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TMI Tax Updates - e-Newsletter
July 16, 2015
Case Laws in this Newsletter:
Income Tax
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
TMI SMS
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Income Tax - No manual refund will be issued in a case which has been processed on AST. In exceptional cases, manual refunds may be issued with safeguards as prescribed.
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Penalty levied u/s 271AAA - It is the Department on whom, onus of proving that expenditure recorded in the books is bogus or false based on documentary evidences found in the course of search - no Penalty - AT
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Exemption u/s 54B - The plain language of Section 54B requires the land sold to have been in use by the assessee or by his parents or the HUF for agricultural purposes for a period of two years immediately preceding the date on which the transfer took place. There is nothing in this section that bifurcates the period of the use during these two years. - HC
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Expenses incurred under the head 'market research' - revenue v/s capital expenditure - one of its ventures has ended in a loss and that loss is attributable to business and it cannot be deemed to be a new enterprise and a capital expenditure. - HC
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Computation of capital gain - ITAT is not justified in concluding that there is no transfer of FAR during the relevant year - Tribunal is also not justified in holding that no income has accrued during the year as no construction has taken place relating to such FAR - HC
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Entitlement to deduction under Section 80IB - admittedly the three (3) machines were sold by the assessee, of course, to its group companies for consideration. Hence, it cannot be said that the machines were manufactured only on trial basis and not for commercial purposes - HC
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Transfer Pricing Adjustment - CIT(A) restricted addition - selection of comprables - TPO / A.O. directed to adjust operating cost by excluding abnormal cost incurred on account of start-up company like salary, rent and depreciation. - AT
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Consultancy fee paid to Ms Olaf Grandlund OY Finland - Where the Finnish enterprise does not have a PE in India under the provisions of Article 5 of the India-Finland treaty, no portion of the income from services provided to a customer in India are liable to taxation in India. - AT
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Non-deduction of TDS u/s 195 - expenses incurred by the assessee to International Project Services Oy. (IPS) - Since the relevant information for ascertaining the duration of stay of such residents of Finland in India is not available on record, matter remanded back - AT
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Commercial expediency - Change of head of income from 'Íncome from business and profession’ to 'Íncome from House property’ - warehousing business on leased land - income of the assessee should be assessed under the head ‘business or profession’ - AT
Service Tax
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Cenvat credit - input services - service tax paid on the services of tour operators/travels for transporting the staff working at their factory (pickup and drop) - credit allowed - HC
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Penalty under Section 78 - By recovering the Service Tax from their service recipients and not paying the same to the Dept. has to be considered as evasion of Service Tax with intention to evade when no periodical returns were filed - levy of penalty confirmed - AT
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Denial of Cenvat credit - whatever credit has been taken by them having revenue neutral situation therefore, the appellant is not required to reverse the Cenvat credit taken on transportation of dry sugar to their sister unit. - AT
Central Excise
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Irregular availment of capital goods credit availed on the CVD paid on the imported capital goods cleared under EPCG licence - no suppression of facts by the appellants with deliberate intention to evade duty - Penalty levied u/s 11AC waived - AT
VAT
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Detention of the goods - non-movement of goods in a particular route - when there is no provision, that taking a diversified route from the regular route, the respondent is entitled to intercept the vehicles, this Court is not able to find any merit either in the goods detention notice - HC
Case Laws:
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Income Tax
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2015 (7) TMI 493
Addition of Provision for doubtful debts and the provision for loss of assets required to be added back to the book profit as required under section 115JA - CIT(A) deleted the addition - Held that:- CIT(A) had followed the judgment of the Hon’ble Supreme Court in the case of HCL Comnet Systems & Services Ltd.(2008 (9) TMI 18 - SUPREME COURT ) to hold that the provision made for bad and doubtful debts cannot be added back in computing book profits u/s 115J of the Act. The Hon’ble High Court in the assessee’s own case for the assessment year 1999-2000 has only considered the decision of the jurisdictional High Court in the case of CIT vs. Yokogawa India Ltd. reported in (2011 (8) TMI 766 - KARNATAKA HIGH COURT) to come to the conclusion that the Explanation to sec.115J was not attracted to a provision made for bad and doubtful debts. We find that even in the present case, the facts need verification in the light of the judgment of the Hon’ble jurisdictional High Court in the assessee’s own case for the earlier assessment year. Therefore we set aside the issue to the file of the AO for verification of the accounts and for re-computation. It is further observed that the ground raised by the revenue is that the assessee itself has added the said sum in its computation sheet. According to us this is not relevant as the assessee had added the said amount in the regular computation and not under the computation u/s 115JA of the Act - Decided in favour of revenue for statistical purposes. Addition being ‘provision for exchange fluctuation’, while computing book profit - CIT(A) holding that the addition can be made only of the items provided for under the Explanations (a) to (f) to sec.115J of the Act and that the exchange fluctuation is not provided under the Explanation, held that the same cannot be added back - Held that:- The assessee had added the said amount in its computation sheet under the regular computation and not in the computation u/s 115J of the Act. We find that the decision of the jurisdictional High Court in the assessee’s own case applies to this ground also. Therefore, for the reasons given above, this issue also is set aside to the file of the AO for verification as directed the jurisdictional High Court. - Decided in favour of revenue for statistical purposes. Interest u/s 244A - Held that:- Section 244 refers to the liability fastened on the Central Government in case of failure to grant refund within the stipulated time in a case where refund is due to the assessee in pursuance of an order referred to in Section 240. A combined reading of both the provisions makes the position crystal clear that it is any amount which becomes due to the assessee and not necessarily the tax component.See Commissioner of Income Tax versus Goodyear India Limited, [2001 (2) TMI 114 - DELHI High Court]. Thus Assessee was entitled to interest in terms of Section 244 of the Act- Decided in favour of assessee.
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2015 (7) TMI 492
Transfer pricing adjustment - CIT(A) in confirming the order of the Assessing Officer (AO) as regards most appropriate method for computation of arm’s length price (ALP) and the comparables selected by the AO on the basis of product comparability as against the functional comparability adopted by the assessee - Held that:- As far as the revenue’s appeal against the deletion of Vimta Labs Ltd., from the list of comparables is concerned, though the learned Departmental Representative has relied upon the order of the AO, we find that the TPO has, in the remand report (which is reproduced at 14.2.1 of the order of the CIT(A)) has stated that Vimta Labs Ltd., was into contracting, research and technical activity and therefore is functionally dissimilar to the assessee. Since the TPO himself has agreed that the said company is not comparable to the assessee-company, we do not see any reason to interfere with the order of the CIT(A) on this issue and the revenue’s ground of appeal on this issue is rejected. As regards the basis comparability adopted by the TPO i.e. the product comparability as against the functional comparability adopted by the assessee is concerned, it is stated by the learned counsel for the assessee that the very same issue had arisen in the case of related party to the assessee i.e. M/s.GE BE Pvt. Ltd. wherein issue is decided in favour of assessee. Depreciation on plant and machinery purchased from Elpro International Ltd. - Held that:- This issue had first arisen in the assessment year 1998-99 and had come up to the Tribunal for adjudication and the Tribunal had set aside the issue to the AO for verification of the claim of the assessee. It is submitted by the learned counsel for the assessee that the AO had made disallowance of depreciation in the orders passed u/s 143(3) r.w.s. 254 for the assessment years 1998-99 and 1999-2000 and the appeals against the same are pending before the CIT(A). He submitted that all the details were furnished before the CIT(A) for the assessment years 1998-99 and 1999- 2000 and therefore this issue is to be remanded back to the file of the CIT(A) to give effect to the orders of the CIT(A) for the assessment years 1998-99 and 1999-2000 as this is a subsequent year and the orders for the assessment years 1998- 99 would have consequential effect for the relevant assessment year also. We, therefore, remand this issue to the file of the CIT(A) with a direction to give consequential effect to the order of his predecessor for assessment year 1998-99 onwards.
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2015 (7) TMI 491
Transfer pricing adjustment - selection of comparable - Held that:- We direct the AO to exclude Infosys Ltd., from the final list of comparables both on the ground of size and diversity of activities as well as turnover of more than ₹ 200 crores. Exclusion of Flextronics Software Systems Ltd., iGate Global Solutions Ltd. (segment), Mindtree Consulting Ltd., Persistant Systems Ltd., and Sasken Communication Ltd., from the final list of comparables on the ground that their turnover is more than ₹ 200 crore. Exclusion of KALS Info Systems Ltd., Accel Transmatics Ltd. (segment), Tata Elxsi Ltd. (segment) from the final list of comparables on the ground of functional dissimilarity. If the above companies are excluded from the final list of comparables, the average arithmetical mean of the remaining companies would be 11% and after working capital adjustment it would come be 8.11%, whereas the assessee’s operating margin on cost was 10.48% and therefore, the international transaction is at arms’ length price being within + or -5 of the average arithmetical mean of the comparable companies. The working of the said computation is filed before us. We direct the AO to verify the same and if found to be correct, then no adjustment is called for. - Decided in favour of assessee for statistical purposes. Reduction of telecommunication expenses and traveling expenditure incurred in foreign currency from the export turnover only while computing the deduction u/s 10A - Held that:- This issue is covered in favour of the assessee in the case of CIT vs. Tata Elxsi (2011 (8) TMI 782 - KARNATAKA HIGH COURT) and respectfully following the same, we direct the AO to exclude telecommunication expenses as well as travelling expenditure incurred in foreign currency both from export turnover as well as total turnover for the purpose of computing deduction u/s 10A of the Act. - Decided in favour of assessee.
