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TMI Tax Updates - e-Newsletter July 11, 2016 Case Laws in this Newsletter: Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax Wealth tax TMI SMS Refund -Excess payment of service tax - Unjust enrichment - merely because recipients were entitled to cenvat credit, refund can't be denied Articles MODEL GST LAW- INITIAL REACTIONS GST - Registration News Bilateral Meeting between Commerce & Industry Minister and Secretary of State for Business, Innovation and Skills, UK Notifications Customs 97/2016 - dated 8-7-2016 - Cus (NT) Honnavar Port (amending Notification No.62/1994-Customs (N.T.) dated 21.11.1994 Highlights / Catch Notes Income Tax Black Money (Undisclosed Foreign Income Tax and Assets) and Imposition of Tax Act, 2015 comes into effect from 01.07.2015 and the petitioners had filed their ITR on 21.05.2015 and notice was issued u/s 148 by the AO on 29.05.2015 which is before coming into effect of the provisions of the Black Money Act, 2015, the applications submitted by the petitioners before the Commission are maintainable - HC Visit to Get Source Addition on account of cessation of liability - Advance receipts from client as capital receipt - even though the remedy of some of the clients may have become barred by limitation, even then the barred debt did not become income of the assessee and could not be taxed under the Income-tax Act. - HC Visit to Get Source Determination of capital gains - deduction u/s 48 - sale proceeds, to clear the mortgage debt - cost of acquisition - no deduction can be claimed under Section 48 of the Act, even if the said amount had been utilised for repayment of the loan extended by the bank to the company and the firm. - HC Visit to Get Source Eligibility of deduction u/s 80IC - nature of activity undertaken by assessee - manufacturing of electric bike or mere assembly of parts - the case of the assessee is that it requires only tools and not big plant to assemble parts -benefit of deduction allowed - AT Visit to Get Source Undisclosed/unexplained cash u/s 69A - Though the manner in which assessee-company has offered the unexplained cash to tax in the return of income is not in the best of the terms, yet it cannot be negated by merely cherry-picking the facts - further addition deleted - AT Visit to Get Source Deduction u/s.80IC - profit attributable to marketing division and brand value to be disallowed or not - CIT(A) has given finding that the same is owned by the foreign collaborator and there cannot be any profit attributable to brand. - disallowing gross profit attributable to marketing and brand value is not correct - AT Visit to Get Source Disallowance u/s 40A(3) - Power of CIT(A) to enhance the assessment - principles of natural justice - CIT(A) did not afford the assessee in the case on hand any opportunity whatsoever, let alone reasonable opportunity of showing cause against such enhancement - matter remanded back - AT Visit to Get Source Deduction claimed u/s 54F - assessee failed to claim the deduction as cost on improvement rather it was claimed as deduction u/s 54F of the Act at the time of filing of revised return - claim disallowed - AT Visit to Get Source Non granting the TDS credit - TDS certificate received late but filed before the AO along with the rectification letter - AO directed to give credit of this TDS amount and decide the claim immediately - AT Visit to Get Source Valuation of closing stock - method of valuation - no addition could be made towards value of stock because the closing stock cannot be construed as a source of profit for the assessee. - AT Visit to Get Source TPA - Arms length price (ALP) - AO has mentioned that the payment made to the AE was excess and unreasonable. But, not a single word has been uttered in the order as to how it was excess or not reasonable. Any disallowance or addition, whether under chapter IV or chapter X of the Act, cannot be made on ad hoc basis - AT Visit to Get Source Customs Claim of duty drawback on inputs - manufacture and export of various brands of liquor - The sanctioning authority disallowed drawback on the declared input molasses on the ground that, the applicants have been procuring Extra Neutral Alcohol (ENA) and not the molasses. Also no evidence of duty payment on ENA has been submitted - disallowance confirmed - CGOVT Visit to Get Source Levy of penalty - less declaration of import goods in the Import General Manifest (IGM) initially - later included in the gross weight by the way of amendment import of Slack Wax - penalty confirmed - AT Visit to Get Source Levy of penalty u/s 114AA on artificial person - Appellant’s involvement was consciously and knowingly which cannot be ruled out. Law is well settled that fraud is a nullity and should get burial death. Therefore, any interference to the appellate order shall be a mockery for which the appeal is dismissed - AT Visit to Get Source Service Tax Refund - Excess payment of service tax - Unjust enrichment - Acceptance of credit notes - merely because recipients were entitled to cenvat credit, cash refund cannot be denied - The impugned order has erred in crediting the excess tax collected in the Consumer Welfare Fund - Refund allowed. - AT Visit to Get Source Settlement Commission has erred in rejecting the petitioner’s application for settlement dated 25.11.2013, by its order dated 14.11.2014, on the ground that the said application was barred by Section 32-(O)(1)(i) of the Act. - The Explanation to Section 32-O(1)(i) does not have retrospective effect - HC Visit to Get Source Central Excise Claim of rebate/ refund - input stage rebate - export of goods - the correctness of the ratio of the input output ratio shall be verified before the commencement of the export of the said goods but in the present case, the respondent exported the goods before the verification of input output ratio as well as fixation of the input output norms - rebate claim denied - CGOVT Visit to Get Source Claim of rebate/refund - export of goods from DTA unit to SEZ units - initially applicant cleared excisable goods without payment of duty under UT-I Bond to the SEZ Unit - applicants have subsequently paid the duty on the said clearances through CENVAT account by making consolidated debit entry at the end of the respective months of clearances and claimed rebate of duty paid on such clearances - Claim of rebate as well as claim of re-credit of the entry, both rejected - CGOVT Visit to Get Source Claim of rebate/ refund - export of goods on payment of duty through third party - There is no finding of lower authorities that the duty paid goods have not been exported. In terms of Board's Circular 120/95-cus dated 23.11.1995 and 30.12.2005 dated 12.07.2005, matter needs to be re-examined - CGOVT Visit to Get Source Claim of rebate/refund - Procedure of A.R.E.-1 followed instead of A.R.E-2 as contended by the department - There is no independent evidences on record to show that the applicant have exported the goods without payment of duty under ARE-2 or under Bond. Under such circumstances, Government finds force in contention of applicant that they have by mistake ticked in ARE-I form declaration - matter remanded back for verification - CGOVT Visit to Get Source Cenvat Credit - input services used for export of goods - reversal of proportionate cenvat credit relating to exempted goods cleared every month as mandated under Rule 6 (3A) and Rule 6 (3) (ii) of CCR - In case of export of goods, reversal of credit not required. - AT Visit to Get Source Adjustment of refund amount with the pending demand - before appropriation of refund towards any arrears due, show cause notice/personal hearing is required - appellants were not even issued a simple intimation regarding proposed appropriation - appellant is eligible for refund of full amount - AT Visit to Get Source Case Laws: Income Tax 2016 (7) TMI 428 Validity of ex parte order passed by the high court - Availability of jurisdiction under Order XLI rule 21 of the CPC - Held that:- Not only the said order dated 27th August, 2013 is not an ex parte order as contemplted by the provisions of the Code of Civil Procedure, 1908, the final order dated 27th August, 2013 passed by the High Court clearly contains findings (extracted above) which is to the contrary. In these circumstances, we are of the view that the High Court did not have the jurisdiction under Order XLI rule 21 CPC to recall the final order dated 27th August, 2013 passed in the Income Tax Appeals. The power available under Order XLI rule 21 is hedged by certain pre-conditions and unless the pre-conditions are satisfied the power thereunder cannot be exercised. We set aside the order of the High Court [2014 (2) TMI 1036 - ALLAHABAD HIGH COURT ] allow the appeals filed by the Revenue leaving the assessee(s) with the liberty to challenge the final order dated 27th August, 2013 in accordance with law, if he is so advised and so inclined. 2016 (7) TMI 409 Computation of deduction under Section 80-IA - whether Assessing Authority has to calculate income of individual undertakings of assessee on the basis of unabsorbed business loss etc. in respect of each individual unit or it should be collectively'? - Held that:- In the present case, one Polymer Unit of the assessee has shown profit while Dairy Unit has shown loss and deduction was applied after absorbing loss of Dairy Unit. The approach of Revenue is clearly erroneous and contrary to the law laid down in Commissioner of Income-Tax and another Vs Modi Xerox Ltd. (2010 (4) TMI 858 - Allahabad High Court ) wherein held that under section 80-I(6) of the Act for the purposes of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) of the Act contemplates that only the profits shall be taken into account as if it was the only source of income - for the purposes of computation of gross total income the losses of other units are to be taken into account but for the purposes of calculating the deduction of industrial undertaking, the loss sustained in another unit cannot be taken into account and only the profit shall be taken into account as if it was the only source of income of that unit. In view of above, question formulated above is answered in favour of Assessee and against Revenue 2016 (7) TMI 408 Appeal admitted on following substantial questions of law to the following effect : 1. Whether on the facts and circumstances of the case and is law, the Hon'ble ITAT was justified in quashing the order u/s 263 of the I.T. Act and confirming the order u/s 143(3) of the Income Tax Officer, 3(2) Lucknow? 2. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in authenticating that the Development Fund in which receipts were in the form of Development Fees from the students, and was not the Capitation fees, as the same has not been properly enquired by the then Assessing Officer? 3. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in authenticating the Development Fund as Income as per Income & Expenditure Accounts, as the same has not been reflected in Income & Expenditure Account instead shown directly in the Balance sheet? 2016 (7) TMI 407 Penalty levied under Section 271(1) (c) - undervaluation of closing stock and disallowance on account of rejection of deduction u/s. 80I - Held that:- A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. See Reliance Petroproducts Pvt Ltd [2010 (3) TMI 80 - SUPREME COURT ] - Decided in favour of assessee 2016 (7) TMI 406 Reopening of assessment - application of mind - recording of satisfaction - Held that:- We may recall that the return filed by the petitioner for the assessment year in question was accepted under Section 143(1) of the Act without scrutiny. In that view of the matter, the question of change of opinion would not arise since obviously the Assessing Officer had no occasion to form an opinion regarding any of the aspects of the petitioner's return. On receipt of the imported consignments, the same would be handed over to the actual importer and the bogus stock would be entered in the books of benami entities and would not be recorded in the books of actual importer. It was noticed that bogus entries worth ₹ 26.30 lacs was provided to the petitioner by one M/s. Mahalaxmi Gems Pvt. Ltd, one of the Bhawarlal group of bogus companies. When the Assessing Officer had such material at his command, after processing which, he recorded his reasons as can be seen from paras 4 to 6 of the reasons, we do not find that he acted without proper application of mind. First part of the reasons recorded in paras 1 to 3 give background of various activities carried on by Bhawarlal group of persons as revealed during search and seizure operation carried out by the investigation wing of the department. Contents of paras 4 to 6 of the reasons refer specifically to the petitioner and are in the nature of the Assessing Officer's observation on the basis of materials supplied to him. This is, therefore, neither a case of issuance of notice without application of mind nor a case of recording of reasons through borrowed satisfaction of another authority or wing of the department. - Decided against assessee. 