TMI Tax Updates - e-Newsletter
July 20, 2013

Case Laws in this Newsletter:

Income Tax Customs FEMA Service Tax Central Excise CST, VAT & Sales Tax Indian Laws

Articles

1. BUSINESS LOSS SECTION 73 EXPL. DELHI HIGH COURT DERIVATIVES

   By: DEVKUMAR KOTHARI

News

1. Prime Minister’s address at ASSOCHAM Annual General Meeting

2. Financing Strategies for Urban Infrastructure: Trends and Challenges – A presentation by Shri H R Khan, DG, RBI at Mumbai on July 18, 2013

Notifications

SEZ

1. S.O. 2132(E) - dated 5-7-2013 - SEZ

Set up an Information Technology and Information Technology Enabled Services/BPO/KPO Special Economic Zone at Village Bada Bangarda & Tigariya Badshah, Tehsil Hatod, District Indore in the State of Madhya Pradesh

Circulars / Instructions / Orders

DGFT

1. 05/2013 - dated 19-7-2013

Providing Personal Hearing in terms of Para 2.49.2 of Foreign Trade Policy (FTP) which is incorporated by Notification No 08(RE-2013)/2009-2014 dated 22.04.2013.

Highlights / Catch Notes

Income Tax

• Court Upholds Disallowance of One-Third Expenses for Excess Tendu Leaves in Income Tax Assessment.

  Case-Laws - HC : Disallowance - excess consumption of Tendu leaves - AO's addition 1/3rd, was found to be reasonable - HC
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• Section 68 of Income Tax Act applies to all types of credits, not just cash credits.

  Case-Laws - HC : Cash credit - Whether Section 68 of the Act applies only to cash credit - In the body of the Section, the word used is either found credited or so credited, there is no indication in the Section that such a credit should be a cash credit - HC
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• High Court Rules Grant-in-Aid for Research as Capital Receipt, Not Revenue Receipt.

  Case-Laws - HC : Whether grant-in-aid received by the assessee is an incentive for conducting research so as to be treated as capital receipt and not as revenue receipt - Held yes - HC
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• High Court Upholds Tribunal's Interpretation of "Aggregate Annual Receipt" u/s 10(23c)(iii)(ad) of Income Tax Act.

  Case-Laws - HC : Exemption u/s 10(23c)(iii)(ad) - Meaning of term aggregate annual receipt - the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. - HC
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• High Court Confirms Societies as Artificial Juridical Persons Under Income Tax Law, Clarifying Legal Standing and Obligations.

  Case-Laws - HC : Status of society - Artificial Juridical Person (AJP) or Association of persons (AOP) - Once a body/society is incorporated under a statute, it becomes juridical person - HC
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• VAT Exclusion in Closing Stock Doesn't Impact Profit/Loss; Assessing Officer's Addition Deemed Unsustainable.

  Case-Laws - AT : Non inclusion of VAT in the closing stock - there is no impact on the profit or loss on account of non inclusion of VAT in the value of closing stock - addition made by the A.O. is not sustainable. - AT
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• Taxpayer's Claim of No Capital Gain Rejected Due to Nil Cost of Acquisition.

  Case-Laws - AT : Cost of acquisition - the ownership right sold by the assessee is having nil cost of acquisition. - this argument of the assessee that there will be no capital gain because there is no cost of acquisition, has no merit - AT
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• Section 10B Deduction Contested: AO Objects Due to Domestic Sales, But Entity Still Qualifies as 100% EOU.

  Case-Laws - AT : Claim of deduction u/s 10B - Non export of 100% of turnover - the objection of the AO that some part of sale was affected in domestic area does not disentitle the assessee for claiming deduction u/s 10B unless the undertaking is deleted from the category of 100% EOU by the said Department - AT
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FEMA

• Authorities Can Lift Corporate Veil to Enforce FERA Section 29(1)(a) in FDI and Foreign Exchange Cases.

  Case-Laws - SC : FDI - foreign investment - Lifting of Corporate Veil - in a given situation the authorities functioning under FERA find that there are attempts to over-reach the provision of Section 29(1)(a), the authority can always lift the veil - SC
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• Company Violates FERA by Seeking Foreign Partnership for Activities Beyond NIC Code 893 Scope.

  Case-Laws - SC : FDI - foreign investment - the purpose for which the company had sought for foreign collaboration was not for trading in gold coins either for export or domestic purpose, but for the activities mentioned in the NIC Code 893 - Company has violated the provisions of FERA - SC
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Indian Laws

• High Court Reviews Disciplinary Case Against Accountant for Negligence in Auditing Financial Statements; Stresses Due Diligence.

  Case-Laws - HC : Audit report - Disciplinary proceedings against Chartered Accountant (CA) - CA acted in a grossly negligent manner and failed to obtain sufficient information to warrant the expression of opinion in the balance sheet and profits and loss accounts - HC
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Service Tax

• High Court Rules Sections 65(25a), 65(105)(zzze), and 66 Service Tax on Club Memberships Unenforceable, Exceed Legal Authority.

  Case-Laws - HC : Club Membership - Section 65(25a), Section 65(105) (zzze) and Section 66 as incorporated / amended to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires - HC
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• Refund Claim Rejected Due to Incomplete Courier Receipt Details Under Notification No.17/2009.

  Case-Laws - AT : Refund claim - Notification No.17/2009 - it is clear that receipt submitted by the courier agency does not content the details as required under the notification - refund claim was rightly rejected - AT
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• Penalties u/ss 76, 77, 78 upheld as voluntary tax payment not made; Section 73(3) inapplicable due to conditions.