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2015 (7) TMI 490
Penalty levied u/s 271AAA - CIT(A) retained part penalty levy - Held that:- Undisclosed income means “any income represented by any documents” found during the course of search, which are not recorded in the books of accounts of the assessee. In the instant case, the additions of cash expenses and payments of ₹ 71,90,623/- is the result of cash available out of the disclosed cash of ₹ 6.84 crores which was included in the disclosure petition. Further, addition of ₹ 15 lakh on account of alleged cash receipts from Sampoorna Logistics, which was alleged to be reimbursement, it is clear that expenditure recorded in the books of accounts can be held to be undisclosed income of the assessee if the said expenditure is found to be false. It is the Department on whom, onus of proving that expenditure recorded in the books is bogus or false based on documentary evidences found in the course of search. Here in the present case, no documentary evidences establishing the falsity of claim of transportation charges paid to Sampoorna Logistics was found in the course of search. According to us the said expenditure cannot be held to be undisclosed income of the assessee for the purpose of levying penalty u/s. 271AAA of the Act. Penalty cannot be levied merely on the admission of the assessee and there must be some conclusive evidence before the AO that entry made in the seized documents, represents undisclosed income of the assessee. In the instant case, in respect to the amount of ₹ 1,13,65,623/-, there is no evidence which proves that the entries recorded in the documents found during the course of search is over and above the income as declared by the assessee at ₹ 6.84 crores as undisclosed income and accepted by Revenue. In view of the above, we delete the penalty and allow the appeal of the assessee. - Decided in favour of assessee.
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2015 (7) TMI 489
Amendment to Section 80HHC(3) - Held that:- As relying on - In essence the High Court has quashed the severable part of third and fourth proviso to Sec.80HHC (3) and it becomes clear therefrom that challenge which was laid to the conditions contained in the said provisos by the respondent has succeeded. However, to make the position crystal clear, we substitute the direction of the High Court with the following direction: "Having seen the twin conditions and since 80HHC benefit is not available after 1.4.05, we are satisfied that cases of exporters having a turnover below and those above 10 cr. Should be treated similarly. This order is in substitution of the judgment in Appeal." Also see CIT. & Anr Versus M/s Avani Exports & Anr [2015 (4) TMI 193 - SUPREME COURT]
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2015 (7) TMI 488
Capital gains on account of the transfer of the immovable properties - ITAT directing the Assessing Officer to adopt the value as on 01.04.1981 at the rate of ₹ 2,833/- per marla ignoring report of the Valuation Officer who took 12 instances including 2 sale instances given by the assessee in arriving at value of 1118 per marla of the land as on 01.04.1981 - Held that:- The Tribunal's reliance upon the instances of sale furnished by the assessee cannot be said to be perverse or irrational. Absent anything else, proximity of the land in question is not only an important, but a relevant factor. The Tribunal, therefore, accepted the valuation of ₹ 2833/- per marla as contended by the assessee and rejected the valuation of ₹ 1118/- per marla as contended on behalf of the department. The Tribunal thereafter valued the land as on 19.12.2001 i.e. the date on which the land was transferred by the assessee/erstwhile firm upon the dissolution of the firm. In this regard, the Tribunal accepted the rate of ₹ 12,500/- per marla as contended by the assessee and did not accept the rate of ₹ 45,350/- per marla as computed by the Valuation Officer and accepted by the Assessing Officer. The Tribunal rightly noted that the sale instances relied upon by the Assessing Officer were irrelevant as they pertained to small piece of lands admeasuring from 1.5 marlas to 6 marlas, whereas the land in question was 150 marlas. The Tribunal was justified in taking into consideration the fact that the assessee had purchased land admeasuring 170 marlas at the rate of ₹ 12,500/- per marla on 04.01.2002, which was just after a fortnight from the date of the dissolution of the firm. Two important factors, namely, the area of the land and the proximity of the dates of the transactions were taken into consideration by the Tribunal. The finding of the Tribunal on this ground cannot be said to be perverse. Adoption of the value of the factory building land sold on 01.04.2002 @ ₹ 12,500/- per marla which is a rate of agriculture land whereas the sale was of commercial property - Held that:- Considering the age of the factory sheds, the Tribunal came to the conclusion that the written down value as declared in the books of account ought to be taken into consideration. The Tribunal set aside the addition of ₹ 14,75,292/- on account of short term capital gains observing, inter alia, that the Assessing Officer had failed to take into consideration the relevant factors such as the age of the building and the condition thereof. - Appeal dismissed.
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2015 (7) TMI 487
Entitlement to claim deduction under section 80-IA - AO disallowed the assessees' claim under Section 80IA of the Income Tax Act primarily on the ground that carried forward loss of earlier years should be set off before computing the profit for the current year. - Held that:- All the business undertakings are wind mills and they have claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment years in question and for the subsequent years as well. Having exercised their option and their losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. See Velayudhasamy Spinning Mills (2010 (3) TMI 860 - Madras High Court ) - Decided in favour of the assessee.
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2015 (7) TMI 486
Entitlement to the claim exemption u/s 54B - the asset sold was not a long term capital asset but a short term capital asset that is not eligible for exemption under section 54B, 54D and 54F as is clear from CBDT Circular No.495 dated 22.09.1987 as per AO - ITAT allowed claim - Held that:- All the ingredients of Section 54B exist in the present case. Firstly, the land sold by the assessee was a capital asset. Secondly, this capital asset was land. Thirdly, during the two years immediately preceding the date on which the transfer took place, the land was being used by the respondent for agricultural purposes. We will shortly demonstrate the existence of the third ingredient but on a basis different from the Tribunal. The fourth and the fifth ingredients are also present in this case as, admittedly, the assessee had within a period of two years after the sale purchased another land for being used for agricultural purposes. The third ingredient is established by the evidence on record. The respondent had tendered a compilation of documents before the CIT(A). A copy thereof was tendered before us by Mr. Jain, the learned senior counsel appearing on behalf of the respondent. Page-44 of this compilation is a record/statement of the “Patwari” which confirms that the respondent had utilized the land sold by him for agricultural purposes during the period 03.07.2003 to 27.01.2006. There is nothing on record that suggests the contrary. The respondent, therefore, used the said land for a period of more than two years prior to the date of sale i.e. 26.09.2005. The plain language of Section 54B requires the land sold to have been in use by the assessee or by his parents or the HUF for agricultural purposes for a period of two years immediately preceding the date on which the transfer took place. There is nothing in this section that bifurcates the period of the use during these two years. There is nothing in this section that indicates that the land should have been used continuously only in the second of the two years and only for a few days in the first of the two years. Nor are we able to infer such a limitation from the plain language of this section on principle. - Decided in favour of assessee. Failure to furnish evidence to show that the land was being used for agricultural purpose for two year immediately preceding the date on which transfer took place? - ITAT allowed claim - Held that:- The Tribunal, after considering the facts, came to the conclusion that the land was being used for agricultural purposes. Firstly, we have already referred to the statement of the “Patwari” that establishes the same. Secondly, as noted by the Tribunal, the respondent had derived an agricultural income of ₹ 10,000/- from the use of the said land. A question of law, therefore, does not arise - Decided in favour of assessee. Entitlement to the benefit under Section 54-B in respect of the property purchased from the sale proceeds in the name of wife - Held that:- Section 54B requires the assessee to purchase the property from out of the sale consideration of the capital asset. It does not entitle the assessee to the benefit conferred therein if the subsequent property is purchased by a person other than the assessee including a close relative even such as his wife or children. If the legislature intended conferring such a benefit, it would have provided for the same expressly. Indeed, an assessee can purchase an asset or a part thereof in the name of his wife but he would not be entitled then to the benefit of Section 54B. Moreover, it is not the case of the assessee that he purchased the asset benami in the name of his wife. We have proceeded on the basis that his wife invested the amount of ₹ 16,84,700/- herself. The order of the Tribunal to this extent is, therefore, overruled. It is declared that respondent shall be entitled to the benefit of Section 54B on the basis that he invested only a sum of ₹ 44,76,000/- in the agricultural property purchased by him after the sale of the agricultural property earlier owned by him - Decided against assessee. Addition on account of law house hold withdrawals - addition deleted by the Ld. CIT(A) - Held that:- The CIT(A) found that the Assessing Officer had made the estimate out of the household expenses of ₹ 60,000/- on a vague and arbitrary basis unsupported by any evidence or material on record. We see no reason to interfere with this finding of fact - Decided against revenue.
