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TMI Tax Updates - e-Newsletter July 15, 2014 Case Laws in this Newsletter: Income Tax Service Tax Central Excise CST, VAT & Sales Tax Articles Budget 2014 - Customs - An Analysis Budget 2014 - Central Excise Permission to dispose of Plant and Machinery Supplied to UN Projects News Auction for Sale (issue) of Government Stocks RBI Reference Rate for US $ and Euro Advisory to Tax Payers Against Phishing Mails Budget 2014-15 - THE FINANCE (No. 2) BILL, 2014 - Amendments Simplified [Notes to the clauses of Finance Bill] Highlights / Catch Notes Income Tax Remuneration paid to partners - remuneration is not specified - manner of computing the remuneration is not specified - remuneration payable is left to future mutual agreement between the partners - requirement of Section 40 (b) (v) are not satisfied - AT Visit to Get Source Transfer pricing adjustments - determination of ALP - Functional profile not considered – transactions are akin to trading and cannot be considered activities of a commission agent or a broker - HC Visit to Get Source Addition u/s 69B – investments not fully disclosed - Average market value of land – AO could not have invoked the provisions of section 69B to fasten the addition on the assessee based on doubts/ conjectures and surmises - AT Visit to Get Source Application of section 40A(3) - purchase of mobile recharge vouchers on a wholesale basis - Involvement of cash payment – the disallowance made by the AO by invoking section 40A(3) in the present case is misplaced - AT Visit to Get Source Expenditure has clearly being incurred by the assessee on capital account for the purpose of share capital- the expenditure cannot be allowed as a revenue expenditure u/s 37(1) as it is a capital expenditure - claim u/s 35DD also disallowed - AT Visit to Get Source Reopening of assessment u/s 147 - AO found depreciation to be excessive on the basis of tax audit report, the eligible depreciation certified by the tax auditor differed from the amount that was actually allowed in the assessment order - reassessment upheld - AT Visit to Get Source Freight charges - disallwance u/s 40(a)(ia) - The requirement of payee to furnish details to the income tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of TDS u/s 194C - AT Visit to Get Source Indian Laws Budget 2014-15 - THE FINANCE (No. 2) BILL, 2014 - Amendments Simplified [Notes to the clauses of Finance Bill] Visit to Get Source Service Tax Consulting engineer service - scope of taxable service - It is only with effect from 1.5.2006 that a body corporate comes within the ambit of ‘consulting engineer’ service in Section 65(31) - AT Visit to Get Source After giving a finding that the Appellant’s activity is not ‘support service of business or commerce’ demand confirmed considering the activity as ‘business auxiliary service’ which was not invoked in the show cause notice - demand set aside - AT Visit to Get Source Central Excise CENVAT Credit - Input Services - The conduct of the Learned Commissioner, ignoring judicial discipline, amounts to clear judicial indiscipline and irresponsible exercise of adjudication function. - AT Visit to Get Source Registered dealer - demand on account of excess sale of certain steel products from BSO, Bhilai as compared to the quantity of those products received from the respective steel plant - demand set aside - AT Visit to Get Source Duty of duty of excise as well service tax on the same transaction - sale and marketing of excisable goods i.e. tobacco products - Stay granted - AT Visit to Get Source Interest on delayed refund - Just because the appellant by the letters had given up their claim for interest, they would not be estoppel from challenging the denial of interest and claiming the same when they are entitled for the same under the statutory provisions of Section 11BB - AT Visit to Get Source Provisional assessment - Rule 7 of the Central Excise Rule, 2002 does not provide for order of provisional assessment by the department and the said Rule deals with only the provisional assessment at the request of the assessee - AT Visit to Get Source VAT Unauthorise realization of taxes by the petitioner from the cinema goers - scheme of exemption versus scheme of grant-in-aid - assessee to deposit the amount with the government - HC Visit to Get Source Recovery of the sales tax/ trade tax dues from directors - The mere fact that the Company has failed to pay the dues is by itself insufficient to invoke the doctrine of lifting the corporate veil - HC Visit to Get Source Issuance of Form D - Commissioner committed a manifest error in its order issued under Section 59 of the Act in holding that a person engaged in the construction of roads was not a manufacturer - HC Visit to Get Source Case Laws: Income Tax 2014 (7) TMI 501 Transfer of property - Development agreement where possession was not handed over yes - No real income accrued Held that:- the assessee has recognised the income in accordance with the true terms of the agreement and if there is any inconsistency in recognising the income then only revenue authorities can disturb the same. Once the assessee recognised the income in accordance with the agreements, the AO cannot substitute his assessment to say that the assessee has postponed the tax liability. The assessee initially entered into Development Agreement with M/s. ECE Industries Ltd. on 17.9.2007 for development of land admeasuring 67824 sqy situated at Sy. Nos. 74/P and 75/P at Borabanda, Fathenagar village, Ashok Marg, Hyderabad for which the assessee was required to pay ₹ 30,50,36,525 to M/s. ECE Industries Ltd. as a consideration for obtaining Development and GPA rights - it is too early to assess business profit out of the sale of constructed area to M/s. Janapriya Engineers Syndicate - The assessee neither received substantial consideration or assets to be sold are ready for handing over the possession to the concerned parties so as to transfer the title in the property - Till such time, it cannot be said that the parties involved in are ready to perform the contract - neither possession of the property has been given to the ultimate buyer or the assessee has received any substantial consideration - When the property is to be sold is not readily available or constructed, the assessee cannot recognise income with certainty. The agreement entered into by the assessee herein is only for sale of piece of property and sale will take place only after completion of construction and after assessee's share of property is identified - The proposed sale agreement cannot be put into action due to various litigations pending with various courts - Nobody can transfer title in a property when the property is not in existence - when there is litigation pending on the same property and no profit can be anticipated when the agreement itself is subject matter of litigation - It is not possible to bring the same to tax - it is not possible to hold that income has actually accrued to the assessee - When consideration is not determinable with reasonable certainty, the assessee is justified in postponing recognition of income and it is appropriate to recognise the income only when it is reasonably certain that the ultimate realisation is possible - revenue could be recognised at the time of sale or handing over of possession of flats to the ultimate customers -The Department cannot thrust upon the assessee so as to tax the future income. Income arising out of sale of flats to M/s. Janapriya Engineers Syndicate in which constructed property was sold by the assessee, profit on such transaction is to be assessable not in the year of agreement and it should be assessable proportionately in the previous years in which the constructed area was sold by the assessee or constructed flats were handed over by the assessee to the buyers Relying upon BL. Subbaraya Versus Deputy Commissioner of Income-tax, Cir. 6(3), Bangalore [2005 (4) TMI 535 - ITAT BANGALORE] thus, the CIT(A) is justified in deleting the addition made by the AO as there is no income accrued to the assessee on the basis of agreement entered by the assessee with M/s. Janapriya Engineers Syndicate there was no infirmity in the order of the CIT(A) Decided against Revenue. Disallowance of Expenses u/s 40(a)(ia) of the Act - Foreign travel expenditure Held that:- The AO is directed not to disallow the expenditure if TDS has been remitted by the assessee before due date of filing of the return of income - if the expenditure is not debited to Profit and Loss A/c., it could not be disallowed by invoking the provisions of section 40(a)(ia) of the Act Director of the assessee company went on foreign travel for the purpose of business - expenditure on this could will be allowed if the same is incurred for the purpose of business - CIT(A) recorded that the assessee had failed to produce necessary evidence to prove that the expenditure is incurred for the purpose of business - It is also not brought on record by the lower authorities that the expenditure is in the nature personal expenses - thus, the matter is remitted back to the AO for fresh adjudication Decided in partly in favour of Assessee. 2014 (7) TMI 497 Deduction U/s. 80-IA of the Act – assessee suffered loss on windmill business - Held that:- From the amended provisions of section 80-IA (4), it is clear that the deduction U/s. 80-IA (1) & (2) would be applicable for an undertaking if it begins to generate power at any time during the period beginning on the first day of April 1993 and ending on 31st March,2006 - the assessee started generating electricity from the AY 1995-96 -the assessee was not able to claim the benefit U/s. 80-IA of the Act until the AY 1999-00, since it was suffering losses on this unit and therefore, the provisions of sec.80IA of the Act was not operational on the assessee - from the AY 2000-01, the assessee earned profit from the unit - the Act was amended by the Finance Act, 2001 with effect from AY 2002-03 - during the relevant previous year, this amended provision was not operational in the case of the assessee and the provisions which stood prior to the amendment were in force - there is no error in the order of the AO and CIT (A) – Decided against Assessee. Deduction U/s. 80HHC of the Act - Export turnover exceeded ₹ 10 crores - Held that:- The assessee submitted that the amended provisions were not applicable at the time of passing the original order U/s. 143(1) of the Act dated 21.01.2003 – there was no find any merit in the argument of the assessee and Revenue has given effect to the amendment provisions of the Act which came into force at the time of passing the order U/s143(3) which was enforceable with retrospective effect from 01.04.1988 – Decided against Assessee. Deduction of payment of ₹ 1 crore of non-compete fee U/s. 37 of the Act – Held that:- There was some strength in the submissions of the assessee - all the decisions and the facts were not properly placed before the Revenue on the earlier occasions by the assessee – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of Assessee. 