2016 (7) TMI 405 Penalty levied u/s. 271 (1)(c) - Held that:- No penalty is imposable as in quantum appeal, the Respondent-Assessee had succeeded. - Decided in favour of assessee 2016 (7) TMI 404 Additions u/s 68 - Bank credits - presumptions u/s 292C - Held that:- As relying on case of Commissioner of Income Tax Vs. Bhaichand H. Gandhi [1982 (2) TMI 28 - BOMBAY High Court] it is held that the entries in the Bank passbook cannot be considered as entries in the books of the assessee so as to invoke Section 68 of the Act. No substantial question of law arises. - Decided against revenue Addition on purchase of jewelry as relying on documents found during the course of search - law of presumption - ITAT deleted the addition - Held that:- Section 292C of the Act only raises a presumption that the contents of books of accounts and documents found during search would be presumed to be true. In the present fact, if the contents of documents have been found on facts by two authorities to reflect only an estimate for purchase of jewellery and not evidence of purchase of jewellery. Thus presumption would not enable the appellant revenue to convert the documents indicating estimate into the documents of purchase. The authorities have further recorded the fact that no corresponding asset was found during course of search or subsequent proceedings. - Decided against revenue 2016 (7) TMI 403 Penalty proceedings u/s 13 of the Interest Tax Act, 1974 - filing of in-accurate particulars of interest chargeable to Interest Tax Act - Held that:- The levy of penalty by the Assessing Officer was on unjustified grounds and the CIT(A) rightly deleted the penalty which was rightly upheld by the Tribunal. The Assessing Officer did not give any finding that inaccurate particulars were furnished by the assessee. It appears that the assessee was under a bonafide impression that its case was covered by the decision of the Madras High Court. The assessee had made the claim in the return filed and in the original proceedings the claim was rejected whereas in the first appeal the claim was allowed by the CIT(A). The assessee has relied upon expert opinion. It cannot be said that the assessee had filed inaccurate particulars of income or there was any conscious effort on the part of the assessee to furnish inaccurate particulars of chargeable interest. In that view of the matter, we are of the opinion that penalty proceedings u/s 13 of the Interest Tax Act was wrongly initiated. Therefore, the questions are answered against the appellant – revenue and in favour of the assessee. 2016 (7) TMI 402 Settlement Application - undisclosed foreign income and assets - applicability of Black Money (Undisclosed Foreign Income Tax and Assets) and Imposition of Tax Act, 2015 - Held that:- In the light of the stand taken which is based on the Explanatory note dated 02.07.2015 issued in Circular No.12 of 2015, as the Black Money (Undisclosed Foreign Income Tax and Assets) and Imposition of Tax Act, 2015 comes into effect from 01.07.2015 and the petitioners had filed their Return of Income on 21.05.2015 and notice was issued under Section 148 of the Income Tax Act by the Assessing Officer on 29.05.2015 which is before coming into effect of the provisions of the Black Money Act, 2015, the applications submitted by the petitioners before the Commission are maintainable. Accordingly, the Writ Petitions are allowed and the impugned orders are set aside and the petitioners are directed to file an application before the Income Tax Settlement Commission, which shall be considered by the Commission in accordance with the provisions of the Act. 2016 (7) TMI 401 Profit on sale of property - Nature of income - Business income v/s capital gain - Held that:- All along the said property has been held by the assessee as its capital asset and at no stage it was converted into its stock in trade. On similar set of facts and circumstances, the assessing officer, in assessee’s own case for the assessment year 1990-91, had assessed the profit from similar activity as capital gains. In the light of the above facts hold that the profit from the sale of property, in this shall be treated as capital gain. - Decided against revenue 2016 (7) TMI 400 Addition on account of cessation of liability - Advance receipts from client - system of accounting - the deposits received by the assessee were treated by him as his liability - Held that:- There is no iota of doubt that the deposits were treated by the assessee as a capital receipt and the deposits were adjusted in the subsequent years against the expenditure incurred for or on behalf of the client from whom the deposit was received. Such expenditure also included the fees of the assessee himself. It is at that stage that the money was earned by him. Before that, he was holding the money as an agent or as a fiduciary of his client. There was no “cessation of trading liability” within the meaning of section 10(2A) (erstwhile), and the amount of such wages could not be added to income. Thus, even though the remedy of some of the clients may have become barred by limitation, even then the barred debt did not become income of the assessee and could not be taxed under the Income-tax Act. See KOHINOOR MILLS CO. LTD. Versus COMMISSIONER OF INCOME-TAX, BOMBAY CITY I. [1962 (10) TMI 58 - BOMBAY HIGH COURT] - Decided in favour of assessee. 2016 (7) TMI 399 Calculation of Suppression of Purchase; Suppression of gross profit and Suppression of Stock - whether the ld. CIT(A) is justified in restricting the addition to ₹ 16,95,715.00? - Held that:- The withdrawal from the bank can be for several purposes and do not necessary represent the purchase. In this case the base taken by the AO to unearth the unaccounted purchase was not correct in our considered view. The AO has also not brought any defect in the stock register of the assessee but has relied on the balancing figure of the stock. Accordingly in our view the AO has made the addition without applying his mind for unearthing the disclosed income of the assessee. In view of the above, we find that the base adopted by AO for working out the suppressed purchase, gross profit and closing stock was not proper and therefore we find no reason to interfere in the order of Ld. CIT(A).- Decided against revenue Failure to consider the provision of Sec. 292C by CIT(A) - presumption - Held that:- We observe that Ld. CIT(A) has passed a speaking order and after considering the submission of assessee and taking the remand report from Assessing Officer. As per Sec.292C of the Act the documents seized at the premises of assessee are presumed belonging to assessee only and assessee has to justify about those documents. In this case, we find that Ld. CIT(A) has duly considered the justification given by assessee and accordingly he passed a speaking order. Hence, we find no infirmity in the order of Ld. CIT(A). - Decided against revenue Unreasonable extra capital invested in the unrecorded purchase - rotation of the capital in the business - Held that:- After considering the business and rotation of capital we are of the considered view to take the rotation cycle 15 times and accordingly work out the capital embodied in the disclosed purchase for ₹ 3,60,220/- (Rs. 54,03,311 / 15 times). This ground of assessee’s CO is allowed - Decided against revenue 2016 (7) TMI 398 Determination of capital gains - deduction u/s 48 - sale proceeds, to clear the mortgage debt - cost of acquisition - Held that:- As has been rightly observed by the Commissioner of Income Tax (Appeals), and the Tribunal, no deduction can be claimed under Section 48 of the Act, even if the said amount had been utilised for repayment of the loan extended by the bank to the company and the firm. The assessment orders passed in the case of the company and the firm, and certain transactions of the company and the firm being treated as unexplained cash credits, are not in issue in the present appeals. The circumstances under which additions were made to the income of the company and the firm, treating certain amounts received by them as unexplained cash credits, are also not known. The mere fact that the company and the firm were subjected to tax, on additions made for unexplained cash credits, would not absolve the appellants herein of their liability to pay tax on capital gains on the consideration received on the sale of the subject property. The fact that the Tribunal took a lenient view subsequently, by its order dated 09.10.2015, would not justify setting aside the earlier order of the Tribunal dated 14.01.2015 upholding the assessment order. Viewed from any angle, we see no error in the order of the Tribunal, much less a substantial question of law, necessitating interference in these appeals. 2016 (7) TMI 397 Deduction for the electricity charges paid for the renting premises - Held that:- Once the Assessing Officer is accepting the rental income of the properties in the accounts of the assessee, the electricity consumed in such rental properties cannot be attributable to the assessee and if the assessee has paid any expenses in relation to the rental properties, the same are required to be allowed. In view thereof, the disallowances made by the ld Assessing Officer and confirmed by the ld CIT(A) are directed to be deleted and the assessee is held to be entitled to the deduction for the electricity charges. - Decided in favour of assessee. Addition on estimation of rent from Chitra koot land - sole basis of making addition on account of report of Inspector - Held that:- The Inspector has given rate of rent in respect of plots as well as for the party halls/ air conditioned rooms. Thus, in our view, the report can not to be relied upon for any purposes. The ld Assessing Officer has relied upon the report and has concluded that both the plots have been occupied for three months. The ld CIT has also mentioned the size of the land and has also suggested that there are parking problems and locational disadvantages to the assessee and therefore, the big parties cannot adjust in these premises. In our view the order of the ld CIT(A) upholding the addition was without any basis as the very basis of making the addition i.e. the Inspector’s report was in respect of built up air conditioned area and the land appurtenant thereto cannot be relied upon f. Therefore, no clear cut conclusion was required to be placed on record as to the rent which was recovered by the assessee by letting it out for functions and Garba festivals. In our view the estimation made by the ld CIT(A) is a higher side and required to be modified in the light of what is stated hereinabove. We, therefore, reduce it to ₹ 5.00 lacs - Decided partly in favour of assessee Disallowances of foreign tour expenses being personal in nature - Held that:- It is not reliable to the business of the assessee and there is no commercial expediency. It is not the case of the assessee that the foreign travelers are coming to the premises of the assessee for the purposes eating and staying. The assessee has not placed on record any documents to show the marketing was done by him overseas on account of foreign travellings, therefore, all these foreign travels expenses have not rendered to the advancement to the business of the assessee. Therefore, all these expenses are required to be confirmed. Accordingly, we uphold the order of the ld CIT(A). - Decided against assessee 2016 (7) TMI 396 Disallowance of the claim of deduction U/S 80IA(4) - Held that:- The assessee has filed copies of performance guarantees given by the assessee on behalf of PCL-ILHC as an additional evidence to prove that the assessee had undertaken the financial obligations as well. On going through these documents, we find that the Government Agency i.e., THDC has accepted the assessee to be the official sub-contractor executing the entire project and even the original contractor and the Rithwik Swati J.V. have accepted the assessee to be the subcontractor who has taken on all the assets, risks and liabilities of the contract. As in the case of the A.L. Logistics P. Ltd. [2015 (1) TMI 401 - MADRAS HIGH COURT], the Hon’ble Madras High Court has held that where the Government has given an approval to the assessee to execute the work, even in the absence of any specific agreement, the assessee is eligible for deduction under section 80IA of the Act. Taking all the above into consideration, we are in agreement with the contentions of the assessee that the assessee is eligible for making claim under section 80IA(4) of the I.T. Act as the assessee is considered to be the official sub-contractor of the said project and also in view of the fact that the employer or the original contractor or the Rithwik Swati JV have not claimed the deduction under section 80IA of the Act. This issue is therefore decided in favour of the assessee. Unexplained expenditure - Held that:- We are satisfied that the assessee has not proven that the expenditure has been incurred for the business purpose of the assessee and since the recipient has denied having executed any work, it cannot be considered as genuine expenditure and cannot be allowed. Disallowance u/s 40A(3) - Held that:- CIT (A) correctly confirmed the order of the AO by holding that the AR has furnished any explanation, leave alone but the evidence to show that it was covered by any of the expenses given under Rule 6DD. 2016 (7) TMI 395 Eligibility of deduction under section 80IC - nature of activity undertaken by assessee - manufacturing of electric bike or mere assembly of parts - whether the activity amounts to "manufacture' or not? - Held that:- The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. Etymologically the word 'manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known If the activity of the assessee is being examined, then, it would reveal that the parts imported by the assessee from China had undergone a change and new product came to the light. The assessee has produced flow chart giving different stages how the product has undergone changes. This flow chart has been reproduced by the ld.CIT(A) while taking cognizance of the assessee’s written submissions. As far as the objection of the AO that the very meager machinery was being used by the assessee is concerned, the case of the assessee is that it requires only tools and not big plant to assemble parts. Similar, section 80IC nowhere laid down condition for employment of specific number of employees. Therefore, that objection of the AO is only irrelevant - Decided in favour of assessee 2016 (7) TMI 394 Disallowance u/s 40(a)(ia) - assessee had failed to deduct tax on payment of interest - Held that:- In the present case of the assessee, the amounts of interests had already been paid and the provisions of section 40(a)(ia) are applicable only to the amounts remaining payable. That we also take note of the proviso to section 40(a)(ia) that where the assessee cannot be found in default u/s 201, no disallowance u/s 40(a)(ia) could be made. The assessee has already submitted before the CIT (A) list of all the people to whom interests were paid and it is also not disputed that interests were paid in most of the cases to organizations which are exempt from payment of tax. That considering all the facts in this case in its entirety and the judicial pronouncements as discussed above, we do not find any reason to interfere with the order of the learned CIT (A). The relief granted to the assessee is therefore, sustained. The appeal by the Revenue is dismissed. - Decided in favour of assessee 2016 (7) TMI 393 Addition towards payment for Management Consultancy and Business Auxiliary Services - tpa - Held that:- The material