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2015 (7) TMI 485
Unaccounted cash - CIT(A) directing the AO to make addition of only peak of the deposits in the bank account after getting the details from the appellant - Held that:- AO had also found that the appellant had deposited a sum of ₹ 12,30,500/- in another bank account. The appellant’s case is that this amount was deposited out of the sale consideration of a plot or land which was sold for ₹ 75,68,761/-. The appellant’s further case was that he had a half share and that the deposit was made from the sale proceeds received by him. The appellant also contended that this plot was purchased earlier by selling his old house for ₹ 12 lacs. As no details were filed regarding the purchase of the earlier house, the AO did not accept the fact of sale of the old house and subjected the sale consideration amounting to ₹ 37,84,380/- as short term capital gain. The appellant’s case regarding these transactions are purely questions of fact. The CIT (Appeals) in fact again directed the AO to allow ₹ 12,85,500/- on account of cost of acquisition of the earlier property and granted the appellant relief to that extent. The cost of acquisition of the new property was, therefore, reduced from half of the sale price taxed by the AO as capital gain. Accordingly, the short term capital gain was held by the CIT (Appeals) to be ₹ 25,01,880/-. No substantial question of law.
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2015 (7) TMI 484
Order of transfer challenged - second respondent working as the Commissioner of Income Tax (Exemption) in the city of Chennai Challenging the order of transfer - Held that:- The finding recorded by the Tribunal that the impugned order of transfer was penal in nature, is wholly unsustainable. The order of transfer was a general order covering 20 officers. It did not disclose any reason. Merely because the Department mentioned in the reply statement that there were complaints, the Tribunal could not have recorded a finding that the second respondent was penalised without an enquiry. We do not even know how the second respondent could be taken to be aggrieved, when the transfer was within the city of Chennai. Therefore, the order of the Tribunal setting aside the transfer order, is completely contrary to the law laid down by this Court and the Apex Court. However, it is now stated by Mr.V.Vijay Shankar, learned standing counsel for the second respondent that the second respondent now stands transferred to Patna, by an order dated 15.06.2015.
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2015 (7) TMI 483
Expenses incurred under the head 'market research' - revenue v/s capital expenditure - Tribunal held it as revenue - Held that:- The main parameters that are necessary for the expense to be treated as revenue expenditure is where expenses are incurred in areas which supplement the existing business and is not a fresh or new venture and agreement relates to revenue and the said activity is for the purposes of improving the operations of the existing business, its efficiency and profitability from the area of day-to-day business of the appellant's established enterprise's, expenses be treated as revenue and not capital. In the case on hand, a careful reading of the order of the Tribunal and the facts as narrated it is clear that there is absolutely no justification for the Department to hold that there was a new line of business on which there occurred a loss. The parameters enunciated in the decision in Suhrid Geigy Ltd. Case (1995 (12) TMI 25 - GUJARAT High Court ) is squarely attracted to the facts of the present case, justifying the loss of the assessee as a business loss, as admittedly, the assessee is in the business of marketing bulk drugs, formulations, etc., and one of its ventures has ended in a loss and that loss is attributable to business and it cannot be deemed to be a new enterprise and a capital expenditure. Thus the order passed by the Tribunal requires no interference.- Decided in favour of the assessee.
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2015 (7) TMI 482
Computation of capital gain - Whether the Tribunal was correct in holding that the amount received by the assessee from L & T, the developer of the adjoining land in respect of the transfer of 7575.37 square meters of FAR in assessee's residential plot measuring 1.6 acres is not transferable as the same is not a capital asset and consequently no capital gains can be levied? - Held that:- The search came to be conducted on 4.2.2004 wherein number of vital documents were found against the assessee and L & T. Even thereafter a letter dated 7.6.2005 came to be written to the assessee (wherein they have enclosed a letter dated 23.9.1999) confirming the terms on which the amount in respect of the FAR surrendered to be paid. It is clearly mentioned in the said letter that the available approved FAR area is for 35 acres 6 guntas though the joint development agreement dated 19.10.1995 was only in respect of 34 acres of land. It is also mentioned in the said letter that the FAR area accrued on the balance area of 1 acre 6 guntas will be shared between the L & T and assessee as per the ratio defined in the joint development agreement dated 19.10.1995, which clearly means that the assessee is entitled to 25% of the profit earned by utilizing 7575.37 square meters of FAR relatable to 1 acre 6 guntas of land. However, curiously another letter came to be issued by the L & T on 4.7.2005 mentioning that the amount of ₹ 3.15 crores paid to the assessee is in the nature of advance. Such letter is clearly an after thought inasmuch as, the search was made in the year 2004 and this self-serving letter written by the L & T to protect the assessee from tax liability by any stretch of imagination cannot be said to be reliable. Thus, the explanation of the L & T deserves to be rejected as the same is after thought. We concur with the opinion expressed by the Assessing Officer and Appellate Commissioner that the assessee has surrendered FAR to an extent of 7575.37 square meters in respect of 1 acre 6 guntas exclusively held by him in favour of the L & T and has earned ₹ 3.15 crores as advance in that regard. We have already clarified that surrendering of the said FAR by the assessee in favour of the L & T amounts to transfer within the definition of Section 2(47) of the Act. All these aspects are considered in detail by the Appellate Commissioner as well as the Assessing Officer. ITAT is not justified in concluding that there is no transfer of FAR relating to 1 acre 6 guntas during the relevant year. The Appellate Tribunal is also not justified in holding that no income has accrued during the year as no construction has taken place relating to such FAR. The reasons assigned by the Income Tax Appellate Tribunal while setting aside the orders passed by the Assessing Officer and the Appellate Commissioner cannot be accepted - Decided in favour of the Revenue.
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2015 (7) TMI 481
Entitlement to deduction under Section 80IB - Tribunal held that the Financial Year 1994-95 relevant to Assessment Year 1995-96 constituted the initial Assessment Year and accordingly, the appellant was not entitled to deduction under Section 80IB - whether assessee had begun to manufacture or produce articles on commercial basis in the Financial Year 1994-95 (relevant to Assessment Year 1995-96) or in the Financial Year 1995-96 (relevant to Assessment Year 1996-97)? - Held that:- In the matter on hand, even before the products were sold to the group companies in the month of March' 1995, the machines were exhibited in public at New Delhi. As aforementioned, there was lot of appreciation for the machines and in fact during the exhibition, bookings took place. The assessee could have as well sold the products to the third parties viz. intending buyers. However, instead of doing so, the assessee chose to sell the machines to its group companies. Therefore, it cannot be said that the machines were not available for sale. Merely because the assessee has sold three (3) machines to its group companies, it cannot be said that there was no commercial transaction. In the matter on hand, admittedly the three (3) machines were sold by the assessee, of course, to its group companies for consideration. Hence, it cannot be said that the machines were manufactured only on trial basis and not for commercial purposes in the Financial Year 1994-95 relevant to Assessment Year 1995-96. Tribunal was right holding that the appellant was not entitled to deduction under Section 80IB - Decided in favour of revenue.
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2015 (7) TMI 480
Reopening of assessment - disallowance of various expenses on account of earth filling - CIT(A) after hearing the parties allowed the appeal partly also confirmed by ITAT - Held that:- Revenue/appellant, has not disputed the fact that the assessing officer himself made an observation that some earth filling work was done, that is to say, the claim of the assessee was partly accepted by the assessing officer though he disallowed the expenditure in toto. The assessing officer’s order was examined by the CIT(A) and he was of the opinion that the expenditure was partly allowable. The view has been accepted and confirmed by the learned Tribunal. On a question of fact, both the CIT(A) and the learned Tribunal have agreed. Revenue is unable to show us as to why the view taken by them is perverse nor is it his case that the view taken by them is not based on evidence. - Decided against revenue.
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2015 (7) TMI 479
Deemed dividend - whether Tribunal could not have applied section 2(22)(e)(ii) because, loans and advances were obtained from M/s. JMC Securities Pvt. Ltd. but money lending was not a substantial part of the business of that company? - Held that:- Tribunal referred to the assessment order in the case of M/s. JMC Securities Pvt. Ltd. for the year under consideration, namely 2006-07, wherein the nature of the business of that company was indicated as finance. The company continued in the business of short term finance of idle funds. M/s. JMC Securities Pvt. Ltd. During the year under consideration, earned interest income to the tune of ₹ 9,16,088/- which constituted about 70% of its total business income amounting to ₹ 13,04,088/-. The maximum amount of loan advanced by the company during the year under consideration was to the tune of ₹ 95,45,000/-. That constituted 32% of the total funds available with the said company. In these circumstances, the Tribunal concluded that that the lending of money is a substantial part of the business of M/s. JMC Securities Pvt. Ltd. The addition made by the assessing officer and sustained by the Commissioner was not valid and legal, particularly in the background facts. In the light of the undisputed factual position, we are of the view that the Tribunal's order is correct and reliance placed by it on Commissioner of Income-tax Versus Parle Plastics Ltd. [2010 (9) TMI 726 - BOMBAY HIGH COURT ] is not misplaced. - Decided against revenue. Disallowance u/s 14A - ITAT deleted addition - Held that:- This question is covered against the revenue by the Division Bench of this Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT], In any event, direction to recompute the disallowance in the light of this judgment does not give rise to a substantial question of law - Decided against revenue.