2014 (7) TMI 496 Reopening of assessment u/s 148 of the Act – Reasons recorded after issuance of notice u/s 148 - Opportunity of being heard - Held that:- The decision in AG HOLDINGS PVT LTD Versus INCOME TAX OFFICER [2012 (5) TMI 44 - DELHI HIGH COURT] followed - There are no two sets of reasons recorded by the respondent in the present case - The reasons were recorded on 9.3.2011 - the approval of the Additional Commissioner of Income Tax was obtained and thereafter notice u/s148 - there was a delay of 4 ½ months in supplying the reasons recorded by the AO – the plea of the assessee cannot be accepted. Non-speaking order – Held that:- The assessee was asked to show cause why salaries/ remuneration to the partners claimed as deductions be not disallowed u/s 40 (b) (v) - the partnership deed neither specified the amount of salaries required to be paid to each of the working partners not had laid down the specific method of quantification – assessee chose not to file any objection and participated in proceedings - it cannot be said that the requirement of law regarding filing of objection by assessee to notice u/s 148 and disposing of the same by AO were not substantially fulfilled. Therefore, the re-assessment proceedings cannot be held to be bad in law – Decided against Assessee. Deduction for remuneration paid to partners – Held that:- Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that, the appellant has accepted that clause 2 does not quantify or provide the manner of computing remuneration payable to the partners but stipulates the maximum amount payable - the limits specified u/s 40 (b) (v) are incorporated and have become part and parcel of the partnership deed but not the amount or the quantum remuneration - payment was not in accordance with the terms of the supplementary partnership deed dated 1st April, 1992 though authorized by the deed - The remuneration was paid in terms of a subsequent understanding between the two partners regarding the quantum and the amount to be paid - the remuneration is not specified - The manner of computing the remuneration is not specified - the remuneration payable is left to future mutual agreement between the partners who are entitled to decide and quantify the quantum - Remuneration can be any amount or figure but not more than the maximum amount stated in Section 40 (b) (v) of the Act – thus, the requirement of Section 40 (b) (v) are not satisfied – Decided in favour of Revenue. Penalty u/s 271(1)(c) of the Act - Concealment of income and furnishing of inaccurate particulars of income - Held that:- The assessee had claimed the deduction in respect of remuneration paid to partners - it cannot be said that the claim advanced by assessee was in any manner malafide claim merely because the assessee was a CA firm - mere disallowance of claim does not per se attracts, panel provisions unless it is established that the claim advanced by assessee was malafide – thus, there was no reason to interfere with the order of CIT (A) – Decided against Revenue. 2014 (7) TMI 477 Allowability of delayed payment of PF – Held that:- Section 43B was amended and the first proviso was inserted which provides that in the context of any sum payable by the Assessee by way of tax, duty, cess or fee, if paid by the Assessee even after the closing of the accounting year but before the date of filing of the return of income, the Assessee would be entitled to the deduction u/s 43B on actual payment basis and such deduction would be admissible for that accounting year - the Assessees – employers were entitled to deductions only if the contributions to any fund for the welfare of the employees stood credited on or before the due date given in the relevant Act - the amendments introduced by the Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employee’s Welfare Funds on the other. Relying upon Commissioner of Income Tax v/s Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] - the amendments to the section brought about by the Finance Act, 2003 with effect from 1st April 2004 were retrospective in nature and would operate from 1st April 1988 – thus, the Tribunal was fully justified in deleting the addition on account of delayed payment of Provident Fund of employees' contribution – thus, no substantial question of law arises for consideration – Decided against Revenue. Bond registration charges u/s 37(1) of the Act – Held that:- CIT (Appeals) as well as the Tribunal merely followed the decisions in the case of this very Assessee in the preceding years in deleting the disallowance incurred towards bond registration charges – Tribunal came to the finding that the expenditure was a revenue expenditure and allowable u/s 37(i) of the Act – the finding of the Tribunal cannot be in any way said to be vitiated on the ground of perversity or any error apparent on the face of the record - thus, no substantial question of law arises for consideration – Decided against Revenue. 2014 (7) TMI 476 Transfer pricing adjustments - determination of ALP - Functional profile not considered – Assessee being a trader or service provider – Held that:- The international transactions reported by the assessee are of four kinds; services, commission, cost to cost reimbursement as well as from sale of products imported from the Associated Enterprise –Tribunal was rightly of the view that the nature of assessee's business is to undertake role of a trade intermediary - purchases are made by the assessee are recorded as such in its books of accounts and thereafter when sold, the sales recorded as such - The title in the goods is held by the assessee for some time - assessee deals on a principle to principle basis - the activity cannot be bracketed with the activity of a commission agent or a broker - the activity in question is akin to trading activities. There was no infirmity in the reasoning of the Tribunal that transactions are akin to trading and cannot be considered activities of a commission agent or a broker - appropriate comparables would have to be considered for determination of the ALP - entities which are similarly placed as the assessee including in respect of their functional and risk profile as well as working capital exposure would be chosen as comparables – thus, there is no reason to interfere in the order of the Tribunal – Decided against Assessee. 2014 (7) TMI 475 Penalty u/s 271(1)(b) of the Act – Opportunity of being heard – Held that:- The decision in Kamla Madan vs. DCIT, Central Circle 21, New Delhi [2014 (7) TMI 250 - ITAT DELHI] followed - The notices u/s 142 (1) of the Act were issued and giving a very short time - when the notices were served, rather as to whether such notices were served at all, does not find mention in the penalty orders - the assessee was not provided sufficient time to respond to the notice -the assessee was not provided sufficient time to respond to the notice - there is no mention of any non-cooperation by the assessee with the AO during the assessment proceedings – there was no case for the imposition of penalty u/s 271(1)(b) of the Act – Decided in favour of Assessee. 2014 (7) TMI 474 Maintainability of appeal – Amount involved in appeal lower than the limit prescribed - Held that:- The decision in CIT vs. Delhi Race Club Ltd. [2011 (3) TMI 1488 - High Court of Delhi] followed – the tax payable in respect of grounds of appeal by the Department is less than ₹ 3 lakhs and as per revised Instruction of the CBDT No.3 dated 9.2.2011 wherein the CBDT has revised the filing limits for appeal filed before the Tribunal, High Court and Supreme Court - Revenue’s appeal is not maintainable in view of the Circular of the CBDT read with Section 268A of the Act – thus, the appeal filed by the Department against the order of the CIT(A) is contrary to the policy decision of the Department and as such the appeal filed by the Department is dismissed – Decided against Revenue. 2014 (7) TMI 473 Grant of registration u/s 12A of the Act – Charitable activity – Held that:- The seller of the land has mentioned that the land being sold is agricultural land which will be used for agricultural purposes only - the CIT has not brought out any fact that the land so purchased was misused or misappropriated by the management of the society - the land so purchased has been regularly owned and controlled by the appellant society which cannot be said to be misappropriation or misuse of the funds of the society - The registration u/s 12A cannot be rejected only on the sole ground by ignoring other charitable activities of the society - there is no limitation of time in the Act for submitting application for registration u/s 12A of the Act – CIT rejected the application of the assessee without any reasonable and justified basis - the CIT rejected the application of the assessee society without considering relevant facts and documentary evidence – Relying upon CIT v R.S.Bajaj Society [ 2014 (1) TMI 761 - ALLAHABAD HIGH COURT] - while granting registration u/s 12A of the Act, only the genuineness of the objects are to be seen – thus, the matter is remitted back to the CIT with a direction that the application shall be decided after considering all relevant facts and evidence as relied by the appellant society by affording due opportunity of hearing for the applicant society – Decided in favour of Assessee. 2014 (7) TMI 472 Refusal of registration u/s 12A of the Act Exemption u/s 80G of the Act Held that:- The DIT(E) has not pointed out any defect or doubt about the charitable objects of the assessee trust - the DIT(E) has rejected the application of the assessee trust for grant of registration u/s 12A of the Act by holding that in absence of any genuine charitable activity, the genuineness of the charitable activities cannot be held to be established Relying upon DIT vs Foundation of Ophthalmic Optometry Research Education Centre [2012 (8) TMI 777 - DELHI HIGH COURT] - registration u/s 12A is not dependent on commencement of charitable activity - The registration granting authority is not required to examine the question whether the trust has actually commenced and carried on its charitable activities - at the time of registration only genuineness of the objects was to be tested, not the activities which were not commenced by that time. The DIT(E) rejected the application of the assessee for registration u/s 12A of the Act on wrong premise and unjustified grounds - while the DIT(E) has not raised any doubt or objection about the charitable objects of the assessee trust, registration u/s 12A cannot be denied on the ground that the genuineness of the charitable activities cannot be held to be established in absence of any genuine charitable activity DIT(E) is directed to grant registration u/s 12A of the Act for the assessee trust - the application for registration u/s 80G of the Act was rejected Decided in favour of Assessee. 