  Case-Laws - AT : Penalty u/s 76, 77 and 78 - It is not their case that they have paid tax and interest on their own - provision of Section 73(3) are not applicable when ingredients of Section 73(4) are present - AT
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• New Definition Blurs Lines Between HVAC Systems and Equipment Installation, Creating Differentiation Challenges.

  Case-Laws - AT : Installation of plant, machinery or equipment was covered in the definition from the very beginning and it is very difficult to distinguish that heating system, ventilation system & AC system is different from heating plant, ventilation plant and AC plant. - AT
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Central Excise

• Dealers Penalized for Passing Credit Without Goods Receipt; Duty to Prevent Unauthorized Transfers Highlighted.

  Case-Laws - AT : Penalty - fist stage dealer / second stage dealer - Since appellants have not received the goods from manufacturers, it was their duty not to pass on the credit to the subsequent buyers or the manufacturers - penalty confirmed - AT
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• Cenvat credit applies to cement transportation for mine repairs and GTA services for factory deliveries under input services.

  Case-Laws - AT : Cenvat Credit - transportation of cement used for repair/ renovation within the mines is very much under this definition of input services - Cenvat credit in respect of GTA services for bringing the cement inside their factory allowed - AT
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• Central Excise Officers' Services Not Subject to Merchant Overtime Charges During Regular Hours.

  Case-Laws - AT : Merchant Overtime charges (MOT Charges) - there is no case for MOT charges in respect of service provided by Central Excise officers during the normal working hours - AT
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• High Court Ruling on Cenvat Credit Binding on Revenue Authorities Unless Overturned by Higher Court.

  Case-Laws - AT : Cenvat credit - Once a High Court declares a law, whether the Revenue accepts the same or not, the same is binding on the Revenue authorities unless the same is challenged by them and is set aside by the higher appellate forum - AT
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VAT

• Excise Duty Exclusion in VAT Turnover Valuation: Court Rules in Favor of Assessee Not Collecting Duty from Customers.

  Case-Laws - HC : Valuation - turnover for the purpose of VAT - Inclusion of excise duty in invoice amount - Assessee not collected excise amount from customers - no addition - HC
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• West Bengal Lacks Authority to Issue Form-C for Goods Purchased in Rajasthan, Application Rejected.

  Case-Laws - HC : Application for grant of Form-C rejected - prescribed authority is the authority in the state of Rajasthan where the petitioner had bought the goods - No authorities is vested in the State of West Bengal - HC
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Case Laws:

• Income Tax

• 2013 (7) TMI 527
  Deemed dividend, u/s. 2(22)(e) - Loan advanced to assessee - Assessee contends that huge amount of shares were settled in a trust - CIT[A] held that shares settled in favour of the Trust are still in the name of the trustees including the appellant and they are holding it as Trustees - Tribunal directed deletion - Held that:- Total interest in the shares was divested and settled in a trust, the later requirement of Section 2 (22)(e) namely that of the assessee being a beneficial owner of the share, would not be satisfied - Revenue formed opinion that creation of Trust was not genuine because no documents in support were found at the time of search - Assessee agreed to pay tax on deemed dividend to avoid litigation - Entire issue is based on appreciation of materials on record - Decided against Revenue.

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• 2013 (7) TMI 526
  Disallowance - excess consumption of Tendu leaves - CIT (A) addition of 1/3rd of the amount - Tribunal confirmed addition holding that there was no sufficient explanation, which could fully explain great fall of GP - Held that:- there was a fall in GP rate in the relevant assessment year 2003-03, and there was no sufficient explanation, which could fully explain such fall of GP rate. Considering these facts, the adhoc addition sustained by CIT (A), which is of the AO's addition 1/3rd, was found to be reasonable - findings recorded by ITAT are findings of fact based on their assessment of the material on record, which do not raise any question of law - Decided against Revenue.

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• 2013 (7) TMI 524
  Penalty u/s 271- Whether the Tribunal was right in deleting the penalty levied by the AO levied by the u/s.271(1)(c) and the Tribunal has failed to appreciate the fact that the assessee filed revised return only after the case was selected for scrutiny and after issue of a questionnaire and as such, the additional income disclosed by the assessee in revised return was not voluntary - Held that:- There could be no penalty because the liability to penalty and filing of the revised return are mutually exclusive - court relied upon the decision of CIT v. Shankerlal Nebhumal Uttamchandani (2008 (3) TMI 309 - GUJARAT HIGH COURT) - reason given for filing revised return was that most of the business was looked after by his brother who was in a position to comply with the details and since he was no more in this world he opted to file revised return – tribunal is legally and factually correct in canceling the penalty and committed no error in deleting the penalty – appeal decided against revenue.

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• 2013 (7) TMI 523
  Cash credit - Whether Section 68 of the Act applies only to cash credit - Held that:- where any sum is found credited in the books of an assessee and in the ends what is mentioned is the sum so credited may be charged to income-tax - In the body of the Section, the word used is either found credited or so credited, there is no indication in the Section that such a credit should be a cash credit - The essence is that the credit should be shown in the account and that would satisfy the requirement of Section 68 of the Act. Once the credit so mentioned in the Section is found to be not supported by any acceptable evidence, then the sum so credited may be charged to income-tax as the income of the assessee of that previous year - Decided in favour of the Revenue.