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2015 (7) TMI 478
Relocation expenses including the brokerage fee - whether was capital expenditure or not? - Held that:- It is not disputed that if the figure of ₹ 1,11,73,078/- is duly accounted for and taken into consideration, then the operating margin of the respondent/assessee come to 17.80%, which is higher than the comparable operating margin of 17.09%, taken as a benchmark by the TPO. Submission on behalf of the appellant that the parent company should have shared the burden or a part thereof is not legally tenable. The said expenditure was incurred by the Indian company because of peculiar problems faced by them as a result of which they had to shift the place from where they were operating. The abnormality and difficulty resulting in extra expenditure was not created or caused by the associated enterprise. They were not responsible or liable for the said payments/expenditure. The associated enterprise did not have legal or contractual obligation to make extra or additional payment beyond the true and correct value of the transaction. - Decided against revenue.
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2015 (7) TMI 477
Transfer Pricing Adjustment - CIT(A) restricted addition - selection of comprables - Held that:- CIT(A) had followed the ratio laid down in the case of Global Ventedge P. Ltd. (2009 (12) TMI 668 - ITAT DELHI ) wherein held that adjustment on account of arm's length price of international transactions cannot exceed the amount received by the associated enterprise from the customer and the actual value of international transactions, i.e., the amount received by the assessee in respect of international transactions. This decision was affirmed by both Hon'ble High Court and Hon'ble Supreme Court and his ratio was followed in subsequent decisions as submitted earlier and, therefore, the order of Ld. CIT(A) on this issue is reasonable and we do not find any reason to interfere with this finding of Ld. CIT(A) - Decided against revenue. TPO - Computation of Operating Profit Margin of the appellant - Held that:- There is force in the argument of Ld. Counsel for the assessee that while calculating operating cost, the abnormal cost incurred on account of start-up should be excluded. Following the same parity of reasoning in the cases cited by him and keeping in view that the judgement of ITAT co-ordinate Bench in the case of Transwitch India (2012 (5) TMI 314 - ITAT DELHI) affirmed by Hon'ble Delhi High Court. Therefore, respectfully following the decision of Hon'ble High Court, we direct TPO / A.O. to adjust operating cost by excluding abnormal cost incurred on account of start-up company like salary, rent and depreciation. This matter is restored to the file of TPO/A.O. to re-determine the operating cost on the above lines to arrive at operating profit.- Decided in favour of assessee for statistical purposes.
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2015 (7) TMI 476
Consultancy fee paid to Ms Olaf Grandlund OY Finland - whether was not chargeable to tax in India and thus that there was no requirement to withhold to tax on the impugned payments, even though these had been characterized as FTS taxable on source basis? - whether services do not come within the purview of Article 13(4) (c) of the DTAA between India and Finland as technical services - the services rendered cannot be even be taxed under Article 7 read with Article 5 of the DTAA in the absence of PE of Olof in India - Held that:- As per Article 7( 1) of the tax treaty, 'Business Profits' earned by a Finnish Enterprise is taxable in India only if that Finnish enterprise carries on business in India through a PE in India. The term PE has been defined in Article 5 of the India-Finland tax treaty to include a branch, office, factory, workshop, etc of the Finnish enterprise in India. Where the Finnish enterprise does not have a PE in India under the provisions of Article 5 of the India-Finland treaty, no portion of the income from services provided to a customer in India are liable to taxation in India. In the instant case, admittedly Olof Granlund did not have any office/ place of business in India. Further, the services were performed by Olof Granlund primarily from outside India and its employees made intermittent visits to India only for the purpose of attending meetings with the respondent.Accordingly, Olof Granlund Oy did not have a PE in India under the provisions of Article 5 of the India-Finland tax treaty during the subject period. Certificate obtained by the respondent from Olof Granlund in this regard is on record. In light of the above, we are of the considered opinion that the payments received by Olof Granlund from the respondent for provision of services are not liable to taxation in India under the narrower provisions of the India-Finland tax treaty. Following the ratio laid down In Transmission Corporation’s case [1999 (8) TMI 2 - SUPREME Court] we hold that the question of deduction of tax at source on the impugned payments does not arise. The CIT(A) on the same parity of reasoning allowed the appeal. Therefore, we dismiss the grounds of appeal filed by the revenue - Decided in favour of assessee.
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2015 (7) TMI 475
Non-deduction of tax at source in terms of section 195 - expenses incurred by the assessee to International Project Services Oy. (IPS) - Held that:- The income derived by a resident of Finland in respect of professional services or other independent activities of a similar character performed in India can be taxed in India if he is present in India for a period or periods aggregating to 90 days or more in the relevant fiscal year or has a fixed base regularly available to him in India for the purpose of performing his activities. It is noticed that the ld. CIT(A) has computed the period of 90 days by considering the presence of these persons in India from 24.11.2008 to 24.4.2009. As AR contended that the ld. CIT(A) has considered total period of stay of all the five persons taken together without considering it on individual basis. We find force in the submission of the ld. AR in this regard. Once it is held that five individuals from Finland were not representing IPS and, in fact, there was no valid agreement between the assessee and IPS, then, what remains to be examined is such five residents of Finland on individual basis. The amounts payable to each of such five persons satisfying the duration test on individual basis would enable the ultimate triggering of Article 15 of the DTAA. Only those Finland residents out of such five persons who independently and individually satisfy the condition about their presence in India for a period of 90 days or more in the relevant fiscal year or having a fixed place regularly available to them in India for the purpose of performing the supervisory functions, can be brought within the purview of Article 15. If, however, this condition is found wanting qua some individuals, then the amount payable to such individual residents of Finland, would cease to be chargeable to tax in terms of Article 15 of the DTAA notwithstanding its taxability under section 9(1)(vii) read with section 5 of the Act. Since the relevant information for ascertaining the duration of stay of such residents of Finland in India is not available on record and, further, it is not clear whether they had a fixed base regularly available to them in India for performing such services, we cannot forthwith ascertain whether or not such a pre-requisite condition is fulfilled. Under such circumstances, we set aside the impugned order and remit the matter to the file of the ld. CIT(A) for deciding this aspect of the matter and, thereafter, determining the question of disallowance u/s 40(a)(i) of the Act. - Decided in favour of assessee for statistical purposes.
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2015 (7) TMI 474
Tax withholding demand raised under section 201(1) and 201(1A) read with Section 194 H - non deduction of tax at source on trade discount granted to prepaid distributor - whether the provisions of section 194H will come into play in respect of the difference between the price at which the airtime is thus sold to the distributors and its recommended retail price to the end consumers? - Held that:- This issue is covered, in favour of the assessee, by Hon’ble Karnataka High Court‘s common judgement in the cases of Bharti Airtel Limited, Tata Teleservices Limited and Voadfone South Limited, reported as Bharti Airtel Limited vs. DCIT [2014 (12) TMI 642 - KARNATAKA HIGH COURT] wherein held The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor – the income accrued or belonging to the distributor should be in the hands of the assessees - the assessee sells SIM cards to the distributor and allows a discount of ₹ 20/-, that ₹ 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer - The profit earned by the distributor, sub-distributor and the retailer would be dependent on the agreement between them and all of them have to share ₹ 20/- which is allowed as discount by the assessee to the distributor - There is no relationship between the assessee and the sub-distributor as well as the retailer. Thus, it is a sale of right to service - The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands - The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS - the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent – thus, the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. - The matter is remitted back to the assessing authority only to find out how the books are maintained and how the sale price and the sale discount is treated and whether the sale discount is reflected in their books - If the accounts are not reflected Section 194H of the Act is not attracted. - Decided in favour of assessee.