2014 (7) TMI 471 Penalty u/s 272B of the Act – PAN not provided in return as per section 139A(5B) of the Act – Held that:- CBDT has prescribed a threshold limit for compliance i.e., to provide information of PAN data by virtue of section 139A(5B)(iv) of the Act - the connotation "not be accepted" can be only with reference to the provisions of the Act - only by such interpretation the press release serves any purpose - The sole intention of the press release is to bring down the rigour of the provision of section 139A(5B) and 272B keeping in view the laborious and cumbersome task of compliance - the assessee has furnished PAN data to an extent of 93 per cent of the total deductees - when there is compliance in furnishing the PAN data in accordance with the threshold limit of 90% prescribed in the press release by the CBDT, the penal provisions do not attract – Revenue has also not been able to distinguish the decision – Decided in favour of Assessee. 2014 (7) TMI 470 Addition u/s 69B – investments not fully disclosed - Average market value of land – Held that:- There was no basis for the AO to hold that price for both the parcel of land could not be the same and he erred in presuming that the excess area of land would not have been given without any extra payment being made by the assessee to the other company i.e. M/s. Vishnu Apartment Pvt. Ltd. over and above the amount which according to AO is the estimated value of 0.60 acres of land at Maidawas - the AO erred in presuming that the value of excess land received by the assessee company in exchange was valuing more without any material to base his finding on this aspect – Relying upon Commissioner of Income-Tax, AP Versus Dhanrajgirji Raja Narasingirji [1973 (3) TMI 6 - SUPREME Court] - a business man knows his interest best and nobody has to sermonize how he should conduct his business. CIT(A) has rightly observed that the AO has failed to discharge the burden upon him to prove that the assessee has made investment at an understated value; and the same has not been brought on record in its books of account; and estimated the investment on the basis of average value of land which is erroneous without any evidence on record to substantiate his view that the appellant/ assessee has paid more than what was shown in its books of account - the AO could not have invoked the provisions of section 69B to fasten the addition on the assessee based on doubts/ conjectures and surmises - there was no material or evidence before the AO to conclude that the assessee had paid a consideration over and above the amount mentioned in the registered sale deed – thus, the amount shown as the value of the property in the registered sale deed has been taken as correct, unless the contrary is proved by credible evidence - no opportunity of being heard as required by law has been given by the AO before invoking the provisions of section 69B of the Act – the order of the CIT(A) is upheld – Decided against Revenue. 2014 (7) TMI 469 Assessment u/s 147 of the Act - Reasons properly recorded Notice u/s 148 of the Act Held that:- The assessment had already been made u/s 143(3) of the Act - the re-opening has been made after expiry of four years from the end of the relevant assessment year and, therefore, the validity of re-opening has to be examined within the ambit of proviso to section 147 - It is from the reasons recorded alone that the AO can to assume the jurisdiction u/s 147, for re-opening the case - the reasons recorded should be such, that it should provide a live link nexus between the material brought on record and the income escaping assessment - the claim of depreciation on the assets, has been completely set out in the balance sheet and in the income and expenditure account filed by the assessee along with the return of income, which has also been examined by the Assessing Officer in scrutiny proceedings. There was no failure on the part of the assessee to disclose fully and truly, relevant material facts on this score - the claim made by the assessee with regard to depreciation in the computation for the purpose of section 11, is not a false claim as it has also been described in Commissioner of Income-Tax Versus Institute of Banking [2003 (7) TMI 52 - BOMBAY High Court] - the depreciation on the fixed assets has to be allowed on commercial principles even if the capital expenditure on the same has been held to be application of income under section 11 - there are absolutely no details as to which fact or material was not disclosed by the Petition that lead to its income escaping assessment - There is merely a bald assertion in the reasons that there was a failure on the part of the petitioner to disclose fully and truly all material facts thus, the order of the CIT(A) is upheld Decided against Revenue. 2014 (7) TMI 468 Claim of set off and brought forward of unabsorbed depreciation – Held that:- Following GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX [2012 (8) TMI 714 - GUJARAT HIGH COURT] - current depreciation is deductible in the first place from the income of the business to which it relates - If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee - If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year - In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year - Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part - If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. Any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 - once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever - unabsorbed depreciation relating to AY 1997-98 and upto AY 2001-02 would be eligible for carry forward and set off for an unlimited period. Provision for leave encashment u/s 43B(f) of the Act – Held that:- Deduction on account of any amount paid by an employer to its employee in lieu of any leave at the credit of the employee will be allowed only on actual payment basis - the assessee has made only a provision and amount claimed as deduction has not been actually paid during the previous year – Relying upon Exide Industries Limited And Another Versus Union Of India And Others [2007 (6) TMI 175 - CALCUTTA High Court] – there was no infirmity in the order of the CIT(A) on this issue – Decided against Assessee. Valuation of sale of land – Addition under the head other sources – Held that:- The assessee delivered the vacant physical possession of the scheduled property to the purchaser only on the execution of sale deed on 20.11.2007 - ‘transfer’ as per S.2(47) of the Act did take place only upon delivery of the possession to the purchaser i.e. on 20.11.2007, on the date of execution of sale deed - assessee cannot object to the valuation of the property as applicable on 20.11.2007 as per the guidelines of the registering authority. It is also a fact that during the assessment proceedings, the assessee has not raised any objection to the application of S.50C of the Act, by seeking a reference to the valuation officer for determining the market value of the property – there was no infirmity in the order of the CIT(A) in holding that capital gain has to be computed by applying the provisions of S.50C of the Act - assessee has not explained what prevented the assessee from producing the said additional evidence before the AO and the CIT(A). Computation of book profit u/s 115JB of the Act – Leave encashment – Held that:- CIT(A) simply following the reasoning given by him, while dealing with the disallowance made in respect of provision for leave encashment, in the computation of income under the normal provisions, upheld the adding back of the same done by the AO while computing the book profit under S.115JB of the Act - he did not independently examine the issue of justification of add-back of the provision, while computing the income in terms of S.115JB of the Act – Following Highland Produce Co. Ltd. V/s., DCIT [2014 (7) TMI 122 - ITAT COCHIN] - meeting the liability incurred by the company under the leave encashment scheme proportionate with entitlement earned by employees of the company inclusive of officers and the staff subject to ceiling of accumulation as applicable on the relevant date is entitled to deduction out of the gross receipt for the accounting year during which the provision is made for the liability – Decided partly in favour of Assessee. 2014 (7) TMI 467 Addition of low household expenses – Held that:- Following Sandeep Tatode Versus DCIT, Cen. Cir 39, Mumbai [2014 (7) TMI 123 - ITAT MUMBAI] - CIT(A) as well as the AO has not denied the fact that the assessee was a minor in the relevant financial year and he became major only on 28/03/2003 - He was staying with his mother, who was managing the house by preparing tiffin and homemade food for the various persons - There is no further material or information on record that the assessee in the relevant financial year has incurred any expenditure which has not been disclosed - In absence of any material on record, there is no reason for estimating any kind of household withdrawals specially, on the facts stated that sums was shown by his mother and himself for the household expenses – Decided in favour of Assessee. Unexplained money u/s 69A of the Act - Credits in bank account of other persons – Held that:- Following Sandeep Tatode Versus DCIT, Cen. Cir 39, Mumbai [2014 (7) TMI 123 - ITAT MUMBAI] - the assessee made a specific request that enquiry can be done from the respective bank u/s 131 or 133(6) so as to look into the factum of ownership of the bank accounts - the authorities should have made an enquiry when the assessee has categorically denied the ownership of the bank account – u/s 292C onus is upon the assessee to prove that any asset or books of accounts etc. found from the possession of the assessee, the presumption is raised against the assessee - the assessee has clearly stated that the bank officials have refused to divulge the information about the clients - the AO should have carried out the enquiry from the banks – thus, the matter is to be remitted back to the AO for ascertainment of whether the accounts belongs to the assessee or not – Decided in favour of Assessee. 