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• 2013 (7) TMI 522
  Whether grant-in-aid received by the assessee is an incentive for conducting research so as to be treated as capital receipt and not as revenue receipt - Held that:- The grant-in-aid is given to the assessee for research in the field of telecommunications, which in-turn would benefit the Nation and public at large – the income is only a 'capital receipt' and not a 'revenue receipt' - Court relied upon the judgement of Commissioner of Income-Tax Vs. Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT) - the object of the grant-in-aid is for the specific purpose of conducting research in the field of telecommunications, so that the benefit thereof would ensure to the Nation - the grant-in-aid is not given to the assessee for carrying on its day-to-day business - if the assessee is able to acquire new ideas or new knowledge and use the same in its manufacturing activity it would be a case of acquisition of such new idea which in itself would constitute an intellectual property - It is to acquire such capital asset the grant-in-aid is given - It also helps in the growth of the assessee generally in public interest as the said grant-in-aid is given to the assessee so as to assist the assessee to acquire the new capital asset and the said benefit may be incidental to the business of the assessee – appeal decided against revenue

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• 2013 (7) TMI 521
  Rejection of books of accounts - Whether in the absence of any finding that the method of accounting adopted by the assessee is such that the income cannot be properly deduced, the AO erred in law in taking recourse to the first proviso to section 145(1) – Held that:- It appears that the AO, the CIT and ITAT have not considered the matter in a proper perspective for rejecting the books of account - the matter to be remitted back to the CIT (Appeals) for fresh decision after hearing the assessee in this regard - though certain reasons have been given by the AO but the entire basis of non-acceptance of the account books as recorded by the Assessing Officer was not correct - the factual position can be ascertained only from a perusal of the account books – case remanded back - appeal decided in favour of assessee.

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• 2013 (7) TMI 520
  Whether the AT is justified in holding that the AO is required to be directed to treat the funds received on account of family settlement as funds available in the hands of the assessee – It appears that during the course of survey at the premises wherein the assessee is a key person and had owned up the activities of the firm, stock had been found without any books of accounts nor were there any stock registers available - such account had been treated as unexplained investment - according to the assessee the source of investment was from the family settlement received by the assesse - It also noted that there was no reason for rejecting the sources and application of the funds as enumerated in the fund flaw statement - the AT is justified in deleting the addition towards unexplained expenditure on foreign tour made by the AO - the AT is justified in deleting the addition of unaccounted interest made by the AO. - Decided against the revenue. Whether the AT is justified in deleting the addition by way of unexplained stock made by the AO - the statement of affairs submitted by the assesse - the assessee has shown stock - the investment in stock is fully taken care of as per the statement of affairs – thus on this issue also court do not find any reason to interfere in the order of the CIT (Appeals) - this ground is also rejected - Held that:- Both the authorities have correctly held in favour of the assessee- respondent - When the assessee had already sold stock and when the investment of the stock was fully explained the same could not have been termed as unexplained investment in stock - This issue hardly gives rise to any substantial question of law – appeal decided against revenue.

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• 2013 (7) TMI 519
  Status of society - Artificial Juridical Person (AJP) or Association of persons (AOP) - Held that:- The society while filing return is described the status as AJP - the Assessing Authority could not accept the said status and treated the assessee as AOP and has passed the order - the Tribunal has held that the assessee is to be treated as AJP. When the return is filed as AJP - the question of treating the assessee as AOP would not arise - the society would be an artificial juridical person other than the association of persons or body of individuals - the definition makes it clear that a ‘person’ includes an association of persons or body of individuals whether incorporated or not and also every artificial juridical person, not falling within any of the preceding sub-clause - Once a body/society is incorporated under a statute, it becomes juridical person – decided against revenue. Exemption u/s 10(23c)(iii)(ad) - Annual receipt (turnover) - prescribed limit - Held that:- if the aggregate annual receipts of an educational institution is less than one crore, the income from such educational institution in the hands of the assessee, is not taken into consideration in computing the total income of the assessee. - Sub-clause (vi) provides that any University or other educational institution existing for educational purpose and not for the purpose of profit other than those mentioned in sub-clause (iii)(ab) and sub-clause (iii)(ad) and which may be approved by the prescribed Authority, they are also entitled to the said benefit. In other words, sub-clause (iii)(ab), sub-clause (iii)(ad) and clause (vi) applies to three categories of institutions. Meaning of term aggregate annual receipt - Held that:- Each educational institution is a separate entity controlled under various statutes for various purposes. May be the Management of these educational institutions would be in the hands of the Societies or the Trust, but for all other purposes they are different, independent entities. Here “any person” refers to the assessee and “on behalf of” refers to such institutions. It may be an University, it may be an educational institution, it may be a hospital or other institutions of similar nature. As all such institutions are independent entity and they generate income and when that income is received by the assessee, it becomes the income in the hand of the assessee and it is such income which is sought to be excluded while computing the total income of the assessee under Section 10. Therefore, irrespective of the expenditure incurred by those institutions, the exemption is based on the total receipts. Even if the word “aggregate” has to be understood as suggested by the Revenue as the annual receipts of such educational institutions put together, probably, the said provision regarding exemption would be of no use at all. Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. - Decided in favor of assessee. Addition in respect of grant of subsidy and advancement of unsecured loans to persons connected with the Chairman of the society under various agreements - Whether the Tribunal is correct in deleting the interest amount in respect of interest – Held that:- free advances made to the relatives of the Chairman and the amounts in turn, are transferred to a firm – whatever money had been paid earlier was sought to be adjusted as the subsidy amount thereby the partnership firm committed to provide hostel facility - Having regard to the nature of construction the extent of construction, the responsibilities and the advantages - tribunal rightly allowed the said amount as expenditure and deleted the additions made by the assessing authority - we do not see any error committed by the Tribunal - the disallowance of the notional interest on the said amount would also fall to ground – Decided in favor of assessee. Addition towards funds collected towards construction of building as donation - donors had not been identified - section 11(1)(d) – Held that:- the questions are purely a question of fact - the proper thing would be to set aside the finding and remand the matter back to the Assessing Authority, giving an opportunity to the assessee to produce the ledger books and other accounts showing the receipt of such payment and utilization of the said amount for the purpose of construction, so that on the aforesaid material, the Assessing Authority can pass suitable orders on merits. Whether the Tribunal is correct in not appreciating that the assessee was independently claiming section 10(23C) (iii)(ad) exemption in respect of the entire trust as well as in respect of independent institutions when the management and the control of the same vested with its Chairman, who was running the same as a business concerns i.e. for profit -the assessee constructed a building on a leased property. It was treated as block asset and depreciation was allowed under Section 32(1) - the said building was discarded - the building was surrendered to the lessor on the expiry of the lease period. On the date of the expiry of the lease period, the written down value was mentioned in the balance sheet. It is that amount claimed as deduction under clause (iii) of sub-section (1) of Section 32 - the assessee is entitled to the said deduction - The lower authority by misreading the provisions of law had denied the said benefit – decided against revenue.