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2015 (7) TMI 473
Transfer pricing adjustment - exclusion of foreign exchange fluctuation gain/loss from the operating revenue/cost of the assessee as well as the comparables - Held that:- TPO has computed PLI of the assessee as well as comparables by ignoring the amount of forex gain/loss, we set aside the impugned order and remit the matter to the file of TPO/AO to recompute the assessee’s margin as well as that of the comparables by considering foreign exchange gain/loss as an item of operating revenue/cost. We want to make it clear that our finding in this regard is restricted to considering forex gain/loss from the transactions of the revenue nature as part of operating revenue/cost. If some part of forex gain/loss turns out to be relatable to transactions on capital accounts, then that part cannot be considered as part of operating revenue/cost. Similar view has been taken by the Tribunal in the assessee’s own case for the immediately preceding assessment year, namely, 2009-10 Bank interest treated as non-operating - Held that:- There is, as such, no bifurcation available of the bank interest and bank charges in the Annual accounts of the assessee. It is noticed that the assessee is not aggrieved against the treatment of bank interest as non-operating. We do not see much difference between the nature of bank charges and bank interest. As the amount of bank interest has been admitted as an item of non-operating expense, the amount of bank charges also assumes the same character as that of bank interest. In our considered opinion, both the bank charges as well as bank interest should have been considered as non-operating in the case of the assessee as well as comparables. The TPO is directed to verify whether the treatment of bank interest and bank charges in the case of the assessee’s computation of ALP and that of the comparables is in accordance with our above observations. Needless to say, the assessee will be afforded a reasonable opportunity of being heard. Provision for doubtful advances taken as operating in assessee case and as non-operating in the case of the comparables - Held that:- The assessee has not created any provision for `doubtful debts’. The only provision made by it is of `doubtful advances’. Both the provision for bad debts as well as doubtful advances are in the realm of the operations of the business. It is not the case of the either side that the assessee made any excess provision. In our considered opinion, the same has been rightly taken as an item of operating expense of the assessee. The TPO is directed to treat the amount of provisions for doubtful debts/advances as operating in the case of the comparables as well. Disallowance of risk adjustment - Held that:- Ultimately risk is risk, whether it is of realization of invoices or of advances given for conducting operations. Since the aspects of incurring expenses and earning revenue are two sides of the same coin, we find that the existence of risk to the assessee cannot be denied. Be that as it may, it is further found that though there is no Provision for doubtful debts (arising from realization of invoices) during the year, but, the assessee did create provision for doubtful debts in the preceding year amounting to ₹ 10,79,665/-. This provision for bad debts is from the revenue side. To contend that the assessee was not running any risk in providing the services is, therefore, patently incapable of acceptance. Since the ld. AR has failed to objectively demonstrate the relatively higher risks undertaken by the comparables on an overall basis vis-ŕ-vis the assessee, we are disinclined to grant any risk adjustment. Selection of comparable - Accentia Technologies Ltd. - Held that:- In view of the fact that there was merger of Asscent Infoserve Pvt. Ltd. with Accentia Technologies Ltd. by way of amalgamation during the year itself, we hold that this company cannot be considered as comparable due to this extra-ordinary financial event. Accordingly, the same is directed to be excluded from the final list of comparables. TCS E-Serve International Ltd. - There is no bifurcation available in respect of the revenues of this company from Transaction processing (which are in the nature of ITES, the same as provided by the assessee) and Technical services (which are in the nature of software development, absent in the assessee’s case). In the absence of the availability of any such segregation of the total revenue of this company, it is not possible to separately consider its profitability from rendering of `Transaction processing services’. As such, the entity level figures render this company as unfit for comparison. Ergo, we order for the removal of this company from the final set of comparables. TCS e-Serve Ltd. is functionally comparable with the assessee company on an overall basis and no special reasons for its higher profit/turnover have been brought to our notice. Consequently, we hold that the authorities below were justified in including this company in the list of comparables. i-Gate Global Solutions Sdn. Bhd. amalgamation took place with the approval of the members of the company on 12.8.2009 and subsequently sanctioned by the Hon’ble High Court by its order dated 24.2.2010. As the financial results of this company also include the results of amalgamating company, in our considered opinion, this is an extraordinary financial event, which renders it unfit for comparison with the assessee company. Infosys BPO - Acquisition of McCamish Systems LLC during the year, being an extraordinary financial event, renders it incomparable. Following the reasons taken note of above, we order for the elimination of this company from the final set of comparables. R. Systems International Ltd. (Seg.); Jindal Intelicom Pvt. Ltd.; and Caliber Point Business Solutions Ltd. - As amounts of operating profit or operating cost etc. for the relevant financial year are not directly available without any apportionment or truncation, then these companies should not be considered as comparable. CG-VAK Software and Exports Ltd. (Seg.) - The quantum of turnover can be no reason for the exclusion of a company which is otherwise comparable.We, therefore, hold that a company cannot be excluded from the list of comparables on the ground of its low turnover. In principle, we direct the inclusion of the relevant segment of this company in the list of comparables. The TPO is directed to include the operating profit/operating costs of the ITES segment of this company in the list of comparables, after due verification of the necessary figures for determination of the operating profit margin etc. Micro Genetics Systems Ltd. - We do not find any reason to exclude this company from the list of comparables merely on the ground that its turnover is less. The reasons given above while considering the comparability of CG-VAK Software and Exports apply to this company as well. We, therefore, order for the inclusion of this company in the list of comparables. Axis IT & T Ltd. - The only reason given by the TPO for the exclusion of this company is its failing export filter. Relevant details of the figures of this company have not been made available. We, therefore, set aside the impugned order on this score and remit the matter to the file of TPO/AO for examining the functional comparability of this company. If this company is found to be similar on entity or segment level, then, the entity or the relevant segment should be included in the final set of comparables after due verification of the rate of operating profit margin etc. Thus we set aside the impugned order and remit the matter of determination of ALP of the international transaction of `Provision of IT enabled data conversion services’ to the file of TPO/AO for a fresh decision. TP adjustment on account of interest to be charged on non-realisation of export proceeds - Held that:- The argument that the Agreement does not provide for charging any interest on late realization of invoice value and hence no interest can be charged, deserves the fate of dismissal under the transfer pricing provisions. Chapter X of the Act has been enshrined to determine the income from an international transaction at ALP, being in the same manner as is determined between two independent parties. It means that if an income is not charged or under charged by an Indian entity from its foreign AE, which ought to have been properly charged if the transaction had been between two independent parties, then such under charged or uncharged income needs to be brought to tax by determining the ALP of the international transaction giving rise to such income In so far as the question of rate of interest is concerned, we find that this issue is no more res integra in view of the judgment of the Hon’ble jurisdictional High Court in the case of Cotton Naturals (I) Pvt. Ltd. (2015 (3) TMI 1031 - DELHI HIGH COURT ), in which it has been held that it is the currency in which the loan is to be repaid which determines the rate of interest and hence the prime lending rate should not be considered for determining the interest rate. Under such circumstances, we set aside the impugned order and remit the matter to the file of TPO/AO for a fresh determination of addition on account of transfer pricing adjustment towards interest not realized from its AE on the debts arising during the course of business in line with our above observations.
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2015 (7) TMI 472
Unexplained cash deposits / credits addition u/s 68 - CIT(A) deleted the addition - Held that:- Assessee is a financial institution registered under the Gujarat Cooperative Societies Act has explained source of the impugned deposits of ₹ 45 lacs. Rather source of the source as well. The Revenue reiterates the Assessing Officer’s findings. It does not rebut the CIT (A)’s findings that the impugned deposits have come from the official liquidator. The assessee supports the CIT (A)’s order. It also submits section 68 does not apply since the impugned transactions have not taken place in the relevant previous year. We are of the opinion that once the assessee has been able to prove the source of the source along with the fact that the depositors are its regular customers, it has satisfactorily explained identity along with necessary conditions of genuineness and creditworthiness thereof. We affirm the CIT (A)’s findings in these facts. The Revenue’s first substantive ground fails. - Decided against revenue. Disallowance u/s 40(a)(ia) on reimbursement of clearing house charges paid to the Ahmedabad Dist. Cooperative Bank and corresponding service tax - CIT(A) deleted disallowance - Held that:- The assessee has reimbursed the impugned expenses towards MICR processing centre and its recipient institution i.e. the Ahmedabad District Co-op. Bank has already deducted TDS thereupon. The Revenue does not dispute this factual position. We observe in these facts that the impugned disallowance amounts to double deduction of TDS as per a coordinate Bench decision reported as the Karnavati Coop. Bank Ltd. vs. DCIT. [2011 (11) TMI 367 - ITAT AHMEDABAD]. The Revenue does not highlight any distinction on facts or law therein. We affirm the CIT (A)’s findings under challenge. - Decided against revenue. Disallowance of capital expenditure - Held that:- The assessee is a tenant in a rented premises. It incurred the impugned expenditure on the above stated items. The lower authorities treat the same as capital expenditure by holding that the expenditure in question has brought new assets into existence. We find no increase in the relevant space area nor construction of a new structure forthcoming from the case file. The Revenue fails to prove that the assessee has demolished any existing structure altogether and erected a new one. The assessee appears to have got removed/ partly demolished the same and spent the impugned sums in carrying out necessary repair and maintenance by way of fixing new beams, re-plastering of ceiling etc. We hold in these circumstances that once no new structure has come up nor is there any increase in capacity of the already existing structure, the impugned claim is to be treated as revenue expenditure only. We reject the Revenue’s third ground and accept the assessee’s corresponding plea in its cross objection. The balance amount is of ₹ 50,000/-. Page No.102A contains its relevant bill on cement, flooring and a truck of sand. The Revenue’s objection in assessment order (supra) stands rectified. The assessee’s claim of ₹ 5,80,000/- is allowed as revenue expenditure. - Decided against revenue. Disallowance of petrol allowance, telephone allowance and consultancy service charges paid to Shri Kanubhai B. Kothia husband of the assessee’s chairperson Smt. Lilaben u/s 40A (2) (b) - CIT(A) deleted addition - Held that:- The Revenue has not been able to controvert the CIT (A)’s crucial finding that the very expenditure is being accepted in preceding assessment years as paid to the same recipient. Nor does it point out any exception in facts and circumstances involved there. We adopt consistency in these facts and uphold the CIT (A)’s action. The Revenue’s corresponding ground is declined.- Decided against revenue. Addition on account of interest accrued on NPA - CIT(A)deleted addition - Held that:- The CIT (A) has given a finding of fact that the assessee has already included the very interest income of ₹ 5,04,000/- in its interest income and P & L account. Annexure “A” to this effect also forms part of the lower appellate order. The Revenue has not been able to dispute contents thereof. We affirm the CIT (A)’s findings in these circumstances - Decided against revenue. Disallowing RBI penalty as expenditure - Held that:- The hon’ble Kerala high court in CIT v/s. Catholic Syrian Bank [2002 (11) TMI 17 - KERALA High Court] holds that an important test in such a case is as to whether the penalty for non compliance entails compensatory or penal consequences. And also that if any criminal liability or prosecution is provided, a levy is penal in nature. Section 46 r.w.s. 47A(1)(b) of the Banking Regulation law does not stipulate any such criminal liability. We follow the aforestated case law in these facts and direct the assessing authority to allow the assessee’s claim of ₹ 5 lacs as revenue expenditure. - Decided in favour of assessee.