2014 (7) TMI 466 Interest expenditure – Held that:- The decision in Eminent Holdings Pvt. Ltd. [2014 (7) TMI 2 - ITAT MUMBAI] and Hitesh S. Mehta Versus DCIT Central Circle- 23, Mumbai [2013 (10) TMI 1065 - ITAT MUMBAI] - books of accounts produced by the assessee during the assessment proceedings has been held to be unreliable - rejection/ reliability of the books of accounts and the proposed adjudication of the CIT(A) in view of the direction may have direct impact on the issue of the liability – the matter is liable to be remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee. Levy of interest u/s 234 of the Act – Held that:- The decision in The Commissioner of Income Tax Versus Divine Holdings Pvt. Ltd. [2012 (4) TMI 100 - BOMBAY HIGH COURT] followed - provisions of section 234A, 234B and 234C were applicable to the notified person also - provisions of section 234 of the Act are applicable - as far as calculation part is concerned, there was merit in the submission made by the assessee – thus, the matter is remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee. 2014 (7) TMI 465 Addition of interest fee and commission – ECG granted by overseas branches – Held that:- Following M/s Credit Lyonnais Versus ADIT(International Taxation) [2014 (7) TMI 1 - ITAT MUMBAI] - the interest cannot be taken into account for attribution of income towards service charges/fees - only the fee charged by the foreign branches can be taken into consideration for making adjustment under transfer pricing provisions - the adjustment in respect of fee and other charges received by the foreign branches on the borrowers of ECG should be estimated @ 20% - Decided partly in favour of Assessee. Claim of loss in re-valuation - Outstanding foreign exchange contracts– Held that:- Held that:- CIT Versus M/s Woodward Governor India P. Ltd. & M/s Honda Siel Power Products Ltd. [2009 (4) TMI 4 - SUPREME COURT] – assessee entitled to adjust the actual cost of imported assets at each balance sheet date - Decided against Revenue. Disallowance of expenses u/s 14A r.e Rule 8D of the Act – Earning of exempt income – Held that:- Rule 8D is not applicable for the AYs prior to 2008-09, relying upon Godrej & Boyce Mfg. Co. Ltd. v/s DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] - some reasonable basis has to be adopted, for the purpose of disallowance - the Tribunal has already held that 2% of the total exempt income should be disallowed for the purpose of section 14A, which will take care of administrative expenses, the disallowance u/s 14A, should be restricted to 2% of the exempt income earned by the assessee – Decided partly in favour of Assessee. 2014 (7) TMI 464 Nature of Bond service expenses – Held that:- CIT(A) was rightly of the view that the bonds servicing expenses as revenue in nature for bond like loans are liability of the company which has to be returned back to the bond holders and cannot be equated with the share capital – Relying upon Brooke Bond India Limited Versus Commissioner of Income-Tax [1997 (2) TMI 11 - SUPREME Court] - no disallowance was made by the assessing officer in any other year - it has no linkage with the resources for raising of the bonds - in factual terms the expenditure clearly amounts to revenue in nature – thus, there was no infirmity in the order of CIT(A) – Decided against Revenue. Capital recovery on leased assets – Held that:- The decision in DCIT (LTU) LTU New Delhi Versus Indian Railway Finance Corporation Ltd. [2014 (7) TMI 125 - ITAT DELHI] followed - even after deduction of finance income, the full value of the cost of assets is fully recovered in lease period of 30 years and it is a case of Finance Lease as per the guidelines issued by ICAI - the AO should verify the charts and if the condition is satisfied, all the transactions should also be accepted as finance lease transactions – thus, the matter is remitted back to the AO – Decided in favour of Revenue. Bond issue expenses – Held that:- The decision in M/s. Indian Railway Finance Corpn. Ltd. Versus Addl. Commissioner of Income-tax, Range – 11, New Delhi [2011 (1) TMI 1272 - ITAT DELHI] followed - the expenditure would qualify only for amortization u/s 35D of the Act - the expenditure was a permissible deduction and accordingly deleted the addition made by the AO – thus, bond issue expenses will be allowable as deduction as revenue expenditure – Decided against Revenue. Prior paid expenses – Held that:- The decision in M/s. Indian Railway Finance Corpn. Ltd. Versus Addl. Commissioner of Income-tax, Range-11, New Delhi [2009 (8) TMI 1114 - ITAT DELHI] followed - If the AO is of the view that the expenses are pertaining to the prior period, it is required to be considered for the prior and allowed in that year - If it is found that the expenses are allowable in this year on the basis of crystallization of liability, it may be considered in the year – the assessee is directed to place necessary evidence in support of claim of expenses – thus, the matter is remitted back to the AO – Decided in favour of Assessee. Depreciation on office building – Held that:- The decision in Mysore Minerals Ltd. Versus Commissioner of Income-Tax [1999 (9) TMI 1 - SUPREME Court] followed - depreciation is an allowance for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business - The very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset and is utilizing the capital asset and thereby losing gradually the investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time - there cannot be two owners of the property simultaneously and in the same sense of the term - The intention of the Legislature in enacting Section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time-being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purpose of his business or profession - Assigning any different meaning would not sub-serve the legislative intent - the assessee is eligible to depreciation - There is no infirmity in the order of CIT(A) which is upheld – Decided against Revenue. 2014 (7) TMI 463 Claim of deduction u/s 80HHC of the Act – Amended section not complied - Turnover exceeds Rupees Ten crores – Held that:- The assessee has rightly claimed deduction u/s.80HHC in accordance with judgment of M/s Topman Exports Versus Commissioner of Income Tax, Mumbai [2012 (2) TMI 100 - SUPREME COURT OF INDIA] – there is no infirmity in the order of the CIT(A) in deleting the dis-allowance made by the AO u/s.80HHC of the Act – but, for computation of deduction, it would be appropriate to remit the matter back to the AO – AO shall recompute the deduction in accordance with M/s.Avani Exports & Others Vs. CIT [2012 (7) TMI 190 - GUJARAT HIGH COURT] – Decided partly in favour of Revenue. 2014 (7) TMI 462 Application of section 40A(3) - purchase of mobile recharge vouchers on a wholesale basis - Involvement of cash payment – withdrawal from ATM - payments which are made by way of direct deposit into the Bank Account of the creditor - Rule 6DD - principal agent relationship - Held that:- Assessee is an individual who has undertaken dealings in mobile recharge vouchers on a wholesale basis – Relying upon S. Rahumathulla Versus Assistant Commissioner of Income-tax [2010 (4) TMI 905 - ITAT COCHIN] - payments made by the assessee towards purchases of Telephone cards were by way of cash which was sought to be disallowed by the AO by invoking section 40A(3) of the Act - there is no scope for invoking the provisions of section 40A(3) of the Act - the disallowance made by the AO by invoking section 40A(3) in the present case is misplaced - provisions of section 40A(3) of the Act are inapplicable in respect of transactions – thus, the order of the CIT(A) and AO is directed to delete the disallowance made by invoking section 40A(3) of the Act – Decided in favour of assessee. 2014 (7) TMI 461 Carry forward and set of the unabsorbed depreciation u/s 32(2) of the Act – Effect of amendment under Finance Act 2001 w.e.f. 01.04.02 – Held that:- The decision in GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX [2012 (8) TMI 714 - GUJARAT HIGH COURT] followed - any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001, thus once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever – Revenue was not able to brought out any contrary decision – Decided against Revenue. Validity of re-assessment proceedings u/s 147/148 of the Act - Deduction incurred on payment of compensation for re-rating of shares – Held that:- The AO has made the addition in respect of the income for which reasons for escapement of assessment were recorded by him i.e. unabsorbed depreciation - Merely the additions so made stand deleted by the CIT(A) will not make the action of the assessing officer illegal if he has added any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently, in the course of the proceedings u/s 147 - reasons u/s 148 was duly recorded for escapement of the income in respect of unabsorbed depreciation - section 147 of the Income Tax Act talks of AO not of the appellate authority - there is no illegality as per the provision of section 147 of the Income Tax Act – Decided against Assessee. Amortization of expenses u/s 35DD of the Act – Held that:- The true nature of the expenditure is that the company has compensated the lenders as they agreed to take the shares in ICCL at a higher price than what was proposed by them in their structured settlement during the year 2003 - expenditure so incurred is clearly on capital account, it cannot be regarded to have been incurred for serving the debt or to have been incurred for the purpose of the amalgamation - This expenditure can also not be regarded to have been incurred for the purpose of the amalgamation as the debts has been converted into the equity shares at a lesser value prior to the merging of the ICCL into IMFA and compensation has been paid to the lenders on conversion of the debts into equity shares at a higher value - compensation paid is directly linked with the loss suffered by the lenders on account of conversion of debts into equity shares due to the amended proposal - The assessee gets benefited in consequence that it has to allot less shares in its company to the erstwhile shareholder of ICCL - Thus this expenditure has clearly being incurred by the assessee on capital account for the purpose of share capital- the expenditure cannot be allowed as a revenue expenditure u/s 37(1) as it is a capital expenditure. The assessee also cannot get deduction u/s 35DD of the Income tax Act as this expenditure has nothing to do with the amalgamation and incurrence of this expenditure was made for allotting the shares in ICCL not for the purpose of amalgamation of ICCL with the assessee – Decided against Assessee. 