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• 2013 (7) TMI 518
  Substantive addition made in the hands of one assessee and protective in the hands of the other assessee - Held that:- CIT(A) held that AO has not specified any defect in the profit and loss account or in the books of account produced is contradictory and without any basis because when the AO says that assessee has not maintained any books of account, there is no question of producing any books of account by the assessee either before the AO or before CIT(A) and then how it is expected from the AO that he should point out specific defect in the books of account of the assessee. In view of this contradictory finding of CIT(A) which is without basis order of CIT(A) is not sustainable & the matter should go back to the file of CIT(A) for fresh decision after providing reasonable opportunity of being heard of both sides.

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• 2013 (7) TMI 517
  Non inclusion of VAT in the closing stock - CIT(A) deleted the addition - whether provisions of section 145A do not exempt such inclusion of VAT for any reason? - Held that:- It is an admitted position of fact that the amount of VAT paid by the assessee was not included in the cost of purchase and the same was not debited in the P & L account. Under these facts, even if closing stock has to be valued after including the amount of VAT, the amount of purchase is also required to be inclusive of VAT and if this is done, there is no impact on the profit or loss of the assessee on account of non inclusion of VAT in the value of closing stock. Hence the addition made by the A.O. is not sustainable. In favour of assessee. Loan to related persons - disallowance u/ 40A(2)(b) - Deletion of excessive interest of 6% by CIT(A) out of interest paid by the assessee @ 18% even when the maximum prevalent bank rate for similar enterprises was 12% - Held that:- Held that:- It may be correct that banks are charging interest @ 12% and even some parties may offer charging of interest @ 12% but the difference in facts has to be considered that assessee has borrowed unsecured loan without providing any security and, therefore, such interest rate of secured loan cannot be made a benchmark to consider the reasonableness of interest payment by the assessee in respect of unsecured loan. Thus payment of interest @ 18% in respect of unsecured loan as compared to payment of interest @ 12% in respect of secured loan cannot be said to be excessive for the purpose of making disallowance u/ 40A(2)(b) and hence, disallowance made by the A.O. is not sustainable. In favour of assessee.

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• 2013 (7) TMI 516
  Cost of acquisition - land transferred by the deceased assessee during this year - whether no income under the head "Capital Gain" was chargeable to tax." - Held that:- It is admitted fact that the assessee was the tenant of the property in question and because of this fact only, the assessee became the owner of this land property upon coming into force of the Devstan Inam Abolition Act, which means the tenancy rights were converted into ownership right and hence, the provisions of Section 55(2)(a) as per which in the case of tenancy right, the cost of acquisition is required to be take as 'nil' because only tenancy right having nil cost of acquisition was converted into ownership right, the ownership right sold by the assessee is also having nil cost of acquisition. Hence, this argument of the assessee that there will be no capital gain because there is no cost of acquisition, has no merit. - Decided against the assessee. Sale consideration - Rs.7.36 crores as per CIT(A) as against the amount of Rs.14.71 crores - Held that:- CIT(A) has given a clear finding that the MOU and no other document can be a basis for the conclusion reached by the A.O. and on the basis of these documents, a presumption cannot be raised abut receiving the cash by the assessee. No specific evidence is referred to by the A.O. about the allegation that assessee has been paid any amount in excess of the price of Rs.7.36 crores as per the documents. It is also noted that this price has been accepted by the stamp duty authority and it is not disputed by the authority. Hence, there is no infirmity in the order of CIT(A) on this issue. Determination of value of property - at Rs.800/- per sq. yard or Rs 250/- per sq. yard - While adopting the value as on 01.04.1981 @ Rs.250/- per sq. yard as against Rs.800/- per sq. yard the basis of the A.O. was that as per this report of the registered valuer, various sales instances considered by him which are for smaller plots but for a larger plot like that of the assessee, the value will be much less per sq. yard - Held that:- The registered valuer has given various sale instances form 25.03.1980 to 30.08.1982 and the lowest value as per these sales instances is Rs.211.57 per sq. yard and the highest value as per these sales instances is Rs.971.73 per sq. yard as per the instance noted at Sl. 6, the rate is Rs.971.73 only. Sl. No.7 it is Rs.700/-, Sl. No.8 it is Rs.773.41 and as per Sl. No.9, it is Rs.800/- per sq. yard. The stand of the A.O. that the value of larger plot has to be lesser is without any basis and it depends on many factors. In some cases, the A.O. may be right that the price of a larger plot will be lesser but in other cases, it may be different and it may be found that price of larger plot is higher and, therefore, no decision can be taken on the basis of these presumptions. In the absence of any valid basis adopted by the A.O. to substitute the rate adopted by the assessee on the basis of a valuation report of a registered valuer, no interference is called for in the order of CIT(A) to accept the value of property as on 01.04.1981 at Rs.800/- per sq. yard. - Decided against the revenue.