produced before the TPO in support of the claim for deduction of expenses, which was found by the AO to be unsatisfactory, was found satisfactory in the MAP proceedings which accepted the genuineness of availing such Management Consultancy and Business Auxiliary Services. In that view of the matter, the AO’s case that the assessee was not entitled to corporate deduction of ₹ 18.09 crore, automatically fails. It is further relevant to mention that similar claim was made by the assessee for payment of Managerial Services and Business Auxiliary Services in its accounts for the immediately succeeding assessment year 2009-10, which was accepted by the AO as such. A copy of the final assessment order passed by the AO for the AY 2009-10 has been placed on record from which it is palpable that no corporate disallowance was made in respect of payment of Managerial Services and Business Auxiliary Services. In view of the foregoing discussions, we are satisfied that the AO was not justified in making the corporate disallowance of ₹ 18.09 crore which is hereby deleted. At the same time, it is made clear that the disallowance of ₹ 71 lac and odd sustained in MAP proceedings will continue and the AO will make addition for this sum. In other words, the corporate disallowance of ₹ 18.09 crore will stand deleted and the addition on account of transfer pricing adjustment would be reduced to ₹ 71 lac. - Decided in favour of assessee Disallowance on account of payment for technical know-how and trademark/logo - Held that:- All the salient features of transfer of technical know-how, show that the assessee paid 3% of selling price of the Joints sold by it for the ‘use of’ technical know-how provided by the Licensor, which is not a consideration for acquiring any know-how. It is a case of parting by the Licensor, for consideration, with the partial ownership of technical know-how, that is, for allowing only a right to use to the assessee; and not a case of parting with full ownership of technical know-how, that is, for transferring the ownership to the assessee. Hence, the amount so paid is eligible for deduction as a revenue expenditure. Payment made by the assessee to GKN Holding, UK, towards royalty for trademark/ brand - When we consider all the relevant clauses of the trademark royalty Agreement, it becomes manifest that the assessee did not acquire any ownership right in trademarks by paying the consideration as set out therein. Such payment was made simply for the use of the trademarks, and that too, by means of a non-exclusive License. It has been made clear in the Agreement that the ownership in the trademarks shall remain the intellectual property of the Licensor and the assessee shall have a mere right to use them. Further, upon the termination, the Licensee shall cease to make any use of such trademarks. Thus, it is patent that the payment has been made by the assessee for ‘use of ’ trademarks and not for acquiring trademarks as an owner. It goes without saying that any payment made for a mere use of an asset falls in the realm of a revenue expenditure and cannot be treated as a capital expenditure. We, therefore, hold that whole of the payment of ₹ 5.19 crore made by the assessee for use of trade mark is a revenue expenditure. - Decided in favour of assessee As we have held hereinabove that the payment for use of knowhow and trademarks is a revenue expenditure, the disallowance made by the AO to the tune of ₹ 4.79 crore, after allowing depreciation at the rate of 25%, shall be deleted. Consequently, the unwritten off portion of this amount carried forward to subsequent years, should also be removed for the purposes of granting depreciation in later years, so that no double allowance is made, once in the year under consideration by allowing the deduction in entirety by treating it as a revenue expenditure and then again as depreciation in the later years by treating it as a capital expenditure. However, the amount of transfer pricing adjustment retained in the MAP proceedings for the year under consideration shall stand as disallowance. The AO is directed to make addition on this score only to the extent of the transfer pricing adjustment retained in the MAP proceedings. 2016 (7) TMI 392 Compensation received for surrender of tenancy rights - taxed u/s 45 as capital gain or “Income from other sources.” - Held that:- The assessee has received the said payment from a third party. The terms of the agreement clearly shows that the assessee has given up its right of tenancy in favor of the third party by accepting a certain sum of money. The possession of the premises has been parted away and the transaction is being recognized by the landlord. Hence, the assessee has surrendered the tenancy rights against certain sum of money, no matter whether the payment is directly paid by the landlord or paid by a third party on behalf of the landlord. Such tenancy rights in the building are capital asset as per the definition of Capital asset u/s 2(14) and hence rightly found taxable under the head Capital Gains by the learned CIT(A). The cost of acquisition of the same has been correctly taken as Nil as per Section 55(2)(a)(ii). We, therefore, do not find any infirmity in the order of the Ld. CIT(A) on this issue. - Decided against revenue Disallowance in respect of VRS expenditure - CIT(A) allowed the claim - Held that:- Though, the assessee had debited only a portion of the said expenditure in the books of account yet, claimed the same in full in computation sheet. As held by the Hon’ble Supreme Court in the case of Taparia Tools [2015 (3) TMI 853 - SUPREME COURT ] that such course of action is permissible under law as the assessee has claimed the expenditure in the year in which these were incurred, hence, respectfully following the above judicial pronouncements, we affirm the view of the CIT(A) in this regard. - Decided against revenue Claim of depreciation allowance - Held that:- Issue is already settled in favor of the assessee Disallowance of expenses on account of amortized lease hold land premium - Held that:- The deduction of these expenses has been allowed to assessee is earlier years. The assessee has not become owner of the property in question. - Decided in favor of the assessee Disallowance of travelling expenses - Held that:- The inadmissible expenditure was quantified by the tax auditor and complete details of these expenses were already available with the AO. The details of expenses formed part of Audit Report. The action of the AO in disallowing the said expenditure on assumptions and estimate basis is not justifiable. Hence, we are of the opinion that CIT(A) has rightly deleted the same. - Decided in favor of the assessee Claim of prior period expenses - Held that:- Similar issue has arisen in the case of the assessee for Assessment Year 1988-89 and the same has been decided in favor of assessee on the ground that although the expenses related with prior period but they became crystallized and ascertained only during the relevant assessment years and hence allowable.- Decided in favor of the assessee Deduction of Technical fees paid by the assessee u/s 35AB - Held that:- The expenses incurred by the assessee are in the nature of payments made to avail technology support for production, planning, quality control and related products. These expenses are incurred only with a view to enlarge the profit making apparatus of the business and therefore, revenue in nature. Hence, the aforesaid expenditure being revenue in nature are allowed in full as per various judicial pronouncements as cited above. The same are allowable in full being revenue in nature and hence, the appeal is decided in favour of the assessee. Disallowance u/s 43B in respect of Sales Tax - Held that:- An amount was claimed by the assessee which remain unpaid by the stipulated date and accordingly, added to the income of the assessee by AO by invoking Section 43B which was affirmed by the CIT(A). During submissions, AR, in the alternative, prayed before us, to issue directions to AO to allow the same in the year of payment. The DR had no objection against the same. Accordingly, AO is directed to allow the same in the year of payment as per the request of the assessee. Disallowance of Guest House Expenditure - Held that:- AR submitted that the identical issue has been restored to the file of AO for fresh adjudication in assessee’s own case for different assessment year ie. AY 1989- 90 to 1994-95 vide different decisions of the Tribunal. The assessee has placed on the file the copies of the orders of the Tribunal in this respect. He, therefore has requested that on the same lines, the issue may be resorted back to the file of AO for fresh adjudication. The DR had no objection to the same. Disallowance of entertainment expenditure - Held that:- Following the rule of consistency, 25% of the expenditure is allowed as deduction in computation of Income as allowed in earlier years. Disallowance of loss on damaged uninstalled machinery - Held that:- The AO’s order clearly spells out the fact that insurance claim has been received against the said damage and the machinery was awaiting installation. In such a scenario, the assessee’s right in the assets has been extinguishment in the favour of the insurance company and since the machinery is uninstalled, the same has not entered the block of assets eligible for claiming depreciation. It is nothing but asset of the assessee awaiting to be entered in the block of assets. Hence, the loss arising there form has been rightly claimed under the head capital gains. Disallowance of expenditure in respect of gifts - Held that:- As AR contended that that this amount has already been disallowed suo-moto by the assessee while computing taxable income for the relevant assessment year. Separate disallowance by AO would amount to double disallowance. Hence, the matter is restored back to the file of AO for verification of the claim of assessee in this regard and if found correct, the AO to give relief to the assessee accordingly. 2016 (7) TMI 391 Undisclosed/unexplained cash u/s 69A - assessee has chosen a particular manner to declare such income in its books of account by incorporating it as net proceeds of the activity of sale of agricultural produce - Held that:- There is no material found in search or otherwise to show that assessee has carried out any agricultural activity. Ostensibly, the assessee claims that the said net amount of ₹ 83,00,000/- represents unexplained cash seized during the course of search. The notes of account, which we reproduced above, if considered in totality, supports the stand of the assessee that apart from the amount of ₹ 83,00,000/-, there is no further requirement of the assessee to declare income corresponding to the unexplained cash found during the search. If the stand of the Revenue was to be approved, then, it would be imperative to establish that assessee had earned ₹ 83,00,000/- over and above the unexplained cash found during the course of search. For that matter, there is no material or evidence on record which could show that other than the cash seized of ₹ 83,00,000/-, there was any other unexplained income to that extent. Though the manner in which assessee-company has offered the unexplained cash of ₹ 83,00,000/- to tax in the return of income is not in the best of the terms, yet it cannot be negated by merely cherry-picking the facts. In fact, the notes of account has to be understood in toto and, accordingly there cannot be any doubt that the sum of ₹ 83,00,000/- declared in the return of income corresponded to the amount of cash seized during the search operation. Therefore, in our view, the lower authorities fell in error in making a further addition of ₹ 83,00,000/- by invoking Sec. 69A of the Act on account of unexplained/undisclosed cash found during the search. - Decided in favour of assessee 2016 (7) TMI 390 Disallowance of loss - quantum of loss - assessee is engaged in the business of production of films - Held that:- We are of the view that the reasoning given by the tax authorities to restrict the loss to ₹ 19.00 lakhs cannot be considered to be correct one. Since the assessee has taken a commercial decision in the normal course of carrying on its business and since the assessing officer has not brought on record any material to show that identical transaction with identical set of facts could have fetched more price at the relevant point of time, we are of the view that there is no reason to disbelieve the consideration disclosed by the assessee. Further, we have also noticed that the rights and liabilities available with the assessee and M/s AFL/RBEL cannot be considered to be the same. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the disallowance made by the AO. Accordingly we set aside the order of Ld CIT(A) passed on this issue and direct the AO to delete the impugned disallowance of ₹ 45.83 lakhs. - Decided in favour of assessee. 