2014 (7) TMI 460 Claim of deduction of bad debts/business loss – Held that:- Assessee has written off the amount and explained that the assessee engaged in the sale and servicing of computers and related activities was raising bills to its customers - Many of its customers deducted certain amount from the bills on account of various reasons such as rate difference, lack of proper servicing i.e. upto the satisfaction of the customers - This amount being not realized/realizable was debited to the rate difference amount - there is no material on record to doubt the genuineness of the claim of the assessee – Relying upon TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] – Decided in favour of Assessee. Deduction of interest – Held that:- The assessee has advanced the amount to third party for making purchases in the normal course of its business, it was a business advance on which no interest was chargeable - disallowance of interest by the AO that the advance was out of borrowed capital is not sustainable – Decided in favour of Assessee. 2014 (7) TMI 459 Condonation of delay – Held that:- CIT(A) has recorded that the assessee has neither filed any application for condonation of delay, nor has made any ground of appeal regarding the condonation of delay - assessee has not given any reason as to why the appeals were filed late and hence, the appeals were liable to be dismissed, as time barred – there was no reason for the delay in filing the appeal before the CIT(A) by more than one year could be given on behalf of the assessee - there is no reason to disbelieve the panchnama dated 2.1.2009 in support of the claim of the department that the both the assessment orders were served by affixture on 2.1.2009, after the assessment orders were dispatched by speed post on 31.12.2008, and were received back by the department from the postal authorities - the CIT(A) has validly dismissed the appeals. Initiation of proceedings u/s 147 and 148 of the Act – Held that:- The CIT(A) has passed a well-reasoned speaking order on the issue - the assessments for AY 1994-95 and 1995-1996 were reopened u/s 147 with prior approval of the JCIT and the notice u/s 148 was served on the son of assessee, Shri Devang Sachdev - the reasons recorded by the AO while reopening the assessment proceedings u/s 147 were communicated to the assessee and the assessee could not file any objection - the assessee was from the very beginning aware of all the developments - department has served the notice by affixture at the last known address of the assessee and copy of the panchnama was filed before the CIT(A) by the AO - There is no material to doubt the genuineness of the panchnama regarding service of notices - there is no mistake in the order of the CIT(A) on the issue that the grounds of the appeal are meaningless and dismissed as raised without any basis, and the notices were validly served as stated by the AO in the remand report and the orders have also been served as detailed in the orders of the CIT(A). It is not a case where the assessee was not given opportunity to prove the source of credit entries by the AO and the CIT(A) - The assessee has not even filed confirmation letters from most of the creditors - the onus is on the assessee to prove the identity and credit-worthiness of the creditors and also genuineness of the transactions - the assessee has miserably failed to discharge its onus cast on it under the statute and could not establish the identity and credit worthiness of creditors and genuineness of the transaction - the CIT(A) has passed a well-reasoned speaking order on the merits of the case, and the assessee could not controvert even a single line – Decided against Assessee. 2014 (7) TMI 458 Reopening of assessment u/s 147 of the Act – Change of opinion – Held that:- The AO has pointed out five issues, on the basis of which he has entertained the belief that there was escapement of income - the assessee contended that the AO has already examined the issues and formed opinion, yet no material was placed to substantiate the claim - one of the issues related to the excessive claim of depreciation that was allowed in the original assessment order - AO found it to be excessive on the basis of tax audit report, the eligible depreciation certified by the tax auditor differed from the amount that was actually allowed in the assessment order - it cannot be said that the AO had formed any opinion - the assessee did not produce any material to substantiate its claim that the AO – thus, the contentions of the assessee cannot be accepted. Depreciation on fixed assets – Held that:- There was difference in the amount of depreciation that was claimed in the return of income and that was certified by the tax auditor - the assessee has furnished an explanation, viz., the opening WDV of automatic voltage controller and motor cars purchased in the earlier years got changed due to the application of wrong rate of depreciation in the earlier years - the explanation of the assessee was not examined by the AO - the AO was not justified in not examining the explanations given by the assessee before making the disallowance – thus, the matter is remitted back for fresh Adjudication – Decided in favour of Assessee. Assessment of inter-branch credit balance transferred to the reserve account – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that, if the assessee bank has not claimed debit of such entries made in the branch, then credit of such entries cannot be treated as income – the AO will be required to ascertain as to whether the corresponding debit entry has been claimed by the branch as expenditure and if the same has not been claimed as expenditure, then the amount credited cannot be taxed as income - CIT(A) has followed the decision rendered by the co-ordinate bench of the Tribunal in the assessee’s own case – thus, there is no reason to interfere in the order of the CIT(A) – Decided against Assessee. Appreciation in valuation of securities held as “Stock in trade” – Held that:- The AO has not been properly appreciated about the method adopted by the assessee - If the assessee is following the method of valuation, the appreciation of value of any stock, the loss of which was claimed in the earlier year, would be automatically get adjusted in the valuation - the assessee has failed to furnish the details of valuation of stock in trade and has also failed to clarify the doubts raised by the AO and hence the AO was constrained to make adhoc disallowance - the assessee is claiming that it is following consistent method of valuation, the assessee should furnish all the relevant details and clarify the doubts raised by the AO in respect of the claim – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Provision for bad debts written off u/s 36(1)(viia) of the Act – Held that:- The issue requires only clarification as to whether the assessee has to satisfy the AO that it has debited the bad debts written off by it (a) first to the “Provision for bad and doubtful debts account” and (b) the net debit balance found in the provision account was only claimed as deduction u/s 36(1)(vii) of the Act - the disallowance has been made since the AO was not properly appreciated of the methodology followed by the assessee for claiming deduction u/s 36(1)(vii) and 36(1)(viia) of the Act - this matter also requires examination at the end of the AO – thus, the matter is remitted back to the AO for fresh examination – Decided in favour of Revenue. 2014 (7) TMI 457 Reopening of assessment u/s 147 of the Act – Mere change of opinion – Held that:- The AO had required the assessee to explain as to why income from bonded warehouses be not accounted for on accrual basis - The relevant point regarding accrued income from bonded warehouse had been disclosed in note no. 11 of the notes forming part of the accounts which were available in the printed accounts of the Corporation – AO completed the assessment after considering the assessee's reply - it was clearly a case of change of opinion to tax the income from bonded warehouses on accrual basis which is not permissible as decided in Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - the reopening has been done after four years of the close of re-assessment year in 2011 and therefore, it could be done only if assessee failed to disclose fully and truly all material facts necessary for assessment - From the query raised by AO and reply filed by Assessee it is evident that there was no failure on the part of assessee to disclose that the income from bonded warehouses was accounted for on realization basis and not on accrual basis – Decided against Revenue. 2014 (7) TMI 456 Freight charges u/s 40(a)(ia) of the Act – Failure to deduct TDS u/s 194C of the Act - Held that:- The decision in Commissioner of Income-tax-I Versus Valibhai Khanbhai Mankad [2012 (12) TMI 413 - GUJARAT HIGH COURT] followed - The requirements of section 194C(3), principally, are that the sub-contractor, recipient of the payment produces a necessary declaration in the prescribed format and further that such sub-contractor does not own more than two goods carriages during the entire previous year. - once the conditions of further proviso of section 194C(3) are satisfied, the liability of the payee to deduct tax at source would cease - The requirement of payee to furnish details to the income tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of deduction at source applicable under subsection (2) of section 194C of the Act - It may be that failure to comply requirement by the payee may result into some other adverse consequences if so provided under the Act - fulfilment of requirement cannot be linked to the declaration of tax at source - any such failure therefore cannot be visualized by adverse consequences provided under section 40(a)(ia) of the Act - the assessee had collected Form15-I from different truck owners and the list was furnished for an amount totaling ₹ 3,58,61,008/- which was duly acknowledged by the AO – thus, the order of the CIT(A) is upheld – Decided against Revenue. Undisclosed receipt – treatment of income on the basis of TDS certificates - Held that:- CIT(A) rightly held that the entire receipt cannot be treated his income as per settled legal preposition - It is only the income component out of it which can be legally said to be appellant’s undeclared and undisclosed income - TDS deducted out of such receipt as appearing in ITS details has to be given credit since the same was not claimed and corresponding income is if included in total income - The same credit has to be given – thus, there is no reason to interfere in the order of the CIT(A) – Decided against Revenue. Service Tax 2014 (7) TMI 500 Penalty u/s 76 & 78 - Simultaneous penalty - Commissioner set aside penalty u/s 76 and sustained penalty 78 - whether imposition of simultaneous penalties under Sections 76 and 78 of the Act could be imposed, prior to amendment of Section 78 - Held that:- appeal arises out of an adjudication order dated 25.02.2008 passed by the Assistant Commissioner, Chandigarh, a quasi-judicial Authority functioning within the territorial jurisdiction of the Punjab and Haryana High Court. In the circumstances and in view of the decision of a Larger Bench of this Tribunal in Collector of Central Excise vs. Kashmir Conductor’s - [1997 (7) TMI 186 - CEGAT, COURT NO. II, NEW DELHI], the decision of the Punjab and Haryana High Court within whose jurisdiction the adjudicating authority exercises adjudicatory functions has to be followed and that constitutes the operative law. Consequently, in so far as the respondent -assessee is concerned, simultaneous penalties under Sections 76 and 78 cannot be imposed and the judgment of the Appellate Commissioner which is in conformity with the judgment of the Punjab and Haryana High Court in M/s First Flight Courier Limited (2011 (1) TMI 52 - High Court of Punjab and Haryana), is unassailable. - Decided against Revenue. 