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• 2013 (7) TMI 515
  Claim of deduction u/s 10B disallowed - Held that:- The undertaking existed in the same place, form and substance and did carry on the same business before and after the change in the legal character and form of the organization. Formerly, it was a part of MSSL and presently it is an independent assessee. However, with the above change in organizational status, the same unit continued to function. Non export of 100% of turnover - Held that:- It is observed that clause (iv) of Explanation 2 to section 10B defines the expression 100% EOU so as to mean an undertaking which has been approved as 100% export oriented unit by the Board appointed in this behalf by the Central Govt. in exercise of the power conferred under section 14 of the Development Regulation Act, 1951 and rules made under that Act and in the present case the representation was made to the authorities and after verifying the documents and after being satisfied a certificate was granted of being 100% EOU to the undertaking under the name & style of M/s MSSL and subsequently when the unit was transferred to assessee the same was transferred in the name of the assessee. Therefore, the objection of the AO that some part of sale was affected in domestic area does not disentitle the assessee for claiming deduction u/s 10B unless the undertaking is deleted from the category of 100% EOU by the said Department. Transfer of assets which exceeded 20% of total value of plant & machinery - Held that:- As submitted that part assets were not transferred but the whole undertaking was transferred and there is no question of comparison of assets transferred with the total transfer of the assessee as it is a case of transfer of whole undertaking. All the case laws relied by DR relate to transfer of assets to an assessee and these cases do not relate to transfer of an undertaking in full. Therefore, assessee was entitled to the benefit of section u/s 10B for the years under consideration provided these years fall within 10 years from the date of availment of first deduction u/s 10B - appeals of the assessee are allowed.

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• 2013 (7) TMI 514
  Disallowance of interest expenses u/s. 14A - Held that:- As decided in case of CCI Ltd. (2012 (4) TMI 282 - KARNATAKA HIGH COURT) that if the assessee is a dealer of shares and securities then it cannot be said that such purchases of shares and holding of shares were for the purpose of earning of dividend income and hence, expenditure incurred in acquiring these shares cannot be disallowed u/s. 14A. In the present case, this is admitted position of fact that assessee is a dealer in shares and securities also noted by AO in his assessment order and nothing has been brought on record by CIT-DR of the Revenue to show otherwise. Since assessee is dealing in shares thus disallowance made by AO u/s. 14A on account of interest expenditure on proportionate basis cannot be sustained. In favour of assessee.

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• 2013 (7) TMI 513
  Addition u/s.40A(2) - unreasonable purchase price paid to its sister concern for purchase of scrap - Held that:- CIT(A) observed that AO arrived at the cost of purchases by working out opening stock, generation, sales and the closing stock. While doing so AO adopted the opening stock of scrap at 117.985 MT and arrived at the closing stock at 124.50 MT. However, from the record, the opening stock should have been 5.2 MT as against 117.985 MT adopted by the AO. In case correct opening balance is adopted, the closing stock would have been worked out to 11.715 MT. The same closing stock was found to be accepted in M/s.Aarti Steel Industries for A.Y. 2006-07. In view of the above mistake by AO the cost of purchases worked out to be very high and the AO presumed that the assessee paid excessive and unreasonable price to M/s.Aarti Steel Industries, thus AO's conclusion was on account of wrong assumption of facts and figures which were contrary to the records. Even otherwise, the assessee filed details of rates paid to sister concern and also other outside/unrelated parties according to which rate paid to the sister concern was found reasonable after considering the transportation charges which the assessee would have to incur in case of purchases made from outside. Therefore, the CIT(A) rightly concluded that disallowance made by the AO u/s. 40A(2) was not justified. In favour of assessee.

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• Customs

• 2013 (7) TMI 504
  Extension of time for submission of pre deposit – Held that:- Petitioner to deposit the amount of Rs. 5 lakhs as directed by the CESTAT order dated January 21, 2013 before August 10, 2013 - time granted by the CESTAT shall be treated as extended - the appeals filed by the petitioner shall be heard on merits – decided in favour of assessee.