2016 (7) TMI 389 Deduction u/s.80L - addition on account of FDR - Held that:- As addition on account of FDR is concerned, we find the AO has made addition on the ground that the Fixed Deposit with Vijaya Bank was matured on 22-08-1995 and was transferred from Vijaya Bank OD Account No.8/95 but the assessee could not produce the details of the Fixed Deposit Receipt pertaining to F.Y. 1995-96. The assessee has also not explained the source of deposit in the yearly details of Fixed Deposit receipts with supporting evidence and material such as copy of statement of Vijaya Bank OD account etc. Further, the interest accrued on the said deposit is not ascertainable in absence of supporting evidence. We find merit in the submission of the Ld. Counsel for the assessee that the assessee being a Hawker cannot be expected to maintain details of such old deposits. Once the Fixed Deposit got matured, the assessee has surrendered the original deposit receipt to the bank and has not kept xerox copy of the same. When the assessee has given the details and considering the nature of business and status of the assessee, the AO could have and should have obtained the details from the Bank to find out the veracity of the statement. However, in the instant case, the AO has not made any such effort. The fact that credit of the maturity value of ₹ 1,66,820/- each of the 2 Fixed Deposit Receipts during F.Y. 1995-96 are not in doubt. The AO disbelieved the same on the ground that the source of deposit in the yearly details of Fixed Deposit Receipts has not been explained with supporting evidence and material. It is also a fact that in absence of full details kept by the assessee, the calculation of interest u/s.80L is also not possible. Considering the totality of the facts of the case, a lumpsum addition of ₹ 15,000/- for the block period on account of Fixed Deposit Receipt in the instant case in our opinion will meet the ends of justice. Therefore, out of the addition on account of Fixed Deposit made of ₹ 54,168/- as per para 9 of this order, we direct the same to be substituted at ₹ 15,000/-. The break- up of the same is for A.Y. 1997-98 ₹ 10,000/- and for A.Y.2000-01 ₹ 5,000/-. The AO shall accordingly recompute the income for different years of the Block Period. Addition of gifts received - as per revenue gift transactions are neither registered nor notarized and that there is no independent authority and/or third party witnessing the transactions and therefore such transaction has no legal support - Held that:- Since the assessee in the instant case is a lady and belongs to the family of a Hawker and was not filing regular returns nor maintaining books of account, it is not expected of the assessee to make gift deeds for such petty gifts which have been received from the family members. Considering the totality of the facts of the case, nature of business and status of the assessee, we direct the AO to delete the addition of ₹ 50,000/- in A.Y. 200-01. Similarly, the amount of ₹ 85,000/- has been explained to be out of gifts from the husband of the assessee which has been disbelieved by the revenue authorities. It is also a fact that assessee has filed the return showing business income of ₹ 28,000/- for A.Y. 200-01 and ₹ 51,475/- for ₹ 2002-03. Since we have accepted the gift of ₹ 50,000/- in A.Y. 200-01, therefore, after considering the business income of ₹ 28,000/- for A.Y. 2000-01 and business income of ₹ 51,475/- in A.Y. 2002-03 which comes to ₹ 79,475/-. Even if the gift of ₹ 1,25,000/- from the husband is disbelieved, even then with nominal past savings the business income for A.Y. 2001-02 and 2002-03 almost explains the deposit of ₹ 85,000/-. Under these circumstances, we are of the considered opinion that no addition is called for in the instant case. Undisclosed cash deposits - Held that:- Assessee belongs to a family of Hawkers selling Pooja Items, it is not expected of him to maintain such details which are usually maintained by assessees in regular business and taking help of lawyers and Chartered Accountants. The combined business income of the Modi group of cases show business income of ₹ 11,71,687/- for the block period whereas the total deposits during the block period is ₹ 9,45,000/- only. If the previous deposits are considered which were made prior to the block period, then the entire deposit of the group stands explained from the business income declared by various family members. Since various family members are staying together, it is possible that the parents keep the deposits in the name of their children. Considering the totality of the facts of the case, we are of the considered opinion that the deposit of ₹ 1 lakh by the assessee stands explained in the light of the cash flow statements and the details given. We therefore direct the AO to delete the addition 2016 (7) TMI 388 Deduction u/s. 80IB(10) - Housing project ‘Sanskriti’ comprising of buildings D, E and G developed by the assessee - reason for rejecting the claim of the assessee is that the project of the assessee is not complete within the specified time/due date in accordance with the clause (a) of section 80IB(10) of the Act - Held that:- The Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Hindustan Samuh Awas Ltd. (2015 (10) TMI 2306 - BOMBAY HIGH COURT ) while dealing with the similar issue where the assessee completed the housing project on time and filed an application for seeking completion certificate to the Municipal Authorities within the specified time held that the delay in issuance of certificate cannot be attributed to the assessee and the assessee was entitled for exemption u/s. 80IB(10) of the Act. - Decided in favour of assessee. 2016 (7) TMI 387 Disallowance u/s 14A - Held that:- For making any disallowance u/s 14A of the Act the AO shall determine the amount of total expenditure incurred by the assessee which does not form part of total income under his Act in accordance with such method as may be prescribed i.e. under Rule 8D of the Income Tax Rule, 1962. At the same time second subsequent part of sub section (2) of Section 14A of the Act imposes precondition that before such determination of disallowance the AO has to record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of total income under the Act. But this mandatory requirement, if not fulfilled by the AO, cannot be done, to fill – omission of the AO before the CIT(A). It is also pertinent to note that in the present case the assessee suo moto disallowed ₹ 31553/- and the AO has not recorded any finding to show that he is not satisfied with the correctness of the claim as well as suo moto disallowance, made by the assessee and thus the authorities below cannot validly make any disallowance and consequent addition u/s 14A Respectfully following the decision of Hon’ble Jurisdictional High Court of Delhi in the case of Cheminvest Ltd. ( 2015 (9) TMI 238 - DELHI HIGH COURT ), we hold that no disallowance u/s 14A of the Act can be made where there is no exempt income. - Decided in favour of assessee 2016 (7) TMI 386 Capital gain computation - transfer of leasehold right - cost of acquisition - Held that:- The amount added by the AO is admittedly the sale consideration for the transfer of leasehold right which has been taken as short-term capital gain in the hands of the assessee. Any income chargeable to tax under the head ‘Capital gains’ is computed by reducing cost of acquisition, cost of improvement and expenses incurred in relation to the transfer of property from the full value of consideration received on the transfer of property. Under no circumstance, the entire sale consideration can be treated as the amount of capital gain, as has been done extantly. In view of the fact that the assessee acquired the ownership of property in satisfaction of his claims due from the company, it is this amount, being the claim due from the assessee company, in satisfaction of which the assessee was given lease hold right in the property, would become the cost of acquisition in the hands of the assessee. There is no material available on record to show the amount representing such cost of acquisition of the property in the hands of the assessee. As such, the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of AO for computing the capital gain in the hands of the assessee, after reducing the cost of acquisition, etc. from the full value of consideration. Addition under the head ‘Telephone expenses' - Held that:- After considering the submissions made on behalf of the assessee and the relevant material, it is observed that the AO made addition @ 20% of telephone expenses at ₹ 14,600/-. When the assessee himself disallowed 20% of telephone expenses on account of personal user in his computation of income, there remains no valid reason for making or sustaining any further addition on this score. Addition towards personal expenses in the purchases made through credit cards - Held that:- We are not inclined to disturb the sustenance of this addition because it was the assessee himself who agreed for the addition when certain personal expenses were found to have been incurred through his credits that were debited in the books of account of the assessee. Therefore, uphold this addition. Addition of conveyance expenses, staff welfare, inward remittance, printing, advertisement and sale promotion, etc. - Held that:- AO made disallowance of ₹ 10,000/- out of such expenses. No ground was taken before the ld.CIT(A) against such disallowance. The ld. AR has placed on record the copy of a letter dated 24.2.2012 shown to have been addressed to the CIT(A) raising additional ground challenging the sustenance of addition of ₹ 10,000/-. There is no reference of this letter in the impugned order. This letter dated 24.2.2012 also does not bear any stamp of the office of the ld. CIT(A). This shows that either this letter was not filed before the ld. CIT(A) or it was not admitted for adjudication. Since the ground for disallowance of ₹ 10,000/- out of the above referred five expenses does not arise from the impugned order, the same cannot be entertained. Even otherwise, the disallowance of ₹ 10,000/- out of the above expenses due to lack of proper evidence, etc., appears to be reasonable Addition on account of donations u/s 80G - no documentary evidence was filed in support of this claim - Held that:- A copy of the computation of income filed on page 1 of the paper book that the assessee voluntarily added back Donation of ₹ 3,000/-. As such, there could have been no reason for making a further disallowance of ₹ 3,000/-. The ld. AR contended that only a sum of ₹ 1,000/- was actually claimed as deduction for which there was no receipt and, hence, the disallowance may be sustained to this extent. Therefore agree with the contention so advanced and, accordingly, restrict the addition to ₹ 1,000/-. Decided partly in favour of assessee 2016 (7) TMI 385 Validity of assessment u/s 153C - Held that:- Respectfully following the judgement of Hon’ble Jurisdictional High Court in the case of RRJ Securities (2015 (11) TMI 19 - DELHI HIGH COURT ), and the facts of the case and provisions of Section 153C of the Act discussed above and the undisputed fact that no incriminating material was found in respect of other than searched person i.e. the appellant and following the principles laid down in the case of Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT ), to meet the ends of justice, we allow both the grounds of appeal in favour of assessee 2016 (7) TMI 384 Profit on sale of shares - “business income” OR “capital gains” - Held that:- It is an undisputed fact that the assessee earned profit on sale of shares and it is also a fact that assessee has availed the services of Portfolio Managers for purchase and sales of shares and the act of the assessee of engaging the PMS and the profits earned therefrom has been considered to be a part of business of the assessee by the ld.CIT(A). We find that Hon’ble Karnataka High Court in the case of CIT-Bangalore vs. Kapur Investments (P) Ltd.(2015 (5) TMI 616 - KARNATAKA HIGH COURT) after relying on the decision of Hon’ble Delhi High Court in the case of Radials International vs. ACIT [2014 (5) TMI 18 - DELHI HIGH COURT ] has held that the Portfolio Management Services (PMS) cannot be termed as business of the assessee. Thus we are of the view that the profit earned by the assessee on sale of shares is to be treated as capital gains and not as business income of the assessee. 2016 (7) TMI 383 Deduction u/s.80IC - profit attributable to marketing division and brand value to be disallowed or not - Held that:- CIT(A) while deciding the issue in favour of assessee has given a finding that there was no marketing division and, therefore, there was no transfer of goods from eligible to non-eligible undertaking and in the absence of marketing division being a separate undertaking, no profit could be attributed to the marketing activity. With respect to brand value, the ld.CIT(A) has given finding that the same is owned by the foreign collaborator and there cannot be any profit attributable to brand. He has further given a finding that AO had quantified the gross profit attributable to marketing and brand value and disallowance and that since deduction u/s.80IC is claimed in respect of net profit and, therefore, disallowing gross profit attributable to marketing and brand value is not correct and that further, since the marketing expenses debited to the Profit & Loss Account are more than gross profit computed by the AO, that there cannot be any disallowance of deduction u/s.80IC of the Act. Before us, Revenue has not placed any material to controvert the findings of ld.CIT(A). We further find that the assessee had claimed deduction u/s.80IC in AY 2006-07 also and the claim has been allowed in the assessment framed u/s.143(3) of the Act, and that no reopening of assessment u/s.147/148 or u/s.263 has been initiated for withdrawing the claim meaning thereby that the claim of assessee has been accepted by Revenue and has attained finality. - Decided in favour of assessee 2016 (7) TMI 382 Disallowance under section 40A(3) - Power of CIT(A) to enhance the assessment - principles of natural justice - Held that:- Section 251(2) of the Act stipulates that the learned CIT(A) shall not enhance an assessment, or a penalty, etc. unless the appellant has had a reasonable opportunity of showing cause against such enhancement. As per the relevant portion of the learned CIT(A)’s finding in the impugned order we find that the learned CIT(A) did not afford the assessee in the case on hand any opportunity whatsoever, let alone reasonable opportunity of showing cause against such enhancement and in our considered view this failure on the part of the learned CIT(A) being in violation of the basic principles of natural justice would render his enhancement unsustainable in law. We, therefore, in the interest of substantial justice set aside the learned CIT(A)’s finding enhancing the assessee’s income by ₹ 81,05,294/- under section 40A(3) of the Act, comprising the total actual payment of handling charges plus sweeping labour charges and restore the matter to his file for de novo consideration and adjudication thereon after affording the assessee adequate opportunities to make submissions, file details, documents, etc. required in this regard. - Decided in favour of assessee for statistical purposes. Disallowance under section 40(a)(ia) - payments made by the assessee for audit fees, legal fees and professional fees for non-deduction of tax at source - Held that:- While making this disallowance under section 40(a)(ia) of the Act it is seen that neither the AO nor the learned CIT(A) has mentioned under which section of the Act the assessee was required to deduct tax at source on the aforesaid payments. Moreover, as observed that, the assessee’s contentions that no disallowance