2014 (7) TMI 499 CENVAT Credit - GTA service - transportation of finished goods - scope of "input service" as defined by Rule 2(l)(i) - upto the place of removal - Held that:- Service tax is levied on the service recipient against transport service availed. The appellant was recipient of service of transport for transporting its finished goods and such service suffered tax - The Board Circular No. 97/8/2007-ST dated 23.08.2007 appears to have overrided the provision of Cenvat credit Rules granting credit of service tax paid on transport service availed at post manufacture stage for delivery of finished goods at the door stop of the customer. The definition of "input service" under Rule 2(l) of Cenvat credit Rules 2004 underwent amendment with effect from 01.04.2008 and with effect from 01.04.2011. Prior to 01.04.2011 and with effect from 01.04.2008 the said definition covered outward transportation "up to" the place of removal while the word "from" was used prior to that, in Rule 2(i) of aforesaid Rules. The appellant is different from the recipient (sister concern) of the finished goods - Prima facie, the method of accounting followed does not change the incidence of taxation. Cenvat credit being a grant of law that should be interpreted in a manner that advances object of the statute. - stay granted partly. 2014 (7) TMI 498 Consulting engineer service - scope of taxable service - levy on body corporate - Held that:- since the assessee is a company registered under the provisions of Companies Act, 1956, it falls outside the purview of the definition of ‘consulting engineer’ in Section 65(31) , as the provisions stood during the relevant period 2001-03. It requires to be noticed that with effect from 1.5.2006, Section 65(31) was amended to bring within the ambit of the definition of ‘consulting engineer‘, ‘anybody corporate’. Prior to 1.5.2006, consulting engineer is defined to mean ‘any professionally qualified engineer or any other firm who either directly or indirectly renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering. It is only with effect from 1.5.2006 that a body corporate comes within the ambit of ‘consulting engineer’ service in Section 65(31). - therefore, respondent/assessee falls outside the purview of the definition ‘consulting engineer’, since it is a company registered under the Companies Act,1956, and the relevant period is 2001-03, prior to 1.5.2006 - Following decision of C.S.T., Bangalore vs. Turbotech Precision Engineering Pvt. Ltd. [2010 (4) TMI 344 - KARNATAKA HIGH COURT] and C.C.E.& Service Tax vs. Simplex Infrastructure & Foundry Works [2013 (5) TMI 336 - DELHI HIGH COURT] - Decided against Revenue. 2014 (7) TMI 495 Waiver of pre-deposit - GTA services - transportation, insurance, installation, commissioning and conducting guarantee tests service - Held that:- Appellant entered into a contract with M/s.NTPC, which is a composite contract and one of the services to be provided by the appellant is GTA service for transportation of the goods from port to the premises of NTPC. The appellant, instead of undertaking the said services themselves further engaged M/s.Lee & Muirhead Pvt. Ltd. for doing the job. M/s. Lee & Muirhead Pvt. Ltd. further engaged a actual transporter for transporting the goods. The consignments notes issued by the actual transporter clearly reveal that the consignee of the goods is M/s.NTPC. Admittedly, the appellant has not provided any such GTA service nor received any GTA service either from M/s.Lee & Muirhead Pvt. Ltd. or from the actual transporter. The service actually stands provided by the ultimate transporter, M/s. ESSEMM Logistics, Vizag to NTPC. It is the NTPC who is liable to pay freight to the service provider and it actually stands paid by NTPC to M/s. ESSEMM Logistics, Vizag, may be through the appellant and through M/s. Lee & Muirhead Pvt. Ltd. In such a situation, it has to be prima facie held that the appellant as also M/s. Lee & Muirhead Pvt. Ltd. were also facilitating the transportation of the cargo, or were acting as an controlling agent for getting the work of transportation done. The appellant having neither actually provided GTA services nor having received the same, cannot be, in our prima facie view, called upon to pay any service tax liability as recipient of the GTA services - Stay granted. 2014 (7) TMI 494 Extended period of limitation - photography services - Penalty u/s 76, 77 & 78 - CENVAT Credit - Held that:- During the period 2006-07 and 2008-09, the respondents collected the service tax but did not pay the same to the department. Further, during the period they have not filed the service tax returns also. If the investigation was not conducted by the department and the statement had not been recorded on 13.12.2008, the facts of collection of service tax and not paying the same with the Government treasury would not have come into the knowledge of the department. In these circumstances, I hold that the respondents have suppressed the material facts of the collection of service tax from the customers and not paying the same with the department. - demand confirmed alongwith interest and penalty - Decided in favour of Revenue. 2014 (7) TMI 493 Demand of service tax beyond the scope of Show cause notice - Business support service - Cleaning services of toilets and coaches in trains - Held that:- The show cause notice had been issued on the basis that the activity of the appellant - cleaning of coaches and toilets of certain trains and supply of bed rolls to the passengers of ACs coaches is the ‘support service of business or commerce’ covered by Section 65 (105) (zzzq) readwith Section 65 (104c) of the Finance Act, 1994. There is no allegation in the show cause notice that in the alternative the Appellant’s services may be taxable as ‘business auxiliary service’ under Section 65 (105) (zzb) readwith Section 65 (19) (vi). The Commissioner (Appeals) in the impugned order after giving a finding that the Appellant’s activity is not ‘support service of business or commerce’ has gone on to examine the taxability of their activity as ‘business auxiliary service’ under Section 65 (105) (zzb) readwith Section 65 (19) and in doing so, he has traveled beyond the scope of show cause notice which is not permissible in view of the judgment of the Apex court in the cases of CCE, Nagpur vs. Ballaspur Industries Ltd. reported in (2007 (8) TMI 10 - SUPREME COURT OF INDIA ) and CCE, Bangalore vs. Brindavan Beverages (P) Ltd. reported in 2007 (2007 (6) TMI 4 - SUPREME COURT OF INDIA). In view of this, the impugned order is not sustainable - Decided in favour of assessee. Central Excise 2014 (7) TMI 502 Duty demand - Clandestine manufacture and removal of sponge iron - Allegation on basis of rail receipts - As per the said rail receipts, the iron ore stands transported and as per the revenue, received by the said appellant and further utilised in the manufacture of their final product - Supporting documents not provided to assessee - Held that:- Admittedly the Show Cause Notice annexed only the detailed chart prepared on the basis of the documents recovered from the third party premises. The said documents were not served upon the appellants in spite of a number of requests made by the appellants for the supply of the same. If the Revenue is relying upon some documents recovered from the premises of a third person, the least expected from the Revenue is to serve the said documents to the assessee or to at least to show the said documents to the assessee against whom huge demands are confirmed. Non-supply of the same is against the principles of fair and just adjudication which requires the adjudicating authority to disclose and supply the requisite material which Revenue intends to use against the assessee - It is difficult to understand as to why the relevant relied upon documents have not been provided by the appellate authority to the notice so as to avoid such type of uncalled for remands by the higher courts - Therefore, matter remanded back - Decided in favour of assessee. 2014 (7) TMI 487 Denial of CENVAT Credit - Items used in the fabrication of capital goods/parts/accessories/components and used within the factory - Lack of evidence - Held that:- applicant had taken a stand that these items are admissible for cenvat credit as these items were used in the fabrication of capital goods/parts/accessories/components and used within the factory. - Applicants have not proved that these items were actually consumed as raw material for fabrication of the capital goods. It is also observed that the applicants failed to produce proper records like issue slips, records showing details of various capital goods used for fabrication during the relevant period. It is an undisputed fact that these items were used in roofing structure as well as fabrication of capital goods. - Conditional stay granted. 2014 (7) TMI 486 Waiver of pre-deposit - cenvat credit - Repair and Maintenance services - Nexus with the business of the assessee and not welfare activity undertaken by the assessee - Held that:- Applicant is that the repair and maintenance of the garden, pest control and estate maintenance at the factory premises are integral part of the manufacturing activities. The Hon'ble Supreme Court in the case of Maruti Suzuki Ltd. (2009 (8) TMI 14 - SUPREME COURT) denied the Cenvat credit after examining the tests required for entitlement of credit and held that these services have no nexus with the manufacturing activity and hence Cenvat credit is not admissible. The Hon'ble Bombay High Court in the case of Commissioner of Central Excise, Nagpur Vs Manikgarh Cement reported in [2010 (10) TMI 10 - BOMBAY HIGH COURT] observed that expression "relating to business" would qualify an input service, the activity must have nexus with the business of the assessee and not welfare activity undertaken by the assessee. Services are activities relating to manufacture and also in keeping with the statutory orders of the Pollution Control Board, would be examined at the time of appeal hearing at length. Hence, prima facie, the applicant failed to make a case for waiver of pre-deposit of entire amount duty along with interest and penalty. - Stay granted partly. 