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• FEMA

• 2013 (7) TMI 505
  FDI - foreign investment for Service Sector - Nature and business of the company - whether the company was a trading company and also whether it was primarily engaged in export for availing of the automatic route - Held that:- If a new trading company indulging in export primarily also will have to make an application to the RBI for automatic approval for foreign investment upto 51% foreign equity and the thrust would be on export activities. - Registration of the company as an exporter / importer with the Ministry of Commerce and registration of an export house is also a pre-requisite - according to the Notification then in existence and the Press Note upto 31.12.1991 the companies engaged primarily in trading activities whether new or existing will have to fulfill certain conditions by applying to the RBI for permission for foreign investment up to 51% - No permission was obtained by the respondent company from the RBI for 51% foreign equity induction, for trading, by way of export. RBI, on the other hand, granted general permission only for dealing with the activities mentioned in NIC Code 893 and not for any trading activities leading to import or export. Lifting of Corporate Veil - Held that:- in a given situation the authorities functioning under FERA find that there are attempts to over-reach the provision of Section 29(1)(a), the authority can always lift the veil and examine whether the parties have entered into any fraudulent, sham, circuitous or a devise so as to overcome statutory provisions like Section 29(1)(a). It is trite law that any approval/permission obtained by non- disclosure of all necessary information or making a false representation tantamount to approval/permission obtained by practicing fraud and hence a nullity. Whether the company violated the provisions of Section 19(1)(a) and (d) and Section 29(1)(b) r.w Sections 9(1)(e), 49 and 68(1) and (2) of FERA leading to penal consequences – Held that:- The company violated the provisions and thus would be liable for the consequences – premises of the company ordered to be seized – amounts present in various bank accounts confiscated – personal penalties were also imposed. Permission and Registration with RBI - Held that:- The company stated in the application as "Business Management Consultancy for Trading, Marketing and Selling of Goods and Services". Even there also, there is no indication whatsoever that the company was set up for trading, but only indicated "consultancy for trading". Further Para IX (iii) called for the description of the products for export trading wherein the company has stated as "not applicable". Resultantly, it is clear that the purpose for which the company had sought for foreign collaboration was not for trading in gold coins either for export or domestic purpose, but for the activities mentioned in the NIC Code 893. - The High Court, in our view, has committed an error in holding that no questions of law arose for its consideration under Section 54 of FERA and has completely misread and misinterpreted the Industrial Policy, Press Notes and Section 19(1)(a) and (b), Section 29(1)(a) and (b) etc. - Decided against the company. Whether the above Bank has contravened Section 6(5) of FERA and misused the permission granted to it by RBI for importing gold coins - The Bank, it is seen, had imported the gold on its own behalf and sold the same to the company and if the Bank was acting as an agent of the company, it would not have sold the gold to the company, but would have charged the commission for acting as an agent. No materials have been placed before us to show that the Bank was acting as an agent of the company. On facts, the Tribunal as well as the High Court took the view that the Bank had not misused the permission granted by the RBI for importing gold coins. We do not find any reason to interfere with those finding of facts. - Decided in favor of Bank.

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• Service Tax

• 2013 (7) TMI 510
  Club Membership - Constitutionality of section 65(105) - laiblity for service tax - Whether services provided by the assessee club to its members would be liable to service tax - the club is rendering service or selling any commodity to its members for a consideration then whether the amounts to sale or not – Held that:- Section 65(25a), Section 65(105) (zzze) and Section 66 as incorporated / amended to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires – decided in favour of assessee. Decision in Joint Commercial Tax Officer Vs. The Young Mens' Indian Association (1970 (2) TMI 87 - SUPREME COURT OF INDIA) and Decision of Full bench in case of Commissioner of Income Tax Vs. Ranchi Club Limited [2012 (6) TMI 636 - Jharkhand High Court] followed.

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• 2013 (7) TMI 509
  Rejection of Refund claim - Notification No.17/2009 - The refund claim relates to an amount of service tax paid on courier services - Held that:- it is clear that receipt submitted by the courier agency does not content the details as required under the notification - finding of the Commissioner (Appeals) that the conditions mentioned in the notification were not fulfilled by the assessee was sustainable – appeal decided against assessee.

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• 2013 (7) TMI 508
  Penalty u/s 76, 77 and 78 - Service Tax and interest was paid by the assessee after summons were issued to them and investigation were initiated against assessee - It is not their case that they have paid tax and interest on their own - provision of Section 73(3) are not applicable when ingredients of Section 73(4) are present – Court relied on Bajaj Travels Ltd. Versus Commissioner of Service-tax (2011 (8) TMI 423 - DELHI HIGH COURT ) - Held that:- Assessee were also not entitled to benefit of 25% tax amount as penalty as they have not deposited 25% tax amount as penalty within one month of receipt of the order – penalties under Section 76 and Section 78 operate in different fields and penalty under Section 76 and Section 78 are imposable – appeal decided against asseessee.

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• 2013 (7) TMI 507
  Installation/Erection, Commissioning or Installation Service - Held that:- Installation of plant, machinery or equipment was covered in the definition from the very beginning and it is very difficult to distinguish that heating system, ventilation system & AC system is different from heating plant, ventilation plant and AC plant. - their activity was taxable prior to 16.06.2005 also and from 16.06.2005 related work of piping, ducting and sheet metal is also brought into tax net. Extended period of limitation - whether Show Cause Notice issued to the assessee time barred – Held that:- appellants were paying service tax on the activities with effect from 16.06.2005 and filing returns. It is on record that appellants vide their letter dated 05.09.2005 submitted month wise details of all payments received by them against HVAC works for the period 01.07.2003 to 15.06.2005. Once the details of value of taxable services were available to the Department on 05.09.2005, there is no reason to invoke the extended period – decided in favour of assessee.

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• 2013 (7) TMI 506
  Storage and warehouse charges - Assessee stopped paying service tax that there was litigation on issue storage and warehouse charges collected by them - Held that:- Once service tax has been collected from the customers, the assessee is bound to deposit the same under Section 11D of the Central Excise Act, 1944 - appellant is directed to deposit entire amount of service tax with interest after adjusting the amount already paid by them within eight weeks from today and report compliance to the original adjudicating authority who shall adjudicate the matter afresh after considering the submissions relating to exemption for storage of agricultural commodities - Decided in favour of assessee.