under section 40(a)(ia) of the Act was called for since the parties to whom such payments were made during the year, i.e. Advocate, Lawyer, etc. had included the same in their respective returns of income; was also brushed aside without being addressed by the learned CIT(A) while recording his finding. We, therefore, in the interest of equity and justice set aside the findings of the authorities below and restore this issue to the file of the learned CIT(A) for de novo examination and adjudication thereon in accordance with law by way of a speaking order, after affording both the AO and the assessee, adequate opportunity of being heard and to file details/submissions required in this regard - Decided in favour of assessee for statistical purposes. Disallowance of clearing and forwarding charges - Held that:- There is no dispute with the fact that the cash expenditure claimed to have been incurred for clearing and forwarding activities of the employees/ labourers of the assessee firm at Bombay Docks and JNPT, Nava Sheva are only supported by self made vouchers. In our view, the authorities below appear to have been reasonable in allowing 70% of the expenditure claimed and in disallowing only 30% thereof, considering the business activities of the assessee. From the details on record, we find that apart from raising this ground of appeal, the assessee has failed to place on record before us any material evidence to controvert the factual findings rendered by the authorities below on this issue. In this view of the matter, we find no reason to interfere with or deviate from the finding recorded by the learned CIT(A) in the impugned order and therefore uphold the disallowance of 30% of clearing and forwarding expenses - Decided against assessee 2016 (7) TMI 381 Deduction u/s.80IB(10) - denial of the claim of deduction u/s.80IB(10) by the AO mainly for the reason that the assessee was not the owner of the land and the permission for the construction was not obtained by the assessee and the risk and reward of the project was not of the assessee - Held that:- We find that the ld.CIT(A) after considering the submissions of the assessee and after perusing the Development Agreement has given a finding that the assessee has practically purchased the land and bore the entire cost and risk for developing the project, had invested in the cost of land and had acquired dominant control over the land. She has further given a finding that the assessee has fulfilled all the required conditions laid down u/s.80IB(10) of the Act for claiming the deduction in the light of the decision of Tribunal in the case of M/s.Shakti Corporation (2008 (11) TMI 436 - ITAT AHMEDABAD ). Before us, Revenue has not placed on record any contrary binding decision in its support nor could controvert the findings of the ld.CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of the ld.CIT(A). Thus, this ground of Revenue is dismissed. - Decided in favour of assessee 2016 (7) TMI 380 Disallowance of deduction claimed u/s 54F - cost on improvement - assessee failed to claim the deduction as cost on improvement rather it was claimed as deduction u/s 54F of the Act at the time of filing of revised return - Held that:- On examining the facts of the case of assessee with respect to the provisions of section 54F of the Act it seems that assessee is trying to take benefit of section 54F of the Act by one way or the other without placing on record any satisfactory evidence to prove that investment has been made in residential house and is only bending to an agreement that too made on the last day of the Asst. Year which has not attained finality in the subsequent period. As at the time of filing revised return of income assessee has claimed deduction u/s 54F of the Act for ₹ 3,06,250/- claiming the same as investment in residential house but when the matter came up before ld. CIT(A) the facts relating to the impugned claim of ₹ 3,06,250/- were put forth by the assessee through which it was made clear that ₹ 3,06,250/- was actually the cost of improvement which the assessee was entitled to deduction from the sale consideration. This fact gets further proved when we looked into the income-tax return of other co-owners who have claimed deduction as cost of improvement incurred towards construction of the immovable property which has been sold thereafter. However, assessee failed to claim the deduction of ₹ 3,06,250/- as cost on improvement rather it was claimed as deduction u/s 54F of the Act at the time of filing of revised return. In these circumstances, we are of the considered view that assessee is not eligible for any deduction u/s 54F of the Act as there has been no investment in a residential property and also the claim of the assessee for getting deduction of ₹ 306,250/- incurred towards cost of construction, to be reduced from the sale consideration of ₹ 7,50,000/- shown, cannot be entertained as it was not claimed in the return of income and certainly one cannot get the benefit of rightful claim if it has not been put forth in the return of income and in the given case assessee has changed the stories for getting deduction of ₹ 3,06,250/- and has miserably failed to make proper claim at the right place. - Decided against assessee 2016 (7) TMI 379 Rejection of books of accounts - estimation of net profit of 20% on total stock put for sale - Held that:- We are of the view that the net profit estimated by the A.O. by relying upon the decision of Hon’ble A.P. High Court in the case of CIT Vs. R. Narayana Rao(2012 (6) TMI 402 - Andhra Pradesh High Court ), which was rendered under different facts is quite high. On the other hand, the assessee relied upon the decision of in the case of T. Appalaswamy Vs. ACIT [2014 (3) TMI 1056 - ITAT VISAKHAPATNAM] wherein the coordinate bench under similar circumstances estimated the net profit of 5% on total purchases net of all deductions. No contrary decision is placed on record by the revenue to take any other view of the matter than the view so taken by the coordinate bench. Therefore, we direct the A.O. to estimate the net profit of 5% on total purchases net of all deductions. Ordered accordingly. 2016 (7) TMI 378 Disallowance u/s 14A - Held that:- As no such satisfaction recorded by the AO for rejecting the disallowance claimed by the assessee and correctness of the same. We find that this issue now stands covered in favour of the assessee and against the revenue by the Tribunal decision in assessee’s own case for the assessment year 2006-07 and even otherwise on the issue of satisfaction, the Hon’ble Kolkata Bench of the Tribunal in the case of REI Agro Ltd. v. Deputy Commissioner of Income-tax, Central Circle-XXVII, Kolkata [2013 (9) TMI 156 - ITAT KOLKATA ] has held that no disallowance u/s 14A can be made if satisfaction is not recorded with reference to the correctness of the action of the assessee.Even otherwise Rule 8D will not apply for the relevant assessment i.e. assessment year 2007-08, the year under consideration as held by Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT]. In view of the facts and circumstances of the case that there is no satisfaction recorded by the AO about the correctness of the accounts of the assessee for making disallowance u/s 14A of the Act, no further disallowance can be made by the AO. - Decided in favour of assessee Non granting the TDS credit - Held that:- AO has disallowed the claim of the credit for TDS amounting to ₹ 11,95,766/- and credit for TDS as not claimed by the assessee amounting to ₹ 26,10,633/- for the reasons that the TDS certificate were received after filing the return of income. The assessee has filed a copy of rectification letter dated 24.12.2009 addressed to the AO stating that the original TDS certificate mentioning amount of ₹ 26,10,633/- were filed with the AO and also details of TDS claimed for an amount of ₹ 11,95,766/- were filed during the course of hearing before the AO vide letter dated 13.11.2009. In view of the above facts we are of the view that the AO should have allowed credit to the assessee when the assessee has filed rectification petition before him and even the CIT(A) has directed the AO to allow claim of TDS after verifying the same. We direct the AO to allow the claim of TDS amounting to ₹ 11,95,766/- which were filed before him during the course of assessment proceedings and also the TDS certificate received late but filed before him along with the rectification letter dated 24.12.2009 amounting to ₹ 26,10,633/-. We direct the AO to give credit of this TDS amount and decide the claim immediately.- Decided in favour of assessee Charging interest under section 234C - Held that:- We have considered the plea of the assessee and directed the AO while dealing with above grounds to give credit for TDS for ₹ 5,44,05,867/- and also credit for advance ax for an amount of ₹ 1.70 crores. Consequently, interest u/s 234C will be charged after giving credit to these amounts 2016 (7) TMI 377 Revision u/s 263 - non eligible for grant of deduction under section 80IB(10)(c) - Held that:- AO, though, not made elaborate discussion with regard to the issue associated with section 80IB(10) claim, but has gone through all the details. It is discernible from the queries raised by him and the explanation given by the assessee in various replies. It is also pertinent to observe that in the Asstt.Year 2009-10, under similar situation in the same project, the deduction has been upheld by the Tribunal. Considering all these aspects cumulatively, we are of the view that order passed under section 263 is not sustainable. - Decided in favour of assessee 2016 (7) TMI 376 Valuation of closing stock - Investment in the GOLD - LIFO or FIFO method - Held that:- In the instant case, the assessee had furnished the closing stock valuation workings as on 31.3.2006, 31.3.2007, 31.3.2008 and 31.3.2009 before the revenue. On going through the said workings, we are fully convinced with the method of accounting regularly employed by the assessee for valuation of closing stock of Gold and other jewellery. It is quite natural that jewellery being a fashion industry, the old stocks would most of the times remain with the assessee and the revenue cannot expect the old stocks to be sold out first though it would remain in the wish list of the jeweller. We find that the aforesaid valuation exactly fits into the accepted method of valuation for a jeweller as approved in the case of Cochin Tribunal in the case of ITO vs Sree Padmanabha Jewellery Mart[1986 (8) TMI 120 - ITAT COCHIN ] In any event, we hold that no addition could be made towards value of stock because the closing stock cannot be construed as a source of profit for the assessee. We place reliance on the decision of the Hon’ble Supreme Court in the case of Chainrup Sampat Ram vs CIT reported in (1953 (10) TMI 2 - SUPREME Court ) in support of this proposition. We find that the assessee has been consistently following LIFO method of accounting for valuation of its closing stock of gold which has been accepted by the department in the earlier years even in scrutiny assessment proceedings of the assessee. Then there is no justifiable reason to reject the same method during the year under appeal. - Decided against revenue 2016 (7) TMI 375 Penalty u/s. 271(1)(c) - as per assessee income arising from 'Redemption of Mutual funds' is exempted from tax - AO treated the said exempted income as short Term Capital Gain and added the income to total income and taxed thereon at special rate @ 10% u/s. 111A - Held that:- We find that the plea of the assessee is bona fide and also find that the AO had levied penalty for filing inaccurate particulars of income in respect of short term capital gains of ₹ 6,51,937/- and levied penalty of ₹ 60,173/- thereon. But the Ld. CIT(A) had confirmed the levy of penalty on the ground of concealment of income. Hence, there is a basic difference on the charge attributed on the assessee by the revenue. In these circumstances, penalty could not be imposed on the assessee - Decided in favour of assessee 2016 (7) TMI 374 Revision u/s. 263 - disallowance u/s. 14A - whether CIT had erroneously held that invoking the provisions of Rule 8D of the Rules is mandatory and automatic for making disallowance u/s. 14A? - Held that:- We are in complete agreement with the arguments of Ld. AR that adoption of Rule 8D of the Rules for disallowance u/s. 14A of the Act is not automatic and cannot be mechanically applied by the AO. The AO in the instant case was satisfied with the manner of assessee making disallowance u/s. 14A of the Act which specifically refers to each and every item of expenditure debited in the P&L Account and accordingly, thought it fit not to resort to Rule 8D of the Rules. He had in fact made disallowance u/s. 14A(2) of the Act. We find from the bare reading of section 14A of the Act that Rule 8D of the Rules should be applied only as a last resort in the event of AO not able to work out the disallowance of expenses incurred for earning income which does not form part of the total income especially in the case of a composite business having both taxable as well as non-taxable income. We find in the instant case that the Ld. CIT in 263 proceedings had only tried to substitute his own opinion in lieu of decision already taken by the Ld. AO. We find that the Ld. DR had only tried to argue on flimsy ground that the Ld. AR had not furnished the covering letter before the AO while replying to section 142(1) questionnaire dated 18.01.2010. It is not in dispute that the Ld. AO disallowed a sum of ₹ 22,584/- being the disallowance offered by the assessee based on workings given above. Under these circumstances, the claim of the assessee requires to be accepted and that of revenue deserves to be rejected. In view of the aforesaid findings and judicial precedents relied on hereinabove, we quash the revisionary proceedings u/s. 263 of the Act by the Ld. CIT - Decided in favour of assessee. 2016 (7) TMI 373 Levy of surcharge - block assessments - Held that:- Levy of surcharge is squarely covered by the judgment of the Hon’ble Apex Court in the case of Vatika Township (P) Ltd.