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2015 (7) TMI 471
Change of head of income from 'Íncome from business and profession’ to 'Íncome from House property’ - Held that:- In the present case, the assessee was neither absolute owner nor had surplus own capital. It was providing complex services. Accordingly, in the facts and circumstances of the present case and the decisions as relied upon by the ld. Counsel for the asessee we are of the view that the assessee being partnership firm was having warehousing business and local trade license authorities have accepted the assessee firm’s business to carry out warehousing business. To do so the assessee took a land on lease, which proves the intention of commercial expediency by the assessee. Accordingly, we hold that income of the assessee should be assessed under the head ‘business or profession’. - Decided in favour of assessee. Addition on account of unsecured loan - CIT(A) deleted the addition - Held that:- the source of the money received has been fully explained by the assessee by way of confirmations given by said 4 persons. Under such circumstances, the loan of ₹ 20 lakhs appearing in the balance sheet cannot be treated as unexplained. The ld.CIT(A) has rightly deleted the addition so made by the AO. We find no infirmity in the impugned order of the ld.CIT(A). We uphold the same. - Decided in favour of assessee.
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2015 (7) TMI 470
Revision u/s 263 - TPO allowed commission while passing orders under sec. 92CA(3) - Held that:- CIT erred in holding that in the absence of section 92CA(4) during the relevant period, it is not binding on the AO to follow the order of TPO. The order of CIT is contrary to the CBDT instruction No.3 of 2003 wherein it is clarified that the AO has to compute the total income of the assessee having regard to the arms length price so determined by TPO. CIT ought not to have assumed jurisdiction u/s 263 of the Act in as much as it is merely a change of opinion. We rely on the decision of Malabar Industrial Co Ltd. Vs. CIT [2000 (2) TMI 10 - SUPREME Court]. Even assuming that the enquiries made by the Assessing Officer are inadequate, the jurisdiction under Sec. 263 of Income Tax Act, 1961 cannot be assumed as it was only in the cases of lack of enquiries that the jurisdiction under Sec. 263 of Income Tax Act, 1961 can be assumed.In the present case before us the TPO and the Assessing Officer had applied their mind and allowed the entire commission while passing orders under sec. 92CA(3) and 143(3) respectively as claimed by the assessee. Hence we annul the order of CIT passed under sec.263. - Decided in favour of assessee. Transfer pricing adjustment - Disallowance by the AO on the basis of arm’s length price of I.T. Engineering services worked out by the TPO i.e. Add. CIT, Transfer Pricing, Hyderabad vide his order u/s 92CA - main emphasis of the assessee is that the General Motors was a new customer during financial year 2002-03 and the initial services were provided on higher rate, on a trial basis. Further the rates between Venture USA Germany and General Motors should not be compared without making suitable adjustment towards the volume of business as the working hours provided to AE is 40 times more than the hours billed to M/s General Motors - Held that:- CIT (A) has justified the deduction of 5% from the adjusted rate adopted by the TPO while determining the ALP by stating that no assessee will charge a rate which is at great variance with the normal market rate of the services provided considering the fact that it was a new client who whom the assessee will try to get more business in future. Hence the CIT observed that despite less transactions, the rates charged by the assessee in case of new client. Therefore, the CIT had rightly directed for an adjustment of account difference in the rate under the TP provisions worked @ US$ 9 per hour. The grievance of the assessee that suitable adjustment have to be made to bring the prices to a comparable level has been satisfied by the CIT (A) by giving a reduction of 5%. The CIT (A) was of the opinion that the reduction of 5% is sufficient with respect to the facts of the case, we also confirm. The ground of the Department that once CUP method is adopted, no adjustment is possible is incorrect and the CIT (A) has given sufficient adjustment of deduction at 5% from the adjusted rates adopted by the TPO ($50.52 (-) @ 2.52) while determining the ALP, considered the facts and circumstances of the case. We confirm the order of the CIT (A). - Decided against assessee and revenue. Reopening of assessment - Addition made by disallowing a portion of the deduction U/s.I0A arises on account of adjustment to the export turnover - Held that:- The AO proceeded to assess the income by issuing a normal questionnaire seeking information from the assessee. He had not issued any specific letter seeking clarification on issues which prompted him to reopen the assessment. He issued show cause notice why the export turnover should not be reduced with respect to the expenditure in foreign currency. In the entire proceedings U/s.143(3) r.w.s 147, the AO had not asked any question or information connecting with the reason for reopening. On the facts and in the circumstances of the case, the AO erred in law and facts of the case in reopening the assessment u/s 147 of the I.T. Act, 1961 after having assessed and re-assessed u/s 143(3) and section 263. Since we have decided the jurisdictional grounds in favour of the assessee, we are not adjudicating on the other grounds of appeal raised before us. - Decided in favour of assessee. Validity of reopening U/s.147 - Assessing Officer reopened the assessment under section 147 beyond the period of four years - Held that:- There is no fresh fact or ‘tangible material’ to come to the conclusion that there is escapement of income from assessment. The entire joint venture agreement understanding between the parties and consideration for making the payment was put forth before the TPO and the AO at the time of original assessment. Since reasons recorded also do not have any link with the formation of belief. In the present case before us the statement of Ramalinga Raju has no connection with the subsidiary of Satyam Group i.e. Satyam Venture Engineering Services, Hyderabad (Assessee herein). - Decided in favour of assessee.
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Corporate Laws
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2015 (7) TMI 495
Validity of Summons issued for offence under Section 630 of the Companies Act 1956 - Validity of Board resolution is already in dispute - Held that:- In the summoning order dated 20th April, 2010 the Magistrate has referred to the sale deed in favor of the complainant/respondent company as well as the order dated 1st November, 1990 passed by this Court in CA No. 403/90 in CP 115/86 and also taken into account that the petitioner/accused was entitled to receive ₹ 7000 per month House rent allowance. The Magistrate has further recorder in the summoning order that the respondent company is the owner of the said property and that prima facie it does appear that the petitioner has wrongfully withheld the said property despite not being entitled to and the legal notice was served on the petitioner pointing out the said wrongful act and demanding the vacation of the property. The Magistrate on the basis of the averments in the complaint and the evidence placed on record found sufficient grounds to proceed and accordingly summoned the accused under Section 630 of the Companies Act, 1956. The said order is a legally correct order. It is settled law that the complaint under Section 630 of the Company Law may be maintainable despite of pendency of the civil litigation, but the facts in the present case are distinct as it is doubtful whether the complaint in the existing circumstances when the board resolution itself is under dispute is maintainable whether the proceedings can continue, therefore, instead of dismissal of complaint, I am of the view that the summoning order are liable to be quashed. The trial Court is directed not to further proceed with the complaint, the same is sine die adjourned till final conclusion is arrived out between the parties about the validity of board resolution. The respondent is granted liberty to revive the complaint if such situation would arise i.e. after deciding the issue of validity of board resolution by the Civil Court.