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• Central Excise

• 2013 (7) TMI 503
  Cut-off date – Recruitment for the post of Member, Central Board of Excise and Customs (CBEC) – On November 16, 2012 a further circular was issued by the respondent for one post of Member, CBEC which is to fall vacant on December 31, 2012 - Held that:- As per the case of Bhupinderpal Singh v. State of Punjab [2000 (5) TMI 1041 - SUPREME COURT],” that the cut off date by reference to which the eligibility requirement must be satisfied by the candidate seeking a public employment is the date appointed by the relevant service rules and if there be no cut off date appointed by the rules then such date as may be appointed for the purpose in the advertisement calling for applications and that if there be no such date appointed then the eligibility criteria shall be applied by reference to the last date appointed by which the applications have to be received by the competent authority.” Also, as per M.A. Murthy v. State of Karnataka[2003 (9) TMI 76 - SUPREME Court], “candidate who does not possess driving licence on the last date fixed for submission of the application is not eligible to be considered for selection." The prescription of April 01 of the panel year i.e. 2012, as the date on which a Chief Commissioner should meet the eligibility criteria of one year service has not caused any prejudice to the petitioner inasmuch as the petitioner did not have one year service on the date by which the applications were received i.e. November 30, 2011 and also on April 01, 2012 which is a date beyond November 30, 2011. Hence the preparation of panel by the Committee of Secretaries without considering the name of the petitioner cannot be faulted. The Committee of Secretaries has prepared the panel of three officers who have been appointed as Members of CBEC on varying dates, the last one being on September 03, 2012 (respondent No.5) which is a date before September 09, 2012 the earliest date when petitioner had fulfilled the requirement of one year service. On this ground also, the panel having been exhausted by appointing respondent No.5 on September 03, 2012, the appointment of respondent No.5 cannot be said to be illegal - All officers who applied pursuant to the circular dated November 16, 2012 would be considered for being appointed as a Member CBEC.

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• 2013 (7) TMI 502
  Condition for deposit - Appellant prays that as 50% of the amount has been deposited and the appeal is pending adjudication, the impugned order may be modified to the extent that the appeal may be decided after accepting 50% of the amount demanded, on such other terms and conditions as this Court may deem proper - Counsel for the respondents states that he has no objection to the aforementioned prayer, provided a direction is issued that in case the appeal is decided against the appellant, the appellant shall deposit the balance amount within a week of the decision and before availing any other remedy – Held that:- In case the appeal is decided against the appellant, he shall be bound, as a pre-condition, before availing any other further remedy, to deposit the balance amount within one week of the decision of his appeal. Failure of the petitioner to comply with this direction shall entitle the respondents to initiate proceedings in accordance with law, as well as proceedings under the Contempt of Courts Act.

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• 2013 (7) TMI 501
  Pre-deposit – Held that:- Extension of time limit for making of pre-deposit within the period of three weeks on the basis of oral statement of the learned counsel for the applicant-petitioner – If the said statement of the learned counsel is found to be incorrect, the appeal before the CESTAT shall stand dismissed without further consideration - Decided in the favor of Assessee.

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• 2013 (7) TMI 500
  Penalty under Rule 25 of the Central Excise Rules, 2002 – fist stage dealer / second stage dealer - Receipt of invoices without the receipt of goods – Cenvat Credit wrongly passed on – Held that:- Appellants are second stage dealers who received the invoices from the first stage dealer - Appellants categorically admitted that they have not received the goods manufactured by manufacturer - Name of the manufacturer required to be mentioned on the invoices - Since appellants have not received the goods from manufacturers, it was their duty not to pass on the credit to the subsequent buyers or the manufacturers – As per the decision in the case of VK Enterprises [2011 (7) TMI 970- CESTAT, DELHI], the penalty equal to the duty amount is imposable in cases invoices are issued without receipt of goods – Decided against the Assessee.

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• 2013 (7) TMI 499
  Cenvat Credit - On Input Services of GTA Services for the manufacture of lead, zinc and other metal concentrates falling under Chapter 26 of the Central Excise Tariff – Credit availed of service tax paid on freight for procurement of cement under Goods Transport Agency service - Cement not eligible input and therefore freight charges paid for inward transportation of cement not be treated as input service utilised for manufacture of final product and as such, credit availed by the respondent is not admissible - Held that:- Under Rule 2(l) of the Cenvat Credit Rules means, input service used in relation to setting up, modernization, renovation or repairs of the factory. As per the decision of the Supreme Court in the case of Vikram Cement [2006 (2) TMI 1 - Supreme court] the mines are to be treated as factory area. Therefore transportation of cement used for repair/ renovation within the mines is very much under this definition of input services - Cenvat credit in respect of GTA services for bringing the cement inside their factory allowed – Decided against the Revenue.

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• 2013 (7) TMI 498
  Merchant Over time (MOT) fee charged for normal working hours - Whether MOT fees are required to be paid to the Central Excise officers for performing supervision of stuffing of containers within the factory premises during the normal working hours - MOT charges already been paid by respondents in respect of duties performed during holidays or beyond working hours – Held that:- MOT charges are not payable in respect of duties performed within normal working hours as per the decision in the case of Signma Corporation (I) Ltd. Vs. CCE [2004 (1) TMI 112 - CESTAT, NEW DELHI] – Decided against the Revenue.