(2014 (9) TMI 576 - SUPREME COURT ), wherein the Hon’ble Apex Court has held that though the provision for surcharge under the Finance Acts has been in existence since 1995, the charge of surcharge with respect to block assessments, having been created for the first time by the insertion of the proviso to section 113 of the Income Tax Act, 1961, by the Finance Act, 2002, is clearly a substantive provision and is to be construed as prospective in operation. The amendment neither purports to be merely clarificatory nor is there any material to suggest that it was intended so by Parliament. Thus the preposition that the levy of surcharge was not to apply to block assessments pertaining to period prior to 1.6.2002 and that the intention of the legislature was not to give it a retrospective effect confirmed. - Decided in favour of assessee Addition on account of undisclosed investment in purchase of farm land - addition made on substantive basis - Held that:- The investment made in Farm land has already been declared by M/s JPM Farms P. Ltd. and duly accepted by the AO in its block assessment. As find no reason to add the same again in the hands of the appellant. Therefore, the AO was not justified in making the impugned addition .- Decided in favour of assessee Addition made on account of benami investment in Share Capital of different companies - Held that:- The addition has already been made in the case of respective companies on substantive basis, the AO was not justified in making the impugned addition - Decided in favour of assessee Addition on account of bogus job works through MEW Tools Pvt. Ltd - Held that:- Admittedly, the addition including 1/3rd of the amount, as alleged to be received by the appellant has already been added while framing block assessment in the case of MEW Tools P. Ltd. and also in the case of M/s Jay Yushin Ltd. on substantive basis. This fact has also been admitted by the AO in his assessment order. Therefore, no further addition of the same amount can be made in the hands of the appellant, which has already been taxed, on substantive basis, in the hands of the M/s MEW Tools P. Ltd. and M/s Jay Yushin Ltd. Thus there is no justification for making addition in the hands of the appellant. - Decided in favour of assessee 2016 (7) TMI 372 TPA - Arms length price (ALP) - Consultancy charges restricted to the extent of 75% - assessee had not submitted any evidence to justify the payment of consultancy fee to its AE - Held that:- Why was the transaction entered in to by the AE with MIT Hungary could not be a basis for arriving at ALP was never discussed by the AO. The assessee has discharged his burden of proof. After that onus had shifted to the assessee and in our opinion he has failed miserably to prove that his action of making disallowance was supported by any logical argument or scientific basis. Whims and fancies of an AO cannot decide tax liability of an assessee. We find that the AO has mentioned that the payment made to the AE was excess and unreasonable. But, not a single word has been uttered in the order as to how it was excess or not reasonable. Any disallowance or addition, whether under chapter IV or chapter X of the Act, cannot be made on ad hoc basis. It has to be backed up by a valid and plausible reason. In the TP matters the rule had to be strictly followed as the Act has provided a special mechanism to deal with determination of ALP of IT. s. In our opinion, the order of the FAA does not suffer from any legal or factual infirmity. So, confirming his order, we decide first effective ground against the AO. - Decided in favour of assessee Business promotion expenses disallowed - payment for expensive gifts of jewellery and watches were made to a sister concern - Held that:- We find that the AO had disallowed an amount on an ad hoc basis without assigning any reason. In our opinion the basic approach of the AO is fautly. During the remand report when all the material was available to him he should have conducted fresh inquries to justify the disallowance. Documentary evidence cannot be brushed aside without dealing them logically. In our opinion the FAA has rightly held that the AO. s. are not authorised to enter in to the proverbial shoes of the assessee. In the case before us, the AO had exactly done it. He has not doubted the genuineness of the payment. If the payment was as per the provisions of the Act then irrespective of the figure involved same had to be allowed. We are of the opinion that no interference is required to disturb the order of the FAA - Decided in favour of assessee Disallowance under the head travelling and conveyance expenses - Held that:- Ad hoc disallowance without any basis. The assessee had filed necessary details. Secondly, in the case of a corporate entity no disallowance should be made citing personal element of expenditure . So, endorsing the order of the FAA we dismiss fourth ground.- Decided in favour of assessee Disallowance of telephone expenses - Held that:- The order of the FAA does not suffer from any legal infirmity. The incurring of expenditure is not doubted. As stated in earlier part our order-it is a case of a company, so, no disallowance can be made on account of personal element of expenditure. - Decided in favour of assessee Addition being PCE mobilisation advance - Held that:- FAA does not suffer from any legal infirmity, that the amount in question was received as advance, that the assessee had recognized a portion of the said amount during the year under appeal, that the recognition was based on scientific method, that the assessee had taken into consideration factors like start-up, recruitment etc. , that the AO had disallowed the amount without considering the terms and conditions of the agreement. Therefore, confirming the order of the FAA, we decide the last ground against the AO. 2016 (7) TMI 371 Reopening of assessment - undisclosed sale consideration received on the sale of shares - Held that:- In the present case, the D-mat account which evidences the sale of shares does justify an inference that the assessee was indeed in possession of the shares of M/s. Essar Oil Ltd. prior to its sale. There is no material on record to suggest that the sale consideration received by the assessee in question is on account of any transaction other than the sale of shares of M/s. Essar Oil Ltd. Thus under these circumstances the onus was entirely on the Assessing Officer to establish that the purchase and sale of the shares of M/s. Essar Oil Ltd. was bogus. There is no clinching material to say that the impugned transaction was bogus. Though a reference has been made to the investigation in the case of Shri Mukesh Chokshi, but no effort has been made by the AO to demonstrate that qua the instant transaction of the assessee, any infirmity has been confessed by Shri Mukesh Chokshi. Be that as it may, assessee has been consistently canvassing before the lower authorities that the statement of Shri Mukesh Chokshi be confronted to him. Find nothing on record to suggest that any specific statement Shri Mukesh Chokshi has been confronted to the assessee. Another addition made by the Assessing Officer which is stated to have been the purchase amount of another scrip of M/s. Kiri Dyes and Mahar Poly find no material to suggest that any such transaction has been undertaken by the assessee. Therefore there is no justification to sustain the addition - Decided in favour of assessee Customs 2016 (7) TMI 421 Condition of mandatory deposit of certain amount before filing an appeal - The learned Counsel for the respondent submitted that as per the amendment made, even if the appellant has preferred appeal against the demand confirmed the order in the original, the requisite amount to be deposited is only 7.5% and therefore, full amount of the demand confirmed cannot be retained by the Department. Held that:- Considering the facts and circumstances that the demand is set aside in the proceedings before the Appellate Authority earlier and also by the Tribunal and the matter is remanded to the Original Authority and the matter is at large pending before the Original Authority, we find that the interim order passed by this Court in the present appeal can be continued so far as it relates to refund of the amount as furnishing of the Bank guarantee. - Until the appropriate order is passed by the Appellate Authority, as referred to herein above, the application for waiver and further consequential order, the interim stay granted by this Court in the present appeal for refund of the amount on condition of furnishing of Bank guarantee shall continue to remain in operation. - Decided in favor of appellant. 2016 (7) TMI 420 Import of goods - passing through green channel without making declaration of baggage - he was having some electronic goods, liquor bottles and one Samsung TV. - passenger had brought commercial quantity of goods with intention to be sold in India for monetary consideration. Being a carrier of the goods it attracts the provisions of Section 2(39) of the Customs Act, 1962 and made the goods liable for confiscation under Section Ill(i), (l) and (m) of the Customs Act, 1962 and render the passenger liable for penalty under Section 112 of the Act, ibid. Held that:- Government further observes that it is a material fact on record that passenger is a frequent traveller and habitual offender and has two previous cases booked against him. From the facts of the case Government notes that the applicant not only contravened the provisions of Section 79 of the Customs Act, 1962 but also contravened the provisions of Section 77 of the Act, ibid by not giving the true declaration as required under the Act, ibid which makes him ineligible for grant of baggage allowance as the impugned goods cannot be treated as bonafide baggage. Hence, Government opines that granting the benefit of free allowance by Appellate Authority is not proper and correct. As regards the valuation issue the applicant has relied upon value of electronic goods of different make and model: Government notes that in absence of any documentary evidence produced by the applicant relevant for the television set such as purchase invoice etc. Government sets-aside the impugned Order-in-Appeal and restores the Order-in-Original in toto. - Decided in favor of revenue. 2016 (7) TMI 419 Import of Sony Camera valued at ₹ 1,00,000 /- for someone in a baggage - passenger was intercepted at the green channel - Absolute confiscation - Commissioner (Appeals), Chennai allowed redemption of the impugned goods on payment of redemption file of ₹ 10,000/- and reduced the penalty to ₹ 5,000/- Revenue filed this revision application - Held that:- it is an admitted fact by the respondent that he had carried the impugned item for someone else and there is nothing on record to show that any invoice was produced before the original authority or any claim made that the item was for gifting purpose. There is nothing on record to show that the said submission has been made under any pressure or duress. In fact it is undeniably a voluntary statement made by the respondent during the course of personal hearing granted in the interest of natural justice clearly admitting that the Sony Camera was brought by the respondent to handover someone else in India. In the present case as the passenger is not the owner of the goods and neither to whom the camera was meant to be handed over have claimed the impugned goods. Therefore, the camera cannot be allowed to be redeemed on payment of redemption fine. - goods imported by the passenger as a carrier are liable for absolute confiscation. Government further finds that in view of the facts and circumstance of the case penalty under Section 112(a) of the Act ibid has been rightly imposed on the respondent. The quantum of penalty as imposed by the original authority is reasonable and commensurate with the nature of the offence to the extent that neither the goods were declared and were in excess of the admissible baggage allowance but were also meant for someone else. - Decided in favor of revenue. 2016 (7) TMI 418 Demand of duty and interest - Import of goods - passing through green channel without declaration - bags were found to contain 80 pieces of jeans of various sizes, plain artificial jewellery made of brass, plated with silver of 22KT weighing 5000gms and studded artificial jewellery of brass studded with glass stones, plated with silver of 22KT weighing 15000 grams. - Held that:- He carried the said goods with an intention to evade payment of the Customs duty leviable on these goods. Therefore duty was rightly demanded under Section 28 of the Act ibid and the demand confirmed after following due process of law. When duty was not paid at the time of import, the interest is chargeable on the duty amount where duty has not been paid on the goods in terms of Section 28 AA (now 28AB) of the Act, ibid. Hence interest is also rightly held to be payable by the impugned order on the duty demanded. Seizure and confiscation of goods does not absolve such goods from levy of duty and interest in turn is charged on such duty not paid. - Decided against the applicant. 2016 (7) TMI 417 Valuation - redemption fine and penalty - Claim of benefits of Transfer of Residence (TR) under Rule 8 of the Baggage Rules, 1998. - The goods were found mis declared, undervalued and in commercial quantity, therefore, the same were placed under seizure under Section 110 of the Customs Act, 1962. - Held that:- the applicant in his grounds of appeal has contended that valuation of the goods was not based on the invoices provided by him. Government observes that the valuation of the goods has been done by the officers of import shed in consultation with the Appraising Officer on the basis of invoices produced by the passenger and by physical examination of the goods. The applicant failed to declare the true value of the goods brought by him as required under rules and also in his voluntary statement dated 07.08.2012 has accepted the value arrived by the appraising officers and also agreed to pay duty on the goods so assessed. Since value of the goods as assessed by the officers has not been disputed by the applicant, undervaluation of the goods declared by him is established. - the plea of over valuation is not acceptable and the value adopted by the adjudicating authority and upheld by Commissioner(Appeals) is sustained as per law and does not warrant interference. In any case ignorance of law is no excuse not to follow something which is required to be done by the law in a particular manner. This principle has been recognized and followed by the Apex Court in a catena of its judgements. As regards pleading of applicant that heavy amount as fine and penalty has been imposed, Government finds that Commissioner (Appeals) has already taken a very lenient view and considerably reduced the redemption fine from ₹ 1,25,000/- to ₹ 25,000/- and personal penalty from ₹ 75000/- to ₹ 5000/- . As such there is no need to reduce the amount further and Government finds no reason for interference. - Revision application rejected - Decided against the applicant. 