rs.55,23,532/-, after the sales of Rs.6,37,204/-, reduced to Rs.1,42,600/-. The assessee has also not filed any appeal against the quantum addition of Rs.25 lakhs - The assessee has shown abnormal and excessive loss on the claimed decrease in value and for which also, no satisfactory explanation was adduced - against assessee.

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• 2012 (7) TMI 176
  Deduction u/s. 80-O - principles of consistency - order of the ld. CIT(A) for the assessment year 1997-98, directed that the proportionate amount of Indian salaries from income of the three Chartered Accountants received during the period of absence from India should be treated as direct expenditure against the income from the foreign currency received – assessee contesting contrary decision given in relevant year – Held that:- finding of the ld. CIT(A) for the assessment year 1997-98 has been accepted and the finding therein is a point of fact and a fundamental one at that, such a finding would have to be held to be applicable for the assessment year 1993-94 also - Principles of natural justice demand that a factual finding given by the ld. CIT(A) is liable to be followed for the assessment year 1993-94 also - Following the decision in the case of Radhasoami Satsang (supra) and applying the principles of consistency as explained therein, this issue is restored to the file of the AO with a categorical direction that when computing the deduction under section 80-O, the AO shall follow the same method as prescribed by the ld. CIT(A) for the assessment year 1997-98 in the assessee’s own case referred to supra - order of the ld. CIT(A) stands set aside and the issue is restored to the file of the AO - Ground of the assessee is allowed - Assessee is partly allowed.

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• 2012 (7) TMI 175
  Default u/s 201(1) for not deducting tax at source u/s 194C - supply of plant and machinery of windmill, for civil/electrical works and erection and commission of windmill, is a composite work contract - Held that:- As the assessee has given order for supply of machinery separately and has paid a separate amount for cost of civil work/electrical work and erection of the machines at the place of assessee. Therefore, though it is a single order but it has to be taken separate i.e. on account of supply of machinery and on account of cost of civil work/electrical work and erection work. The supplier has effect a separate sale bill in respect of supply of machines. The assessee has given ‘C’ form to the supplier on account of purchase of machinery and on remaining amount the assessee has deducted TDS i.e. on account of erection work and civil work contract - as the assessee purchased machinery and the supplier was supposed to erect the machinery at the factory premises of the assessee after completing the civil work and erection work and the assessee has already deducted TDS on account of services rendered the provisions of section 194C are not applicable on account of purchase of machinery - in favour of assessee.

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• 2012 (7) TMI 174
  Rejection of renewal of exemption u/s 80G(5) - CIT(A)stated that the provisions contained in section 293C enables him to withdraw approval - Held that:- Considering the amendment brought w.e.f. 1st of October, 2009 to omit the proviso of section 80G(5)(vi) to provide that the approval once granted shall continue to be valid in perpetuity. Further, the Commissioner will also have the power of withdraw the approval if the Commissioner is satisfied that the activities of such institution or fund are not genuine or are not being carried out in accordance with the objects of the institution or fund. Considering the proviso of section 293C it is clear that even if any Income-tax Authority wants to withdraw approval, he shall issue a show-cause notice against the proposed withdrawal to the assessee giving a reasonable opportunity of being heard, whereas in the present case no such show-cause notice has been issued to the assessee. Therefore no merit in this contention of the ld. CIT of invoking the proviso of section 293C - decided in favour of assessee.

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• 2012 (7) TMI 173
  Applicability of provisions of sec. 40A(3) - cash payments exceeding Rs.20,000 - assessee claimed the exceptions provided under Rule 6DD (g) & (k) - Held that:- Applicability of exceptions provided under Rule 6DD of ITR, the assessee has to establish the hardship or inconvenience that is caused to the payees if the payments are made by the account payee cheques - pleas of the assessee that the lands are purchased from the agriculturists who are suspicious of and are usually demanding payment in cash before parting with the possession of their lands is not acceptable as it is observed by the CIT(A) that there is no banking facility in the villages where lands have been purchased. However, we find that the payments are not by cash but are by bearer cheques which had to be encashed in the banks only and, therefore, the argument of the assessee that the payment had to be made in cash to the agriculturists is not acceptable.Thus, the applicability of sec. 40A(3) and its constitutional validity has been upheld irrespective of whether the transaction is genuine or otherwise. The assessee’s reliance on clause (k) of Rule 6DD is also not acceptable for the reason that the payments were directly made to the agriculturists and not to its agents i.e the directors. Even if it is accepted that the payments are made by the assessee to its directors, it is the duty of the assessee to demonstrate that the directors were supposed to make the payment for the goods or services in cash. The onus still lies on the assessee to prove - against assessee. Disallowance u/s 40(a)(ia) - Held that:- As decided in Merilyn Shipping & Transports Versus Assistant Commissioner of Income-tax, Range-1, Visakhapatnam [2012 (4) TMI 290 (Tri)]that disallowance u/s 40a(ia) is to be made only in respect of the amount payable and not on the amount paid, therefore, as submitted that the disallowance made by the AO was with regard to the amount paid by the assessee and not on the amount payable by the assessee, therefore, the disallowance has to be deleted - in favour of assessee.