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• 2013 (7) TMI 497
  Merchant Overtime charges (MOT Charges) for service rendered by the officers of Central Excise during the normal working hours of the Central Excise department i.e. 10 A.M. to 6 P.M – Held that:- As per the decision in the case of M/s Sigma Corporation India Pvt. Ltd. [2004 (1) TMI 112 - CESTAT, NEW DELHI], there is no case for MOT charges in respect of service provided by Central Excise officers during the normal working hours - Revenue has challenged the said order of Tribunal in Delhi High Court and Court vide its order reported in 2013-TIOL-323-HC-DEL-CUS has held in the favor of Respondents – Decided in favor of Assessee.

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• 2013 (7) TMI 496
  Pre-deposit – Held that:- Copy of e-Receipt for Central Excise Tax Payments - It is seen that appellant deposited the said amount and complied with the directions of High Court - appeal to be listed for disposal on 16.09.2013

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• 2013 (7) TMI 495
  Cenvat credit of service tax paid on the group insurance, life insurance and mediclaim of employees of the company – Held that:- As per the decision in the case of CCE & ST, LTU, Bangalore vs. Micro Labs Ltd. [2011 (6) TMI 115 - KARNATAKA HIGH COURT], Cenvat credit is available for such input services – Decided in favor of Assessee. Adjudicating Authority observed that though the decision in the case of CCE & ST, LTU, Bangalore vs. Micro Labs Ltd. [2011 (6) TMI 115 - KARNATAKA HIGH COURT] cover the disputed issue involved in the instant case, but the same has not been accepted by the Revenue, the same does not have any binding defect. Adjudicating Authority further agreed that the said decision of the Hon’ble Karnataka High Court has not been challenged by the Revenue as the amount involved was much less – Held that:- The refusal of the original Adjudicating Authority to follow High Court’s order on the ground that the same has not been accepted by the Revenue cannot be appreciated. Once a High Court declares a law, whether the Revenue accepts the same or not, the same is binding on the Revenue authorities unless the same is challenged by them and is set aside by the higher appellate forum. Following the law declared by High Court is not depending upon the pleasure of the Revenue officer and is required to be followed by them, in its totality – Decided in favor of Assessee.

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• CST, VAT & Sales Tax

• 2013 (7) TMI 512
  Valuation - Inclusion of excise duty in invoice amount - Assessee not collected excise amount from customers - Assessing authority added excise amount to total turnover of assessee subsequently - Held that:- turnover for purposes of assessment includes the aggregate amount for which the goods are bought or sold or disposed of in any of the ways referred in the definition of sale. When the contemplation of the Act is to include the totality of the consideration alone and in the price charged in the invoice as a sale consideration did not include any sum, it being not the amount for which the goods are bought or sold, cannot be brought in within the definition of sale - assessee was not registered under the Central Excise Provisions at the time when he effected sales of the manufactured items - on the date of sale, all that the petitioner had collected as sale consideration alone would be the turnover for the purpose of assessment and when the Tribunal on the first round of litigation has clearly pointed out that the Assessing Officer was to verify the sale price till October 1986 and after October 1986 and further to find out whether the assessee had passed on the duty paid as part of the sale consideration and when no efforts were taken on this aspect, no justifiable ground to accept the plea of the Revenue to set aside the order of the Tribunal. - Decided against Revenue. Mohan Breweries and Distilleries Ltd Vs. Commercial Tax Officer, Madras and Others [1997 (9) TMI 500 - SUPREME COURT OF INDIA] - Has no relevance to the facts of the present case and the issues are totally different.

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• 2013 (7) TMI 511
  Application for grant of Form-C rejected - Held that:- The prescribed authority is the authority in the state of Rajasthan where the petitioner had bought the goods & no such application was filed by the consignor before the prescribed authority in Rajasthan. Therefore, the prayer of the petitioner for a direction upon the authorities in the State of West Bengal for the grant of Declaration Form-C cannot be allowed. Thus the prayer of the petitioner, being the consignee, for condoning the delay and/or for grant of C-Form cannot be acceded to.

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• Indian Laws

• 2013 (7) TMI 525
  Qualified audit report - Disciplinary proceedings against Chartered Accountant (CA) - Discrepancies in the audited balance sheet and profits and loss accounts - Respondent pleaded guilty before disciplinary committee - Held that:- balance sheet and profits and loss accounts of the assessee were incorrect - Whether the mistake was bonafide or not is not very material - Even if the computer typist took the last year's closing stock figure and adjusted the cane payment dues account to tally the balance sheet, the respondent was required to compare the closing figure with the closing balance in the books of accounts and the trial balance thereof - no evidence that the respondent cared to obtain confirmation from third parties regarding the amount due to them, which would have demonstrated that the cane dues as mentioned in the balance sheet are incorrect - He simply signed the balance sheet, profits and loss account prepared by the computer operator without verifying the correctness and authenticity of the facts and figures appearing therein - He failed to exercise the professional skill which he possessed by acting in a totally perfunctory manner - Respondent acted in a grossly negligent manner and failed to obtain sufficient information to warrant the expression of opinion in the balance sheet and profits and loss accounts - Following decision of In Re: Shri ´M´, An Advocate of The Supreme Court of India [1956 (10) TMI 31 - SUPREME COURT] - Decided in favour of Council. Quantum of punishment - Held that:- No malafide intention has been found on part of the respondent in furnishing incorrect audit report and financial statements - Respondent is in profession for more than 20 years with no history of any such misconduct in the past - Interest of justice will be served if respondent is severely reprimanded for his misconduct - Decided in favour of Council.

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