2016 (7) TMI 416 Claim of duty drawback on inputs - manufacture and export of various brands of liquor - The sanctioning authority disallowed drawback on the declared input molasses - According to the authority, (1) As per proviso (ii) to Rule 3 of the Drawback Rules, no drawback is allowable on the excisable materials in respect of which duties or taxes have not been paid and applicant have not provided evidence of direct duty payment on molasses. - (2) The applicants have been procuring Extra Neutral Alcohol (ENA) and not the molasses. Also no evidence of duty payment on ENA has been submitted. Held that:- in the present case the applicants have not furnished any such document in respect of their input molasses and have admitted that they have not even procured declared input i.e. molasses on which they had claimed duty drawback. The applicants had also claimed that duty drawback rate could have been computed on the incident of payment of duty on the ENA procured by them. Government notes that the ENA has not been declared as an input of the impugned goods by the applicants in their duty drawback application. The applicants have not produced any document evidencing payment of duty by them on the ENA. The applicant has contended that All Industry Rate of ENA be allowed to them as per Board's Circulars No. 19/2005-Cus dated 21.03.2005 and 83/2003-Cus dated 18.09.2003. It has been noted that Board's Circular No. 19/2005 clarifies that fixation of All Industry Rate of Duty Drawback is not to be probed by the field formations and the Circular No. 83/2003 is applicable to All Industry Rate of Duty Drawback brand rate fixation in respect of three finished products viz Leather Articles, Bicycle and Complete Bus. It also provides as a requirement the production of invoices confirming receipt of ENA indicating its local price and the consumption norms thereof. Therefore the contention of the applicant for allowing All Industry Rate of ENA to be allowed is not applicable. Revision application rejected - Decided against the applicant. 2016 (7) TMI 415 Import of foods items - goods failed to comply to the food safety law, most particularly prevention of Food Adulteration Act, 1954 and Rules made there under - confiscation of goods - levy of redemption fine and penalty - Held that:- the food safety law has provision for safety of consumers and certain norms are prescribed to be followed for import of the food items. Therefore, the deviation of the law has been brought out by learned adjudicating authority in para 3 of his order. No doubt, samples were not drawn in the present case for analysis. But the adjudicating authority has pointed out that section 5 (ii) and Section 2 (IX) (k) of Prevention of Food Adulteration Act, 1954 prohibits import of miss-branded food items into India. Under such premise, he ordered the consequence of confiscation and redemption fine as well as imposed penalty. He also directed the export of the goods on redemption thereof. Learned counsel for respondent says that the goods were destroyed. In view of the very smallness of the demand involved and finding violation of food safety law, redemption fine and penalty being also very meagre, we do not interfere to the adjudication. - Revenue appeal dismissed. 2016 (7) TMI 414 Levy of penalty - less declaration of import goods in the Import General Manifest (IGM) initially - later included in the gross weight by the way of amendment import of Slack Wax - Held that:- Correcting the IGM is an afterthought which has to be viewed seriously based on the nature of the Cargo and nature of the amendment sought for. The adjudicating officer has discussed the issue in detail and given his finding at para-10 of the order on applicability of Section 30(1) of the Customs Act, 1962 and Board's Circular No.13/2005-Cus. dt. 11.03.2005. - Levy of penalty confirmed. 2016 (7) TMI 413 Levy of penalty for abetment - Provisions of Section 112(a) of Customs Act 1962 - import of goods without payment of duty - Held that:- It is only Shri Charley who gave the statement to the effect that the appellant Shri Sunny was knowing about the imports and has received non-duty paid goods. Admittedly, such statement of Shri Charley being the statement of co-accused cannot be admitted for evidence without any corroboration to that effect. This law is well settled and does not require support of any precedent decision. There being no other evidence on record to show that the non-duty paid clearances from the port area by Shri Charley were with the active knowledge, aiding and abetting of offence by Shri C.K. Sunny, imposition of penalty in terms of Section 112(a) on the finding that he did not make any efforts to obtain the bills of entry in respect of imported consignment cannot be upheld. - No penalty - Decided in favor of the appellant. 2016 (7) TMI 412 Levy of penalty u/s 114AA on artificial person - involvement of the appellant in the entire undervaluation process - It was submitted that, if at all any penalty is imposable that shall be imposed under section 114AA on the employee but not on the employer. The vicarious liability is not the intention of that section. - Held that:- When the magnitude of the penalty is looked into there appears no further consideration to be made since the appellant through e-mail transaction has stepped up into the shoe to benefit his client importer. Appellant’s involvement was consciously and knowingly which cannot be ruled out. Law is well settled that fraud is a nullity and should get burial death. Therefore, any interference to the appellate order shall be a mockery for which the appeal is dismissed. - Decided against the appellant. Corporate Laws 2016 (7) TMI 411 Scheme of Amalgamation - Held that:- Since the affidavit of the RD and the report of the OL indicate that the affairs of the transferor company No.1 and 2 are not carried out in a manner prejudicial to its member or the public, the scheme can be sanctioned, with a caveat, that the transferor companies will move applications for their dissolution, albeit, without winding up within 30 days of the "effective date". In this behalf, intend to append an additional condition, which is, that an advance notice of the applications will be served on both, the RD and the OL. The OL, in particular, upon receipt of the application will file a fresh report with this Court indicating therein as to whether the affairs of the transferor companies continue to be conducted in a manner which is neither prejudicial to the interest of its members or, the public. Having regard to the aforesaid discussion and given the fact, as indicated above, the equity share holders and the secured creditors of the petitioners have approved the scheme, scheme sanctioned. 2016 (7) TMI 410 Demerger scheme is not prejudicial to the interest of any person or entity, which has a stake/interest in the petitioner companies. The said scheme as framed is not violative of any statutory provisions. The scheme as formulated is fair, just, sound and is not contrary to any public policy or public interest. No proceedings appear to be pending under the provisions of Sections 231 to 237 of the Companies Act, 1956. All the statutory provisions appear to have been complied with. Service Tax 2016 (7) TMI 424 Refund - Excess payment of service tax - Unjust enrichment - Acceptance of credit notes - recipients were entitled to cenvat credit or not - Commissioner of Central Excise (Appeals), Mumbai-I that has credited the refund of service tax claimed by the appellant to the Consumer Welfare Fund. - Held that:- Credit notes do not exist as inactive exhibits; the financial adjustment is manifested as entries in journals and ledger to impact the consideration made over and received for any goods supplied or service rendered. With credit notes being a conventional method of reflecting the change in consideration, and its authenticity not having been refuted, reliance has necessarily to be placed on the net effect that it has on the taxable transaction. Reversal of 'brokerage' carries with it the reversal of tax collected along with the excess 'brokerage.' We, therefore, need merely to ascertain if any of the cited decision prevent acceptance of credit note. The tax is structured entirely on the existence of documentation and alienation of credit or debit notes from this documentary flow by conferment of finality to one document that serves the cause of Revenue is not consistent with the basis of taxation in section 67 of Finance Act, 1994 viz. consideration for services rendered. The decisions cited by Revenue do not, therefore, serve to support the findings in the impugned order. The original authority had not sought to reject the claim for refund on the ground of lack of evidence that CENVAT credit, that the recipients were entitled to, had been reversed. Therefore, invoking of this ground in the impugned order is tantamount to travelling beyond the show cause notice. The manner in which credit is administered is not within the obligatory supervision of the provider of service or supplier of goods. The system is 'honor-driven' by predicating the availment on supporting documentation with the onus of reversals placed squarely on the recipient. The issuance of credit note automatically curtails the entitlement and their existence suffices to enforce reversal in the course of scrutiny of returns or audit. In view of implicit reduction of entitlement to credit, with ample recourse for recovery under the Rules, assumption of having passed on the burden of tax fails to be a valid conjecture. The provisions of section 11B of Central Excise Act, 1944 cannot be stretched to fasten what is, essentially, the monitorial responsibility of tax authorities on to an assessee. The impugned order has erred in crediting the excess tax collected in the Consumer Welfare Fund - Refund allowed. 2016 (7) TMI 423 Validity of order of Settlement Commission rejecting their settlement application with respect to service tax liability - Held that:- Viewed from any angle, the Settlement Commission has erred in rejecting the petitioner’s application for settlement dated 25.11.2013, by its order dated 14.11.2014, on the ground that the said application was barred by Section 32-(O)(1)(i) of the Act. As noted hereinabove the Explanation to Section 32-O(1)(i) does not have retrospective effect and, consequently, the petitioner’s application dated 25.11.2013 would be barred under Section 32-(O)(1)(i) of the Act only if either of the two earlier settlement applications, submitted by the assesee, had suffered imposition of penalty for concealment of duty liability before the Settlement Commission itself. We see no reason, however, to undertake a minute scrutiny of the earlier orders passed by the Settlement Commission, on 30.10.2013 and 06.11.2013, to determine whether penalty was imposed on the petitioner for concealment of duty liability before the Settlement Commission itself. The order dated 14.11.2014, impugned in W.P. No.38658 of 2015, is set aside and the matter is remanded to the Settlement Commission for its consideration afresh in the light of the law declared and the observations made in this judgement. - Decided in favor of petitioner. Central Excise 2016 (7) TMI 435 Bail application - Prosecution proceedings - offence punishable under Section 9 and 9AA of Central Excise Act, 1944 - Petitioner was arrested u/s 13 - evasion of customs duty / CVD on import - violation of provisions of conditional exemption notifications. Held that:- the petitioner was arrested by the Inspector and he was produced before the Learned CJM by an Inspector, namely, Mr. Dhiraj Surangi. The Central Excise Officers have power to arrest under Section 13 of the 1944 Act and after arrest, Department is bound to follow procedure prescribed under the said Act. Power to arrest is independent from disposal of person arrested. As per the relevant Notification No. 9/99-CE (N.T) dated 10.02.1999/11.05.1999 issued under the 1944 Act concededly governing the issue, only Superintendent can forward arrested person to custody of Magistrate. - Therefore the petitioner not being presented before the learned Magistrate by an authorized officer, at least a strong case for grant of bail would be made out. Learned counsel for the respondent-Department has argued that it is an economic offence and no leniency should be shown. The counsel has ignored the fact that matter is pending for last more 5 years and nothing new had occurred in Jan’2016 which prompted the department to take harsh action of arrest. Further, it is an economic offence where separate Assessment/Adjudication proceedings are going on. It is not a case of mass level cheating, as involved in the cited and relied case, where except criminal trial no effective remedy was available. In the present case, if the department succeeds in adjudication, the department shall have all rights to recover the dues. So, the contention of Department is repelled. Bail granted on furnishing of bail bond of ₹ 5 lacs with two sureties of equal amount. 