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2015 (7) TMI 494
Penalty for violation of regulation 7(1A) & 7(2) of SAST Regulations, 1997 - Violation of regulation 8(1) and 8(2) of SAST Regulations, 1997 - Violation of regulation 30(2) & 30(3) of SAST Regulations, 2011 - Non disclosure of sale transaction - Failure to make yearly disclosures - Held that:- Under SAST Regulations, 1997 as also under SAST Regulations, 2011 disclosures are liable to be made within specified days irrespective of the scrip being traded on the Exchange or not. Similarly, disclosures have to be made irrespective of whether investors have suffered any loss or not on account of non disclosure within the time stipulated under those regulations. In the present case, violation under regulation 7(1A) read with regulation 7(2) of SAST Regulations, 1997 relates to the sale transaction that took place on April 30, 2004. As against the obligation to make disclosure on May 2, 2004 under regulation 7(1A) read with regulation 7(2) of SAST Regulations, 1997, admittedly, disclosure has been made on January 2, 2013 i.e., after delay of 3167 days. Similarly, as per regulation 8(1) read with regulation 8(2) of SAST Regulations, 1997 appellant holding more than 15% shares of the target company was obliged to make yearly disclosure to the company within the period specified therein. Admittedly, during the period 2002 to 2011 appellant had failed to make yearly disclosures and disclosures were made belatedly on January 2, 2013 for all the years from 2002 to 2011. Since the delay in making disclosures under regulation 8(1) read with regulation 8(2) of SAST Regulations, 1997, ranged from 3909 days to 622 days. Similarly, regulation 30(2) read with regulation 30(3) of SAST Regulations, 2011 requires yearly disclosure to be made by promoters and persons acting in concert to the Stock Exchange within 7 working days from the end of the financial year. Admittedly, disclosure under regulation 30(2) read with regulation 30(3) of SAST Regulations, 2011 was made on January 2, 2013 which was delayed by 265 days. - Decided against the appellant.
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Service Tax
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2015 (7) TMI 511
Goods Transport Agency - Service Tax on GTA under reverse charge - payment of service tax through cenvat credit - assessee was engaged in manufacture of yarn of different kinds - Whether Circular is binding - Board's circular No.345/4/2005 TRU dated 3.10.2005 - Held that:- similar question has been considered by this Court in the case of Commissioner of Central Excise, Salem - Vs - M/s.Cheran Spinners Ltd. [2013 (8) TMI 215 - MADRAS HIGH COURT] - Credit allowed. - Decided against the revenue.
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2015 (7) TMI 510
Cenvat credit - input services - service tax paid on the services of tour operators/travels for transporting the staff working at their factory (pickup and drop) - Held that:- this Court dealt with the issue in a batch of appeals [2015 (3) TMI 736 - MADRAS HIGH COURT] held in favour of the assessee by following the decision of the Bombay High Court in the case of CCE - Vs - Ultratech Cement Ltd. [2010 (10) TMI 13 - BOMBAY HIGH COURT], wherein all the contentions raised by the Revenue have been considered in extenso including the definition of 'input service' as defined in the case of Maruti Suzuki Ltd. - Vs - CCE [2009 (8) TMI 14 - SUPREME COURT]. The Bombay High Court, in Ultratech's case (supra) came to the conclusion that the decision of the Larger Bench of CESTAT in the case of CCE - Vs - GTC Industries Ltd. [2008 (9) TMI 56 - CESTAT MUMBAI] is correct law, however, with a rider that where the cost is borne by the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. The cenvat credit availed by the assessee on rent-a-cab services is admissible and, therefore, no interference is called for with the order passed by the Tribunal. - Decided against the revenue.
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2015 (7) TMI 509
Maintainability of appeal before High Court - Levy of service tax on Activity of sponsorship - Held that:- It is not disputed by parties that the present case would be covered by clause (a) of paragraph 36 of of Commissioner of Sales Tax, Bangalore Vs Scott Wilson Kirkpatrick (I) Pvt. Ltd., [2011 (4) TMI 500 - KARNATAKA HIGH COURT] - As such this appeal, which has been filed under section 35G of the Central Excise Act, shall thus not be maintainable. Appeal is accordingly dismissed as not maintainable.
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2015 (7) TMI 508
Service of maintenance and repairs of plant and equipments - Imposition of penalty - Held that:- Section 65(64) and (105) (zzg) of the Act provides where a manufacturer or any person authorized by him provides a service in relation to the Maintenance, Repair or Servicing of any goods, or equipments excluding a motor vehicle, such service provided is exigible to Service Tax. - recent decision of the Tribunal in the case of Anand Transformers Pvt Ltd (2013 (4) TMI 458 - CESTAT NEW DELHI) would be applicable in the present case. Hence, the impugned order cannot be sustained. - demand of tax alongwith interest as proposed in the show cause notice are upheld and the imposition of penalty is dropped - Decided partly in favour of Revenue.
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2015 (7) TMI 507
Penalty under Section 78 - Intention to evade tax - Held that:- appellant was recovering the Service Tax from the services. Further, they were registered with the Central Excise Dept. for providing several services including the services on which Service Tax was required to be paid on reverse charge basis. Appellant was also recovering the Service Tax from the service recipients. Once appellant is registered with respect to services, it is understood that the due service tax should have been paid to the Central Excise Dept when the same is received from the Service recipients or payable on reverse charge mechanism - By recovering the Service Tax from their service recipients and not paying the same to the Dept. has to be considered as evasion of Service Tax with intention to evade when no periodical returns were filed. In view of the above observations, there is no reason to interfere with the order passed by the lower authorities - levy of penalty confirmed - Decided against assessee.
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2015 (7) TMI 506
Denial of Cenvat credit on the transportation of levy sugar upto the place of removal and export of sugar upto the place of port of export - Transport of sugar to sister unit - Held that:- Appellant is entitled to take Cenvat credit as in the case of levy sugar the place of removal is railway station and in the case of export of place of removal is load port. - Appellant is entitled to take Cenvat credit on outward transportation service in the case of transportation of levy sugar upto the railway station and transportation of export sugar upto the port. - Transportation cost has been borne by the appellant themselves. If at all they have not taken the credit on the said transportation, then their sister unit is entitled to take Cenvat credit which is the appellant themselves. In these circumstances, whatever credit has been taken by them having revenue neutral situation therefore, I hold that the appellant is not required to reverse the Cenvat credit taken on transportation of dry sugar to their sister unit. - Decided in favour of assessee.
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Central Excise
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2015 (7) TMI 502
Clandestine manufacutre and removal of goods - Retracted confessional statements - whether there was a clandestine removal of the raw materials imported by the appellant on which Modvat credit was taken - Held that:- It is observed that adjudicating authority is relying upon the opinion given by Shri Anand Tukaram Sardar, Manager of the appellant given before the date of Panchnama but not giving any credit to the opinion given the same person under affidavit dated 20.10.2014, that weight of metal container could be 1.25Kg and weight of metal component set of one container could be 1.5 Kg. Once the same person is giving contradictory opinion then none of these opinions is acceptable. Adjudicating authority should have only restricted to the calculations submitted by the appellant, as per remand directions (without giving any credence to the contradictory opinion given by the same person). Further, jurisdictional Gujarat High Court in the case of CCE vs. Saakeen Alloys Private Limited (2014 (5) TMI 606 - GUJARAT HIGH COURT) has held that only confessional statements can not be made the sole basis of clandestine removals. It is observed from the representative copies of the bills of entry relied upon by the appellant that only the highest guage of the metal sheet imported is given and lower limit of thickness or actual thickness in a consignment is not available. As per the cross-examination of Shri B.K. Verma, Superintendent, who investigated this case, it has come out that the thickness of materials imported by the appellant varies. It is also clear from the cross-examination of the investigating officer that the thickness of the metal sheets was not verified as the thickness is not mentioned in the sale documents and also due to the fact that Manager-cum-Authorised signatory and the Proprietor of the appellant gave clear admissions of the weight of the container. The findings recorded by the adjudicating authority, that calculations submitted by the appellant are not accepted, can not be upheld in the absence of any evidence on record that all the metal sheets imported by the appellant, used for manufacture of container, had uniform thickness and weight. - Decided in favour of assessee.
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2015 (7) TMI 501
Clandestine manufacture and removal of excisable goods - Imposition of interest and equivalent penalty - Demand based on confession statements made by some people - statements recorded were retracted subsequently by way failing affidavits within a few days - Held that:- It is now a well understood principle that a case of clandestine activity cannot be established simply on the basis of few confessional statements, which are retracted by the persons. In the case of Commissioner of Central Excise vs Saakeen Alloys Pvt. Ltd. [2014 (5) TMI 606 - GUJARAT HIGH COURT] it has been held by Hon ble Gujarat High Court that in the absence of other corroborative evidences confessional statements along are not sufficient to establish the case of clandestine manufacture and removal. - case of clandestine manufacture and clearance is not established against the appellant - Decided in favour of assessee.