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• 2012 (7) TMI 172
  Validity of reasons for reopening of assessment - assessee contested that CIT(A) confirmed the order of AO in bringing to tax a sum as long-term capital gains as against Nil declared by assessee ignoring the provisions of S.54 without offering the "reasons recorded" - Held that:- Perusing the alleged 'reasons recorded' by the AO it is clearly written that "hence notice under Section 148 was issued on 10-2-2000 to ascertain details of the aforesaid facts and was served on 14-2-2000", abundantly shows that the date of issuance and service of notice has been mentioned in the 'reasons' itself, which, inter alia, means that "reasons" were not recorded prior to issuance of notice under Section 148 i.e. 10-2-2000. Nothing has been brought on the record to contradict that these are not the "reasons recorded." It was after a gap of almost 11 years that so-called 'reasons' have been provided and that to when the assessee had to approach the ITAT twice to get the direction for providing the "reasons recorded" - ITAT had specifically directed the Assessing Officer to provide "reasons recorded" and decide the issue afresh which was grossly violated - notice had already been issued and served upon the assessee prior to the recording of reasons, the entire proceedings initiated under Section 148 has no legs to stand - decided in favour of assessee.

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• Customs

• 2012 (7) TMI 201
  Alleged wrong classification and wrong availment of benefit of Notification - Lichi juice imported by assessee contended not to be fruit drinks - Held that:- It is undisputed that appellants have declared the goods as Lichi Juice, which has been declared in Packing list, and confirmed by Test report. Commissioner(appeals) has brushed aside the test report only on the ground that it does not confirm to the standard of PFA Rules, 1955. Revenue sought to classify the product on the basis of the ingredients declared on the bottle and on the ground that the goods are known in the market as per the contents mentioned on the bottle. However, no evidence has been produced by the department that these goods were sold as other than fruit juice. Also, department has not challenged the test report of the Regional Food Laboratory. In these circumstances the same is set aside with consequential relief - Decided in favor of assessee.

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• 2012 (7) TMI 171
  Non inclusion of cost of bagging charges in the Bills of Entry - the appellant had imported Di-Ammonium Phosphate and carried out the bagging of the same inside the port area - Held that:- Non-inclusion of the bagging charges in the value of Potash imported as the bagging has been done before out of charge in the Customs area - decided in favour of assessee relying on Garden Silk Mills Vs. UoI [1999 (9) TMI 88 (SC)]

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• 2012 (7) TMI 167
  Import of Zircon - Whether Zircon is "Ore" - Zircon Ore and Concentrate - Permission to clear goods in question without payment of CVD till appeal is disposed of by Tribunal –assessee contested that some other persons similarly placed with the petitioner are not required to pay by virtue of the decisions of the authority situated in a different State on interpretation of the selfsame provisions of law- Held that:- Division Bench of this court in the past allowed the petitioner to release the goods on payment of 25% of the duty and on execution of a bond to pay the assessed amount if their appeal before the Commissioner (Appeals) failed with a direction to file such an appeal within a specified time - since a further appeal has been filed before the Tribunal by the petitioners and there is no decision on the above point by any Tribunal of this State the petitioners should be permitted to get the order of release of the similar goods during the pendency of the appeal before the Tribunal on the selfsame conditions imposed earlier by a Division Bench of this court which will abide by the decision of the Tribunal - direction to Tribunal to dispose of the appeal pending within a period of three months from date of Order.

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• Corporate Laws

• 2012 (7) TMI 170
  SLP - Reserve Bank of India shall not grant any permission to the foreign law firms to open liaison offices in India u/s 29 of the Foreign Exchange Regulation Act, 1973. Also, to practice in non-litigious matters in India the foreign law firms, by whatever name called or described, shall be bound to follow the provisions contained in the Advocates Act, 1961.