2016 (7) TMI 434 Claim of rebate/ refund - input stage rebate - export of goods - The adjudicating authority rejected all the rebate claims of the respondent holding that they failed to get the input output ratio approved in respect of Menthol Crystals as required under Notification No. 21/2004-CE(NT) dated 06109.2004 and rebate claim were not admissible to them as they had failed to fulfill the conditions of Notification ibid. - Commissioner (Appeals) allowed the rebate. Held that:- it is clear that the respondent was not given any permission for manufacture and export of menthol crystals under claim for import duty rebate as they has never applied for fixation of input output ratio in respect of Menthol Crystals. The input output ratio for menthol crystals was applied for vide declaration dated 28.06.2010 and thereafter approved vide letter dated 31.01.2011. Government finds as untenable the presumption of Commissioner (Appeals) that as same ratio has been fixed first for menthol and then for menthol crystals, the norms for crystals can be said to have been fixed at the same time as that for menthol. Menthol and menthol crystals are two distinct products classifiable under distinct tariff headings viz 2906 and 3003 respectively as held in the impugned Order-in-Original. It is an uncontested fact that both items not only fall under different headings but the process of manufacture is also different as menthol is in liquid form and menthol crystals are in crystal form. The respondent was therefore, required to file different declaration and get separate approvals for the norms for each product sought to be exported for each product sought to be exported in terms of Notification No. 21/2004-CE(NT) dated 06.09.2004 read with para 2 of part V of Chapter 8 to CBEC Supplementary Instructions Manual. Para 2 of the said Notification clearly states that the correctness of the ratio of the input output ratio shall be verified before the commencement of the export of the said goods but in the present case, the respondent exported the goods before the verification of input output ratio as well as fixation of the input output norms. Thus they had failed to satisfy the condition of the Notification ibid. - Claim of rebate denied - Decided against the assessee and in favor of revenue. 2016 (7) TMI 433 Claim of rebate/refund - export of goods from DTA unit to SEZ units - initially applicant cleared excisable goods without payment of duty under UT-I Bond to the SEZ Unit - However, it was found that the applicants have subsequently paid the duty on the said clearances through CENVAT account by making consolidated debit entry at the end of the respective months of clearances and claimed rebate of duty paid on such clearances. - Department rejected the claim on the ground that the applicants have not fulfilled the conditions and limitations prescribed under Notification No.19/2004-CE(N.T) dated 06.09.2004 issued under Rule 18 in respect of clearances to SEZ under the said ARE -Is as the excisable goods were originally cleared without payment of duty under Bond. Held that:- As such there is no force in the plea of the applicant that the lapse should be considered as a procedural one which is condonable in nature. As such, as the applicant did not follow the requirements of the Notification No.19/2004-CE(NT), the rebate claims are rightly held inadmissible. The applicant has also alternatively requested for re credit of cenvat credit. In this regard, Government notes that re credit is allowed in the cases where the exporter was not required to pay duty at the time of export, however, he pays the same. Such amount paid by the exporter in his own volition cannot be retained by the Government and it is required to be paid back in the form it has been paid. In this case, the applicant was not required to pay duty and hence, the duty was rightly not paid. The duty was paid subsequently at the end of the month on consolidated basis and such duty cannot be treated at par with duty not payable at the time of export and as such, does not qualify for availing of re credit. As such, applicant's request for allowing re credit is not tenable. Application rejected - Decided against the applicant. 2016 (7) TMI 432 Claim of rebate/ refund - export of goods on payment of duty through third party - Certain amount of rebate claim was rejected on the ground that the relevant export documents are not matching as far as declaration of name of exporter is concerned which is a contravention of Rule 18 of Central Excise Rules, 2002 read with notification No. 19/2004-CE(NT) dated 06.09.2004. - the name of exporter is declared/mentioned as M/S. Govardhan Poly Plast Pvt. Ltd. on each of the ARE-Is and its corresponding shipping bills, mate receipts and commercial invoices, whereas, corresponding Bills of lading indicate the name of M/S. Ispa Exim Pvt. Ltd., as exporter/shipper of the goods. As such, there is mismatch in the name of exporter. Held that:- There is no finding of lower authorities that the duty paid goods have not been exported. In terms of Board's Circular 120/95-cus dated 23.11.1995 and 30.12.2005 dated 12.07.2005 as referred to in impugned Order-in-Original the BRC, GR declaration, export order and invoice should also be to the name of the third party exporter. As such, the merits of the rebate claims need to be re-examined after taking into consideration the documents referred to above. - Order set aside - Matter remanded back for fresh decision. 2016 (7) TMI 431 Claim of rebate/refund - Procedure of A.R.E.-1 followed instead of A.R.E-2 as contended by the department - exported the goods on payment of duty - Rule 18 of Central Excise Rule, 2002 read with Notification No. 19/2004-CE(NT) dated 06.0912004 - Department found that, goods were exported by availing benefit under Notification No. 21/2004-CE(NT) dated 06.09.2004 and Notification No, 43/2001-CE(NT) dated 26.06.2001 as certified by them at Sr. No. 3(b) & (c) of the ARE-I. - According to the department, Under the Notification No. 21/2004-CE(NT) dated 06.09.2004, it is mandatory to clear the goods for export in form ARE-2 and file the rebate claims with the jurisdictional Assistant / Deputy Commissioner. It is also, mandatory to clear goods for export under Bond / Letter of undertaking under Notification Nor. 43/2001-CE(NT) dated 26.062001. Held that:- There is no independent evidences on record to show that the applicant have exported the goods without payment of duty under ARE-2 or under Bond. Under such circumstances, Government finds force in contention of applicant that they have by mistake ticked in ARE-I form declaration and they have not availed benefit of Notification 21/04-CE(NT) dated 0609.2004 and Notification 43/01-CE(NT) dated 26.062001. In this case, there is no dispute regarding export of duty paid goods. Simply ticking a wrong declaration in ARE-I form cannot be a basis for rejecting the substantial benefit of rebate claim. Under such circumstances, the rebate claims cannot be rejected for procedural lapses of wrong ticking. In catena of judgments, the Government of India has held that benefit of rebate claim cannot be denied for minor procedural infraction when substantial compliance of provisions of notification and rules is made by claimant. However since it is a matter of fact which requires verification in view of rival claims, therefore, the case is remanded back to the original authority to verify the claim of the applicant that they have not availed benefit of Notification 21/04-CE(NT) dated 06.092004 and Notification 43/01-CE (NT) dated 2606.2001 and thereafter subject to the satisfaction of the - Decided partly in favor of assessee by way of remand. 2016 (7) TMI 430 Cenvat Credit - input services used for export of goods - reversal of proportionate cenvat credit relating to exempted goods cleared every month as mandated under Rule 6 (3A) and Rule 6 (3) (ii) of CCR - but they had reversed only part amount during the period from April 2011 to September 2011, rendering a short reversal of proportional input service credit - Held that:- The fact that the export of yarn has been made and the same is not disputed goes to show that the appellant is eligible for cenvat credit. The policy of the government is not to burden the goods to be exported with domestic taxes as has been observed in various decisions of the Tribunal. The reasons are obvious. Generally, it is not intended to make domestically produced goods, when exported to the foreign market, to become uncompetitive by means of increasing its cost. The view that exports should not be burdened is a consistent view taken by various Tribunal and I find that in the facts and circumstances of the case, credit is eligible and no reversal of credit is warranted. - Demand set aside - Decided in favor of assessee. 2016 (7) TMI 429 Adjustment of refund amount with the pending demand - when the appellant went on appeal against the appropriation order, the very same Commissioner (Appeals), with whom the demand order was appealed, has held that the appropriation is correct. - Held that:- before appropriation of refund towards any arrears due, show cause notice/personal hearing is required. - appellants were not even issued a simple intimation regarding proposed appropriation - impugned order is not justifiable and set aside - The appellant is eligible for refund of full amount as originally decided by the jurisdictional Asstt. Commissioner with applicable interest , if any. - Decided in favor of assessee. CST, VAT & Sales Tax 2016 (7) TMI 427 Constitutional validity of Rule - Maintainability of writ petition - KVAT - single Judge has declined to enterain the petition on the ground that the assessment orders are appealable before the Appellate Authority under KVAT Act - When a query was raised to the learned senior counsel for the appellant as to whether any appeal under the KVAT Act is preferred after the order of the learned single Judge or not, learned counsel fairly conceded that the statutory appeal has been preferred and the appeal is pending before the appellate authority under KVAT Act. - Held that:- As such, if the order of the learned single Judge is accepted by the appellant and appeal is preferred, then there would be hardly any valid ground to entertain the challenge to the order passed in the writ petition out of which these appeals arise. - Decided against the petitioner. 2016 (7) TMI 426 Constitutional validity of Rule - KVAT - Determination of tax liability - Maintainability of writ petition - Held that:- It is hardly required to be stated that when the writ powers are invoked under Article 226 of the Constitution of India, may be, for challenging the validity of the statutory rule, this Court in normal circumstance by way of self-imposed restriction would relegate the party to the statutory, alternative remedy. The appellant/original petitioner had the option of challenging the validity of the rule when the appeals were preferred in respect of earlier assessment order before this Court in STA.Nos.120/2012 and 1-10/2013, but the appellant did not challenge the validity of the rule. Not only that, but thereafter for the subsequent assessment years, notices were issued by the Assessing Officer, but the appellant did not challenge the validity of the rule by appropriate proceedings before this Court, but appeared in response to the notice and the assessment orders were passed. Not only that, but thereafter the appellant has preferred the statutory appeal before the Appellate Authority under the KVAT Act and those appeals are pending consideration. Under these circumstances, we find that the challenge to the validity of the rule if not entertained by the learned single Judge, it cannot be said that the discretion is perversely exercised or that the learned single Judge has committed an error on the face of the record in exercise of the discretion to entertain the petition under Article 226 of the Constitution. Under the circumstances, the exercise of discretion by the learned single Judge not to entertain the petition cannot be said to be erroneous, which may call for interference in exercise of the power under Article 226 of the constitution. - Decided against the petitioner. 2016 (7) TMI 425 Constitutional validity of Rule - Maintainability of writ petition - KVAT - single Judge has declined to enterain the petition on the ground that the assessment orders are appealable before the Appellate Authority under KVAT Act - When a query was raised to the learned senior counsel for the appellant as to whether any appeal under the KVAT Act is preferred after the order of the learned single Judge or not, learned counsel fairly conceded that the statutory appeal has been preferred and the appeal is pending before the appellate authority under KVAT Act. - Held that:- As such, if the order of the learned single Judge is accepted by the appellant and appeal is preferred, then there would be hardly any valid ground to entertain the challenge to the order passed in the writ petition out of which these appeals arise. - Decided against the petitioner. Wealth tax 2016 (7) TMI 422 Nature of land - whether the land held by the assessee is an urban land coming within the definition of asset as per section 2(ea) of the Act or is a stock in trade, which is kept outside the definition of asset? - Held that:- The assessee has filed a statement of affairs before the assessing officer and claimed that the impugned land is an immovable property. Just because land is under Joint Development, it cannot be considered that the asset is held for the purpose of commercial exploitation thereby it is classified as stock-in-trade. The assessee has failed to prove that the impugned land is stock-in-trade with any evidences. On the other hand, the income tax return filed for the assessment year 2009-10 in ITR form-2 which is meant for individual and HUFs not having income from business or profession, abundantly proves that the assessee is not involved in any business. By his conduct, the assessee proved that he is not into the business either in the past or in the future. If the JDA is entered for development of the property, it is for the builder who comes under the activity of business but not the assessee. The assessee has purchased the land as an investor, consequently any gains from the land would be assessable under the head income from capital gains. Therefore, we are of the view that the assessee has failed to prove that the impugned land held by him is stock-in-trade. In the present case on hand, admittedly the land held by the assessee is an urban land. However, by virtue of a injunction order from the court, status quo should be maintained on the impugned land therefore, land on which construction of a building is not permissible under any law for the time being in force is not an urban land within the meaning of asset u/s 2(ea) of the Act. Therefore, we are of the view that the asset held by the assessee is not urban land, coming within the definition of assets as defined u/s 2(ea) of the Act. Therefore, we set aside the order of CIT(A) and direct the A.O. to delete the impugned land from the definition of assets for the purpose of wealth tax. - Decided in favour of assessee.
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