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2015 (7) TMI 500
100% EOU - non-existence of manufacturing facility - Rule 20 of Central Excise Rules, 2002 - manufacutring of goods at the premises which does not belong to assessee - whether any goods were manufactured by the Appellant at Plot No.16-17, Hari Ichcha Industrial Estate, Behind M. Jagdamba Mills, A.K. Road, Surat or not - Held that:- The statements of the proprietors of all the above units working on the date of visit were recorded under which all those persons stated that no unit by the name of the Appellant ever worked at the declared address. Shri Arora, Proprietor of the Appellant was not able to explain as to whether the goods supplied to the consignee M/s AGFPL were manufactured at the declared address. - Excise clerk of the Appellant stated that the entries are made only on paper as per the direction of Shri Shaym Sunder Arora, Proprietor. In view of the investigation conducted by the Central Excise officers with respect to Appellant pre-ponderence of probability goes in favour of the Revenue that no goods were manufactured at the declared address by the Appellant. - authenticity of rewarehousing certificate and the receipt of the finished goods at the factory premises of the consignee are doubtful and cannot be considered as authentic evidences to establish that the goods were manufactured by the Appellant because the transportation of the goods from Surat to Medak (A.P.) is not established by Appellant. Further, in the absence of any manufacturing facility available with the Appellant, pre-ponderence probability goes in favour of the Revenue that goods were manufactured by the Appellant - Decided against the assessee.
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2015 (7) TMI 499
Determination of the annual capacity of production of the appellant - determination of the annual capacity of production of Hot Rolling Mills on the basis of information to be furnished by the mill to the jurisdictional Central Excise officer. - Held that:- Since Rule 5 had been introduced w.e.f. 1.9.1997 by notification no., 45/97-CE (NT) dated 30.08.1997, in our view this cannot be given retrospective effect when the notification itself makes it effective w.e.f. 1.9.1997. Therefore, in our view, Rule 5 would not be applicable to the cases where the declaration under Rule 3(1) declaring the parameters for determination of annual capacity of production had been made to the Commissioner during period prior to 1.9.1997. An assessee who had made this declaration during period prior to 1.9.1997 would be entitled for determination of his annual capacity of production on the basis of the Capacity determination Rules as the same existed during that period. Since there is no dispute that in the present case the declaration under Rule 3(1) had been made on 18.8.1997, Rule 5 would not be applicable and as such the Apex Court s Judgment also in the case of Doaba Steel Rolling Mills (2011 (7) TMI 10 - SUPREME COURT OF INDIA) would not be applicable. In view of this, the impugned order is not sustainable. The same is set aside. - Decided in favour of assessee.
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2015 (7) TMI 498
Clandestine removal of goods - whether the Appellant has clandestinely manufactured and removed 5,70,870 kgs of S.S. articles on the basis of a diary maintained by an employee Shri B.D. Patel, who was working as Excise Assistant of the main Appellant - Held that:- Clandestine removal cannot be sustained on the basis of statements and private records maintained by an employee in the absence of any evidence of procurement of excess raw materials, use of extra power and transportation of finished goods etc. In the present proceedings, there is no indication of excess raw materials procured and extra power used. There is no seizure of clandestinely removed finished goods or seizure of any cash from clandestine transactions involved in such suspected clandestine removals. - on the basis of few confessional statements, diluted by cross-examination of those witness, cannot be made the basis of clandestine manufacture and clearances of excisable goods and accordingly duty demanded by the Revenue is not sustainable. So far as disallowing CENVAT Credit of ₹ 1,10,978.00 and imposition of equivalent penalty upon the main Appellant is concerned, it is observed from the case records that this issue has not been agitated by the Appellant before the lower authorities. Therefore, the grounds taken before this Bench, that such shortage of inputs is negligible and should be ignored, is rejected as not entertainable as the same was not agitated before the lower authorities. - Decided partly in favour of assessee.
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2015 (7) TMI 497
Denial of CENVAT Credit - Bogus invoices - third party evidence by way of documents/laptop printout seized recovered - Imposition of penalty - Held that:- Third party evidence by way of documents/laptop printout seized recovered from the custody of ShriKirti Kala are not admissible piece of evidence to deny the credit. Further, I find that the statements of Shri Kirti Kala, Paras Patidar and Shri Mukesh Sangla were also relied upon but these statements have not been corroborated by any tangible evidence. I further find that during the course of investigation various statutory records resumed by the investigating team and the same have not been discarded by the authorities. Therefore, the said records are admissible evidence as per section 36A of the Central Excise Act, 1944 wherein it has been stated that any documents produced by any person or has been seized from the control of the said person under this Act or any other law. Unless contrary is proved by such person, it is presumed that the content of the said documents true. In this case, the Revenue has not been able to prove any contrary to the seized documents recovered from the custody of the respondent. Therefore, the same are admissible evidence in favour of the respondent as held by this Tribunal in the case of Rhino Rubber (1994 (4) TMI 196 - CEGAT, MADRAS). In fact no statement of the driver have been recorded to ascertain the truth whether the vehicle in question were involved in transporting the goods or not and no other evidence has been placed on record to ascertain the same. The Revenue has also not come with tangible evidence that the respondent have procured the goods in question from M/s.SOL and other associates. Further, the same investigation conducted in the case of M/s.Narmada Extrusion Ltd. wherein the same set of evidences has been relied on and the Commissioner (Appeals) have set aside the demand of duty and imposition of penalty holding that there are no sufficient ground to confirm the demand .and the said order has been accepted by the Revenue. No appeal has been filed against the said order. On examination of that statement, although the statement retracted by Shri Karni Singh Kothri, this statement is required to be examined independently. On independent examination of the said statement, I find that the goods/inputs were not available in the Indore and the respondent have procured the inputs from the open market in Delhi without cover of invoices. No prudent manufacturer shall procure inputs from Delhi without cover of invoice to cover those purchases shall procure the invoices from Indore. Possibly, the Revenue has not made any enquiry from Delhi Market in respect of statement of Shri Karni Singh Kothari to ascertain the truth. Moreover, no statement has been recorded from the transporter in order to ascertain that the goods have been procured without cover of invoice from the Delhi market. - infirmity in the impugned orders, the same are upheld - Decided partly in favour of Revenue.
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2015 (7) TMI 496
Irregular availment of capital goods credit availed on the CVD paid on the imported capital goods cleared under EPCG licence - Held that:- Appellant's case is squarely covered under Section 11A (2B) which stipulates not only voluntary payment of duty by the assessee but also any amount pointed out by the officers. In the instant case, it is evident that internal audit was conducted and the officers informed the appellant the irregular availment and directed the appellant to comply the audit para and the appellant complied immediately. I hold that there is no suppression of facts by the appellants with deliberate intention to evade duty. By respectfully following the decisions cited (2003 (9) TMI 625 - CESTAT, BANGALORE), [2011 (1) TMI 746 - KARNATAKA HIGH COURT] and [2010 (8) TMI 765 - CESTAT, NEW DELHI] while upholding appropriation of demand and interest, I set aside Section 11AC penalty in respect of appellant M/s.Aswin Textiles Pvt. Ltd. - As regards the co-noticee, original penalty of ₹ 48 lakhs imposed by the adjudicating authority was reduced to ₹ 1 lakh by the LAA. After considering the merits of the case, I do not find any merit for full waiver of penalty. Accordingly the reduced penalty of ₹ 1 lakh imposed on the co-noticee is upheld - Decided partly in favour of assessee.
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CST, VAT & Sales Tax
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2015 (7) TMI 505
Detention of the goods - non-movement of goods in a particular route - Section 67(5) of the TNVAT Act - Held that:- even if it is presumed that the vehicles had taken a diversified route i.e., 5 kilometres from the regular route, the Additional Government Pleader for the respondent has miserably failed to place before this Court any provision to justify the passing of the goods detention notices impugned herein. Therefore, when there is no provision, as argued by the learned Additional Government Pleader, placed before this Court that taking a diversified route from the regular route, the respondent is entitled to intercept the vehicles, this Court is not able to find any merit either in the goods detention notice - hence, they are liable to be set aside - writ petition allowed - Decided in favor of assessee.
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2015 (7) TMI 504
Validity of Assessment order passed under KVAT - petitioner submits that on account of the ailment, her husband could not take part in the proceedings - Held that:- No doubt, the petitioner made out a case for reconsideration as the assessee could not take part in the proceedings for sufficient reasons. - the petitioner should be given a sufficient opportunity to substantiate her contention. - matter restored before the AO.
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2015 (7) TMI 503
Rate of value added tax - 5% or 14.5% on Liquid Petroleum Gas (LPG) and Lubricants (Lubes) - Industrial Inputs or not - Held that:- It has been consistently contended by the petitioner that they have inadvertently entered the commodity code and that they have actually collected only @ 5% from their customers and there was no time limit prescribed under Rule 6(3)(b) of TNVAT Rules for filing the certificates and it should be every month. Since there is no time limit prescribed in the Rule, it can be held that the petitioner can file the certificates by the end of the assessment year. I find a considerable force in the contention of the petitioner. Hence, in order to give a fair opportunity, I am of the view that the petitioner can be permitted to file the documents afresh by quoting correct code of commodity as well as by furnishing all the certificates required under Rule 6(3)(b) of the TNVAT Rules, 2007, subject to certain condition. Accordingly, the petitioner is directed to file the documents afresh by quoting correct code of commodity by furnishing all the certificates required under Rule 6(3)(b) of the TNVAT Rules, 2007, subject to the condition that the petitioner shall deposit 10% of the admitted tax liability, within a period of four weeks from the date of receipt of a copy of this order - Decided partly in favor of assessee.
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