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• FEMA

• 2012 (7) TMI 202
  Constitutional validity of Section 3(1) of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (‘COFEPOSA’) to the extent it empowers the competent authority to make an order of detention against any person ‘with a view to preventing him from acting in any manner prejudicial to the conservation or augmentation of foreign exchange’ - petitioner contending that repeal of FERA and enactment of FEMA (FEMA did not regard its violation of criminal offence) an act where no punitive detention (arrest and prosecution) is even contemplated or provided under law, such an act cannot be made the basis for preventive detention and any law declaring it to be prejudicial to the interest of the State so as to invoke the power of preventive detention is violative of Articles 14, 19 and 21 of the Constitution. Held that:- It is true that FEMA does not have provision for prosecution and punishment like Section 56 of FERA and its enforcement for default is through civil imprisonment. However, insofar as conservation and/or augmentation of foreign exchange is concerned, the restrictions in FEMA continue to be as rigorous as they were in FERA. Although contravention of its provisions is not regarded as a criminal offence, yet it is an illegal activity jeopardizing the very economic fabric of the country. On the touchstone of constitutional jurisprudence, as reflected by Article 22 read with Articles 14, 19 and 21, impugned provision cannot be rendered as unconstitutional. There is no constitutional mandate that preventive detention cannot exist for an act where such act is not a criminal offence and does not provide for punishment. An act may not be declared as an offence under law but still for such an act, which is an illegal activity, the law can provide for preventive detention if such act is prejudicial to the state security. After all, the essential concept of preventive detention is not to punish a person for what he has done but to prevent him from doing an illegal activity prejudicial to the security of the State. In complete agreement with the position stated in UOI vs. Venkateshan S.(2002 (4) TMI 789 (SC))“if the activity of any person is prejudicial to the conservation or augmentation of foreign exchange, the authority is empowered to make a detention order against such person and the Act does not contemplate that such activity should be an offence”, no merit is found in challenge to the constitutional validity of impugned part of Section 3(1) of COFEPOSA - Decided against the Petitioner.

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• Service Tax

• 2012 (7) TMI 227
  Referral charges which was the consideration received by appellant from the banks for promoting and marketing their services – Held that:- Adjudicating authority found that agreements were entered into by the appellant with ICICI Bank, HDFC Bank and Oriental Insurance Company to provide them infrastructural facility by its dealers and authorized service centres to promote their business extending the credit facility and insurance service to the prospective customers identified by appellant - Facts and evidence aforesaid when tested on the touch stone of Section 65 (105) (zzb) read with Section 65 (19) of the Act that warrants taxation of the consideration received by the appellant from banks and insurance company as business auxiliary service provider and the service so provided becomes input service for banks to provide the output service of banking and financial service as well as insurance service by insurance company. Thus, the business auxiliary service provided by the appellant during the impugned period was liable to be taxed and that has rightly been done in adjudication without calling for interference in this appeal. Regarding penalty – Held that:- knowable breach of law made the appellant to suffer adjudication. Accordingly, no immunity from penalty is possible to be granted on the plea of tax compliances made which was found to be a case no payment of tax on the impugned services provided during the relevant period - penalty under Section 78 will meet the ends of justice and hence separate penalty under Section 76 is set aside - appeal is dismissed except for allowing the cum-tax benefit, and setting aside penalty under Section 76.

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• 2012 (7) TMI 226
  Taxability - discounts/incentives received by appellant as an advertising agency from the Media - Held that:- Issue has been decided in favor of assessee in earlier year, wherein it was held that discounts/incentives received by the assessee from the print media will not be liable for service tax under the category of advertising agency services. If that be so, the said discounts/incentives itself cannot be considered for the purpose of taxability under the head business auxiliary services as the amounts which are received are in respect of the services provided under the category of advertising agency services and the amount are discounts and incentives and not as charges for services - Decided in favour of assessee.

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• 2012 (7) TMI 225
  Cenvat credit - service tax paid on GTA for outward transportation – Held that:- In the definition of 'input service' the term 'upto the place of removal' is substituted by 'from the place of removal' w.e.f 01.04.2008. Matter remanded to the original adjudicating authority for denovo adjudication.

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• 2012 (7) TMI 224
  Demand of service tax - 'Commercial or Industrial Construction Service' - services of repair, renovation, widening of roads and construction of toll sheds, providing electrification of high mast poles at toll sheds etc. – Held that:- in the view of Board's Circular No. 110/4/2009-ST dated 23.2.2009. Activity undertaken by the appellant is not covered under the category of "commercial or industrial construction service"

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• 2012 (7) TMI 223
  Cenvat credit - outward transportation of goods up to the place of their buyers - supplies made by them to their buyers of FOR destination basis – Held that:- Assessee is eligible for cenvat credit for the period prior to 1.4.2008. Appeal is allowed