2014 (7) TMI 485 CENVAT Credit - Input Services - Insurance of plant and machinery, goods in transit, cash in transit and insurance of vehicles, and laptop - Nexus with business - Held that:- an service for being cenvatable must be used in or in relation to the manufacture of final product whether directly or indirectly is not correct and any service having nexus with the business of manufacture which has been used by a manufacturer would qualify as an input service. Insurance of plant and machinery, goods in transit, cash in transit and insurance of vehicles, and laptop, is an integral part of manufacturing business, as no manufacturer would carry on manufacturing operations without insurance of plant & machinery, cash in transit, goods in transit, vehicles & computers, etc. against any loss due to accident, natural calamities, etc. In view of this, the services of plant and machinery, transit insurance of goods, insurance of cash in transit, laptop, etc. have to be treated as an activity related to the business and would be eligible for cenvat credit. Group Insurance of all Employees against sickness or accident, the same has been held as cenvatable by the judgements of Hon'ble Karnataka High Court in the cases of Stanzen Toyotetsu India (P) Ltd. (Stanzen Toyotetsu), Micro Labs Ltd. [2011 (6) TMI 115 - KARNATAKA HIGH COURT] and M/s. Millipore India Ltd. (2008 (11) TMI 97 - CESTAT, BANGALORE). Moreover, Group insurance of the employees against accident or sickness is the requirement of Section 38 of the Employees State Insurance Act, 1948, which a manufacturer has to comply with and accordingly, this service would have to be treated as a service used in or in relation to the manufacture of final products whether directly or indirectly, as a manufacturer would not be allowed to carry on manufacturing operations unless he complies with the requirements of Section 38 of the Employees State Insurance Act, 1948. Commissioner, has either ignored previous judgments and not given any findings as to how these judgments are not applicable or has made observations contrary for the judgments of the Tribunal/High Court and has decided the question of eligibility of various insurance services for Cenvat credit on the basis of his own interpretation of Rule 2 (1) of Cenvat Credit Rules, 2004 observing that amendment to this rule w.e.f. 01.04.2011 is a retrospective amendment and the insurance services, in question, have no nexus with manufacture of final products. The conduct of the Learned Commissioner amounts to clear judicial indiscipline and irresponsible exercise of adjudication function. Such exercise of adjudication powers in blatant violation of Apex Court's judgment in case of Union of India Vs. Kamlakshi Finance Corporation Ltd., reported in [1991 (9) TMI 72 - SUPREME COURT OF INDIA] requires to be censured as, if allowed to go unchecked, would lead to collapse of entire dispute resolution mechanism. Such adjudication orders burden not only the Assessee who has to incur avoidable expenses on challenging such order before the Courts/Tribunal, but also impose clearly avoidable costs for the Government, as the Tribunal's/Court's valuable time is also consumed in hearing appeals against such clearly erroneous and indisciplined orders, which should never have been passed. - Decided in favour of assessee. 2014 (7) TMI 484 Registered dealer - demand on account of excess sale of certain steel products from BSO, Bhilai as compared to the quantity of those products received from the respective steel plant - difference in stock on physical verification - Interest u/s 11AB - CENVAT Credit - Held that:- The entire case of the department against the appellant is based on the stock taking records at the BSO, Bhilai which mentioned excess receipt in respect of certain steel products received from certain steel plants i.e. in respect of certain steel products received from certain steel plants, the quantity sold as per the records of the stockyard is more than the quantity received from the steel plant. But this difference can be due to various reasons like difference in weighing scales and product mix up and just from this difference, it cannot be presumed that the concerned steel plants had cleared the alleged excess quantity without payment of duty. - Order not sustainable - Decided in favour of assessee. 2014 (7) TMI 483 Duty of duty of excise as well service tax on the same transaction - sale and marketing of excisable goods i.e. tobacco products - Penalty - Held that:- Revenue has undertaken two parallel proceedings in respect of the same transaction. On the one hand, they have treated the entire transaction as Business Support Services rendered by M/s SRPL and has accordingly confirmed the Service Tax demand and on the other they are treating the transaction as an excise transaction and on the same consideration received, excise duty demand of ₹ 4.6 crore (approx.) has been confirmed. The transaction cannot amount to both service and manufacture and sale at the same time; it can be only one of the two. On this very ground alone, the impugned order cannot be prima facie sustained. Further, we observe that there is no evidence available on record with regard to the receipt of the consideration by the main appellant M/s FTPL and all the C&F Agents and Directors of the main appellant M/s FTPL have denied having received any money. Similarly, in the case of transaction with Rajendra Trading Company in the jurisdiction of Aurangabad Commissionerate, the Revenue has taken a view that the duty demand is not sustainable - appellants have made out a strong case in their favour for grant of stay - Stay granted. 2014 (7) TMI 482 Interest on delayed refund - refund of cenvat credit under Rule 5 of CCR - when appellant themselves have given up their claim on interest for the period for delay, whether they cannot raise this issue at the appellate stage - Held that:- The refund under Rule 5 of the Cenvat Credit Rules, 2004 in the refund of in cash of the accumulated Cenvat Credit availed by a manufacturer in respect of inputs and input services used in the manufacturer of finished goods which had been exported without payment of duty under bond/LUT and which manufacture is unable to utilize for payment of duty on clearance for home consumption. Clause (c) of Proviso to section 11B(2) refers to the refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued under the Central Excise Act, 1944 , as the refund claim not hit by the principle of unjust enrichment. Thus section 11B covers the refund of Cenvat Credit mentioned in Clause (c) of the Provision to section 11B(c). Therefore, the refund claims filed under Rule 5 of the Cenvat Credit Rules, 2004 have also to be treated as refund claim under section 11B and the Proviso of Section 11B(2) would be applicable to the same. Just because the appellant by the letters addressed to the Jurisdictional Assistant Commissioner had given up their claim for interest on the amount of refund for the period of delay in sanction of the refund claims, they would not be estoppel from challenging the denial of interest and claiming the same when they are entitled for the same under the statutory provisions of Section 11BB. The impugned order is set aside and the Department is directed to pay the interest in terms of the provisions of Section 11BB. - Decided in favour of assessee. 2014 (7) TMI 481 Condonation of delay - Incomplete application - Held that:- The only reason given is that the papers were sent to lower formations for obtaining comments and due to Annual General Transfer (AGT), the papers got delayed. No details are given when the papers were sent and when the AGT took place. Since the application does not meet with the basic requirements of a COD application - Decided against Revenue. 2014 (7) TMI 480 Provisional assessment - Commissioner set aside the order of provisional assessment on the ground that Rule 7 of the Central Excise Rule, 2002 does not provide for order of provisional assessment by the department and the said Rule deals with only the provisional assessment at the request of the assessee - Held that:- both the Rule and instructions issued thereon provides for assessment of duty finally in a case where assessee is unable to determine the correct amount of duty or correct rate of duty and also does not opt for provisional assessment. - Decided against Revenue. When the Central Excise officers, during the scrutiny or otherwise, find that self-assessment is not in order, the assessee may be asked for all necessary documents, records or other information for issue duty demand for differential duty, if any, after conducting proper inquiry and in case the assessee fails to provide the records/information, ‘best judgment' method may be adopted to demand the duty. Thus, both the Rule and instructions issued thereon provides for assessment of duty finally in a case where assessee is unable to determine the correct amount of duty or correct rate of duty and also does not opt for provisional assessment - Decided against Revenue. 2014 (7) TMI 479 CENVAT Credit - reversal of credit towards exempted goods - demand of an amount @5%/10% of the sales value - common input services - Interest u/s 11AB - Penalty u/s 11AC - Held that:- The view of the department and the impugned order based on the same is absurd, as even if the appellant want to maintain separate account in respect of the services mentioned above, it would be impossible for them. Lex non cogit ad impossibilia is well settled legal principle and therefore, the option of maintaining separate account and inventory in respect of the services cannot be forced upon them. Moreover, Section 6(3) of the Rules, on account of retrospective amendment to this Rule, also gives an option to a manufacturer to reverse the proportionate credit in respect of the connated inputs/ input services used in or in relation to the manufacture of exempted final products, which the appellant in this case have done. In fact, the proportionate credit comes only to ₹ 13,231/- against which the credit reversed is ₹ 88,756/-. We are therefore of the view that the impugned order is not sustainable and as such, the appellant have a strong prima facie case in their favour - The requirement of pre-deposit of the amount demanded under Rule 6(3) of the Cenvat Credit Rules, interest thereon and penalty is, therefore, waived for hearing of the appeal and recovery thereof stayed - Stay granted. 