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• 2012 (7) TMI 199
  Stay petition - appellant herein has already deposited an amount towards service tax liability, interest and penalty – Held that:- Amounts deposited by the appellant as enough deposit to hear and dispose the appeal - Stay petition is allowed and application for waiver of pre-deposit of balance amounts is allowed - If the appellant is able to satisfy the lower authorities they are eligible for the benefit of small scale service provider under the Notification No 6/005-ST, than the service tax liability on the appellant would reduce considerably - matter remanded back to the adjudicating authority to reconsider the issue afresh

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• 2012 (7) TMI 196
  Penalty - Invocability of extended period - Appellant company is engaged in the manufacture and supply of Wind Energy Turbines within and outside India - appellant voluntarily paid the Service Tax and interest thereon on 06.02.2007. Proceedings were initiated by way of issuance of Show Cause Notice on 24.04.2009 – Held that:- Invocability of extended period in cases where the receiver of Service Tax is eligible to avail CENVAT Credit, is no longer res-integra and in such cases, it has been held that no penalty can be imposed - when the situation is revenue neutral and the appellant manufacturer is entitled to CENVAT Credit, it cannot be said that there was an intention to evade duty and extended period can be invoked - penalty imposed on the appellant cannot be sustained – In favor of assessee

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• 2012 (7) TMI 195
  Abatement in respect of amount charged by GTA - Notification No 32/2004 - denial on ground that appellants have filed only revised declaration from the transporter for non-availment of CENVAT Credit of input or capital goods but has not filed such declaration on each and every consignment - Held that:- Issue is no more res-integra. High Court in case of Neral Paper Mills Pvt.Ltd (2010 (9) TMI 297 (HC)) held that exemption is provided by way of notification and the Board can prescribe the procedure for availing the benefit of the said exemption notification. When nothing has been brought on record or alleged that GTA has availed credit on inputs and capital goods, denial of benefit of Notification No. 32/2004 is not correct in law. Following aforesaid decision issue decided in favor of assessee.

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• 2012 (7) TMI 194
  Mandap Keeper services - abatement of the value of the food provided - denial of benefit of Notification No.1/2006 - Held that:- Since the aspect that whether any CENVAT Credit is availed by appellant of any services, input or capital goods, required for rendering the services of Mandap keeper has not been verified. Therefore, matter remanded back to adjudicating authority to reconsider the issue afresh.

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• 2012 (7) TMI 193
  Dismissal of appeal for non-compliance of the pre-deposit ordered - issue involved, whether services rendered as to the measurement of land would fall under the category of Consulting Engineering service - period July 2001 to March 2004 - Held that:- Definition of Consulting Engineers during the relevant period needs to be considered by first appellate authority before coming to any conclusion. Since the issue has not been addressed by the first appellate authority on merit, therefore, in the interest of justice, the matter needs to be reconsidered by first appellate authority. Also, appellant has made out a prima facie case for waiver of pre-deposit of amounts involved - appeal allowed by way of remand to first appellate authority.

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• 2012 (7) TMI 192
  Refund of the service tax, which was used as input services for export of goods under Notification No 41/2007 - Adjudicating authority, after considering all the evidences which were produced before him, allowed the refund claim filed by the assessee - objections to the grant of refund – Held that:- Grant of refund of duty or any other sum due to an assessee should not be denied for mere technical or procedural lapses if it is otherwise due substantively on merits - Matter remanded to the reviewing authority - Appeal is allowed by way of remand.

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• 2012 (7) TMI 191
  Valuation under service tax - inclusion of TDS (withholding tax) where burden born by the recipient (payer) in the gross value - Technical consultancy and project consultancy services - Held that:- As per Section 66A the service covered by that section is treated as if the recipient had himself provided the service in India. Thus by such legal fiction the consideration inclusive of income tax deducted at source shall be assessable value for the purpose of the Act in the hands of the service recipient - No pleading on material facts by the appellant as to how the facts in issue suggest and support defence of appellant that income tax deducted at source shall not form part of the gross amount of taxable service received when Rule 7(1) of Service Tax (Determination of Value) Rules, 2006 provides that actual consideration charged for the service provided or to be provided shall be assessable value in respect of services covered by Section 66A. The agreement with the service providers abroad speaks of the price of contract payable was net of taxes and taxes if any payable in addition to the price of contract was payable by the payer thereon as price of the contract and such factual aspect remaining unrebutted by appellant clearly establishes that tax payable in India was to form part of contract price. Thus consideration charged for the service provided shall include income tax deducted at source as per terms of contract and is in accord with Section 66A read with Rule 7(1) of the Service Tax (Determination of Value) Rules 2006. There shall not be levy of service tax on the engineering consultancy services availed from foreign consultant abroad prior to 18.4.2006, and at the applicable rate for the period 19.4.2006 to 30.9.2007 on the gross amount of consideration inclusive of income tax deducted at source - no levy of penalty u/s 78 considering the difficulty in understanding the law applicable at inception and date of incidence to taxability - partly in favour of assessee.