2014 (7) TMI 478 Cenvat Credit - Issuance of bogus invoices - penalty on co-noticee - appellant being co-noticee was granted full immunity by the Settlement Commission - Penalty under Rule 26 of Central Excise Rules, 2001/2002 and Rule 13/15 of Cenvat Credit Rules, 2002/2004 - Benefit of Cenvat credit of duty paid on various inputs and capital goods - facility to manufacture the inputs not available - Non registration with Central Excise department - Assessee were only issuing invoices, without supply of goods or inputs, on the basis of which M/s. HUF was availing the credit - Difference of opinion - Matter referred to larger bench with following questions of law:- Whether appeals of appellant shall be allowed as held by learned Member (Judicial) OR Whether appeals of appellant shall be dismissed as held by learned Member (Technical). CST, VAT & Sales Tax 2014 (7) TMI 492 Unauthorise realization of taxes by the petitioner from the cinema goers - scheme of exemption versus scheme of grant-in-aid - contravention of the scheme in Government Order dated August 11, 2000 - Held that:- There was a complete departure in the new scheme provided in the Government Order dated August 11, 2000. The State Government, instead of allowing the cinema owners to charge the entertainment tax from the viewers, and keep it as "grant-in-aid" for compensating the cost of constructions of the cinema hall, provided an exemption under section 11(2) of the Act, in the new scheme vide Government Order dated August 11, 2000, and in which there is no mention of the word "grant-in-aid". The earlier schemes, under the Government Orders dated November 9, 1994 and December 7, 1998, were not for the benefit of the cinema goers; whereas the new scheme was framed for the benefit of the cinema goers, situate in a thinly populated area. The scheme was applicable to those areas, which has less than one lac population in accordance with census of 1991. Only new permanent cinema halls were provided with 100 per cent. exemption from paying entertainment tax for a period of five years. The cinema halls in the areas with population of more than one lac were provided with 100 per cent. exemption for a period of three years and thereafter with 50 per cent. exemption for the next two years. Clause 4 of the Government Order dated August 11, 2000 provided that those cinema halls, who are exempt from paying entertainment tax will not be allowed to realize extra charge for maintenance. There is nothing in the order of the District Magistrate dated September 10, 2001, which can be read or construed to permit the petitioner to charge entertainment tax from the cinema viewers, and keep it with her, after getting exemption under section 11(2) of the Act. The order only provided for exemption with the condition that in form B the collection from the viewers in respect of ticket charge, and the entertainment tax will be shown separately. The condition of showing entertain tax separately is for the statistical purpose, for the assessment of scheme. It cannot be treated to have allowed the petitioner to collect entertainment tax, and keep it by way of incentive. - in pursuance to the order passed by this court dated December 8, 2009, which was not stayed by the Supreme Court, the entertainment tax, which was illegally collected and not deposited in the State Treasury, has been realized from the petitioner - Decided against assessee. 2014 (7) TMI 491 Validity of Commissioner's order in revision - Commission remanded back the matter to assessing officer instead of to the first appellate authority i.e Joint Commissioner - Held that:- A right of appeal is a statutory right given to the assessee under the Act and just because an appellate authority committed a mistake in passing the order, it does not mean the assessee, who has a right of appeal should be deprived or denied of that right itself. An examination of the assessment order by the appellate authority one way or the other, while can still leave an opportunity to the assessee to take up the matter further, by way of an appeal to the Tribunal, no order by an appellate authority one way or the other, can also deprive further opportunity to the assessee, if the assessee is aggrieved by the order of the appellate authority. Order of the Commissioner set aside only insofar as it relates to the order allowing the matter to stand as it is, but instead remand the matter to the first appellate authority for reconsideration of the appeal of the assessee on the merits of the appeal and in accordance with the statutory provisions. - Decided partly in favour of assessee. 2014 (7) TMI 490 Exemption from payment of sales/purchase tax - Held that:- Admittedly, on the date of consideration of the petitioner's application, his business activity fell within the negative list as provided by entry 43 of Schedule III, appended to the rules. The writ petition was admitted as the entry was notified later. It is, however, not denied that during pendency of the writ petition, the State of Punjab, has in its wisdom and in the exercise of powers conferred by section 27 read with sections 10A and 30A of the Punjab General Sales Tax Act, 1948 amended the Rules by deleting entry 43 with retrospective effect from April 1, 1989 - The necessary affect of this notification is that entry No. 43 shall be deemed to have been deleted from April 1, 1989, in essence, removing any obstacle in the petitioner's entitlement to exemption. The application has to, therefore, be reconsidered, subject however to the petitioner satisfying the respondents that it has not charged sales tax from its customers - matter remitted back - Decided in favour of assessee. 2014 (7) TMI 489 Recovery of the sales tax/ trade tax dues outstanding against the Company - Ex parte order passed - Lifting the corporate veil - whether the liability due against the Company can be fastened and recovered against the Directors of the Company - Held that:- in a case where the corporate personality has been obtained by certain individuals as a mask to prevent tax liability or to divert the funds of the Company for some illegal purpose, the corporate veil can be lifted so that the persons can be identified and made responsible and the tax liability of the Company could be recovered from the persons responsible for such fraud. However, this doctrine cannot be applied as a matter of course in a routine manner to recover the dues of a Company on the mere pretext that the dues are now not recoverable from the Company and, therefore, a resort has been made to recover the dues of the Company from the personal assets of the Directors. If such a course is permitted, it will lead to disastrous results and would completely destroy the juristic personality of the Company. The principle of lifting the corporate veil is to find out as to who was responsible for committing the fraud and diverting the assets of the Company. It is not necessary that recovery has to be made against the Director or a promoter shareholder. The purpose of lifting the veil is to find out the person, who was operating behind the corporate personality for his personal gain. Company has filed an appeal against the ex parte assessment order, which is pending consideration. Consequently, the Company is still in existence. The substratum of the Company has not eroded. The mere fact that the Company has failed to pay the dues is by itself insufficient to invoke the doctrine of lifting the corporate veil and is not sufficient to ignore the statutory corporate personality conferred upon the Company - Company has filed an appeal against the ex parte assessment order, which is pending consideration. Consequently, the Company is still in existence. The substratum of the Company has not eroded. The mere fact that the Company has failed to pay the dues is by itself insufficient to invoke the doctrine of lifting the corporate veil and is not sufficient to ignore the statutory corporate personality conferred upon the Company - Decided in favour of assessee. 2014 (7) TMI 488 Issuance of Form D - construction of road whether a manufacturing activity - Revenue contends that in view of Explanation-I to Section 13(1) of the U.P. VAT Act the petitioner, not being a manufacturer was not entitled for Form-D - Held that:- Petitioner has been granted a recognition certificate under Section 4-B(2) of the U.P. Trade Tax Act and in view of Rule 25-B(1) of the U.P. Trade Rules, the petitioner is entitled to avail concessional rate of tax provided he furnishes a certificate, which is called a declaration form to the selling dealer. Such provision is, however, non-existent under the U.P. VAT Act but concessional rate of tax is provided through notifications issued under Section 4 of the U.P. VAT Act Commissioner committed a manifest error in its order issued under Section 59 of the Act in holding that a person engaged in the construction of roads was not a manufacturer. The Commissioner further erred in holding that under the Explanation to Section 13(1)(e), the transfer of property in goods involved in the execution of a works contract amounts to a resale of goods and, therefore, the assessee was entitled to the benefit of input tax credit under Section 13 of the Act and cannot be called a manufacturer. The issuance of a show cause notice to the petitioner by the Deputy Commissioner (Assessment), based on this decision of the Commissioner, is also erroneous. The definition of the word "manufacturer" as defined under Section 2(u) of the U.P. VAT Act is solely relevant for the purpose of giving the benefit of the notification dated 10th January, 2008 issued under Section 4(4) of the U.P. VAT Act. Explanation to Section 13(1)(e) does not in any manner override the definition of the word "manufacturer" as defined under Section 2(u) of the Act . Order of the Commissioner was not passed in the case of the petitioner and, consequently, the petitioner could not file an appeal. However, the order of the Commissioner is binding on the Assessing Authority pursuant to which the show cause notice was issued to the petitioner. The Court is of the view that rule of alternative remedy is one of discretion and is not one of compulsion - writ petition was entertained in the year 2008 and an interim order was issued directing the authorities to issue Form-D. Affidavits have been exchanged and, consequently, it would not be appropriate to delegate the petitioner at this stage to avail the alternative remedy - Decided in favour of assessee.
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