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• Central Excise

• 2012 (7) TMI 200
  Period of limitation - rejection of refund claim of Education and Senior Higher Education cess paid on paper and paper board - period April,2004 to February,2009 - claim filed on 30.03.2010 - Held that:- Since appellants could not produce any evidence that they have challenged the payment of Cess at any time and first time they have approached the department vide their letter dated 18.03.2009 and the letter of Superintendent claimed to be order is no order on leviability of Cess and otherwise and the appellants have undisputedly filed refund claim only on 30.03.2010 which is after almost six years after the payment of Cess and which is well beyond the period prescribed u/s 11B. Rejection of refund claim upheld - Decided against assessee.

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• 2012 (7) TMI 197
  Storage of inputs outside the factory premises - Dis-allowance of Cenvat Credit - imported inputs viz. Ferro Manganese, Silico Manganese, Ferro Chrome and Ferro Manganese Slag - Held that:- The Circular No. 206/40/96 CX., dated 1-5-96 issued by the CBEC permit storage of inputs outside the factory premises - The storage of goods outside the licensed factory premises and the credit was permissible - for a mere technical breach, the substantial benefit cannot be denied as decided in M/s. Mangalam Enterprises Vs. Commr. of Central Excise & Customs, Vadodara [2002 (12) TMI 164 (Tri)] - deviations from normal practice necessitated by business exigencies are no ground for denial of legally available facility - The storage of inputs outside the factory premises, prior to being brought to the factory, is specifically recognized by the aforesaid Circulars of the Board and the Commissioner as acceptable to allow for Cenvat credit- the impugned order is set aside and the case is remanded to Ld. Commissioner to decide the case afresh.

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• 2012 (7) TMI 169
  SSI Exemption available under Notification No.8/2002 - ineligibility contended on ground that clearance value of the electricity pole manufactured by all of the units at UPSEB was liable to be clubbed together as per Notification - appellant being a manufacturing unit, owned and controlled by the UPSEB, having other manufacturing units located in the State of U.P. - Held that:- Explanation (E) of said Notification states that where the specified goods are manufactured in a factory belonging to or maintained by the Central Government or by a State Government, or by a State Industries Corporation, or by a State Small Industries Corporation or by the Khadi and Village Industries Commission, then the value of excisable goods cleared from such factory alone shall be taken into account. Since, respondent is a manufacturing unit owned and controlled by the State Government, hence respondent is squarely covered under Explanation (E) to the above referred Notifications - Decided in favor of assessee.

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• 2012 (7) TMI 168
  Power of Commissioner (Appeals) to remand the case back for de novo adjudication in view of amendment in Section 35A of the Central Excise Act, 1944 - Held that:- Wording of the section 35A(3) is exactly similar to the wording of Section 128(2) of the Customs Act, 1962 which deals with the power of the first appellate authority. Supreme Court in case of Union of India vs. Umesh Dhaimode (1997 (2) TMI 140 (SC)) while interpreting Section 128(2) of the Customs Act, held that aforesaid provision vested the appellate authority with power to remand the matter back. In view of the aforesaid position in law expounded by the Supreme Court, no merit exists in appeals.

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• Indian Laws

• 2012 (7) TMI 228
  Narcotic Drugs and Psychotropic Substances Act, 1985 - appeal against acquittal of respondents of the charges framed against them under said Act primarily for the reason that no evidence regarding the destruction of opium allegedly seized from the respondents had been provided by the prosecution - appellant emphasizing need for a proper and prompt exercise of the power to destroy the seized contrabands, failure of which resulting in accumulation of the seized drugs and narcotics in large quantities thereby increasing manifold the chances of pilferage for re-circulation in the market from the stores where such drugs are kept - Held that:- While fight against production, sale and transportation of the NDPS is an ongoing process, it is equally important to ensure that the quantities that are seized by the police and other agencies do not go back in circulation on account of neglect or apathy on the part of those handling the process of seizure, storage and destruction of such contrabands. Immediate steps are, therefore, necessary to prevent the situation from going out of hand. Therefore, it is considered necessary to direct collection of the information from the police heads of each one of the States through the Chief Secretary concerned on the following aspects: Seizure, Storage, Disposal/ Destruction, Judicial Supervision

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