Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
July 21, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
News
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Expenses on cast reusable iron moulds The short shelf life of the cast iron ingot moulds, which is to be purchased on regular basis as if it is a part of the stores of spares is revenue expenditure and not capital expenditure - HC
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Depreciation on sale and lease back transaction Not for sale sign affixed on assets - no material produced by the Revenue to show that the transaction of sale and lease back was not genuine or was bogus - HC
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Indo-Malaysia Treaty the entire profits derived from the transportation of goods carried on by the assessee is to be treated as profits from operation of ships and, therefore, the benefit of Article-8, cannot be denied to the assessee on the part of the freight from voyage by the feeder vessels - AT
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Linkedin Profiles to be taken as evidence or not - The Linkedin profiles are in the nature of admissions of persons on their job profile. The data is in pubic domain. - admitted - AT
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Expenses on scholarship paid for charitable purposes there was no genuine process of selection/interview and it was all manipulation made by the assessee society - exemption denied - AT
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Transfer pricing adjustments - Supply of hardware to Indian customers assessee constitutes Permanent Establishment in India in terms of Article 5 of the DTAC- attribution of 50% of profits is justified. - AT
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Deduction u/s 80IB - AO to examine the nexus between the borrowed money and money utilized for the purpose of earning interest income - AT
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Transfer pricing adjustment Unutilized share application money beyond 60 days treated as loan it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE - AT
Service Tax
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Even if it is a subsidiary company, as submitted by the learned counsel, a subsidiary company is considered as a separate entity in the eyes of law. Therefore GE ITC is not an extended arm for GE USA - AT
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CENVAT Credit - Premises on which service is provided and credit is availed in its respect was not registered with the Department - assessee not registered as ISD - Decided against assessee - AT
Central Excise
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Recovery from the successor - respondent was not successor in business of M/s. Ganga Sagar & Company. They have purchased the Land & Machinery from MPFC in the year 2001, which was acquired by MPFC in the year 1997 - AT
VAT
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Liability to tax - Exemption from tax - if iron and steel are subjected to a single point levy of tax at the first point of sale, then there is no question of a second levy or charge at any subsequent point of sale or purchase - HC
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Valuation - expenditure incurred for deployment of own machineries and equipments in execution of the work and establishment expenditure are allowed as deduction - HC
Case Laws:
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Income Tax
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2014 (7) TMI 693
Expenses on cast reusable iron moulds Revenue expenses or not - Whether in the nature of manufacturing process carried out by the assessee, where the shell life of the cast iron ingot moulds, which is used for about 30 to 40 times and, thereafter, scrapped, could be taken as capital asset or a revenue asset Held that:- The Tribunal after considering the nature of manufacturing process, the user of goods, the period of its shell life and the nature of its use, which is having short shelf life rightly held that the goods, i.e. cast iron ingot moulds are to be treated as revenue expenditure and not as capital expenditure, moulds do not have enduring life, which will be a parameter for considering the same as capital expenditure - The short shelf life of the cast iron ingot moulds, which is to be purchased on regular basis as if it is a part of the stores of spares was treated by the Tribunal as revenue expenditure and not capital expenditure - no subatanital question of law arises for consideration Decided against Revenue.
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2014 (7) TMI 692
Depreciation on sale and lease back transaction Not for sale sign affixed on assets - Financial Transaction OR sale and lease back agreement Held that:- The sale was on payment of sales tax and the assessee has received the lease amount and disclosed the same as business income the Tribunal has rightly held that the assessee is the owner of the machinery and the machinery was used for its leasing business in the AY, thus, they are eligible for depreciation Relying upon Commissioner of Income-tax v. High Energy Batteries (India) Ltd. [2012 (5) TMI 287 - MADRAS HIGH COURT] - there is no material produced by the Revenue to show that the transaction of sale and lease back was not genuine or was bogus thus, no substantial question of law arises for consideration Decided against Revenue.
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2014 (7) TMI 691
Stay application Addition made u/s 68 as unexplained credit High variation seen in income shown as return and assessment order Held that:- The assessees are individual and since there was an escapement of income, for reasons recorded as provided u/s 147 of the Act, notice was caused to them u/s 148 of the Act and after affording them an opportunity, the assessment was finalised and those assessment orders were put to challenge by filing appeals before the third respondent - During pendency of the appeals, the petitioners invoked the jurisdiction of the first respondent praying for stay of the operation of the assessment orders, who has taken into consideration the latest Circular, negatived the relief - the assessees are not running commercial business and that they are only individual assessees and also taking into consideration the fact that the difference between the income shown in the returns and assessment orders was very high, the interim relief can be granted to the assessees subject certain conditions Stay granted.
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2014 (7) TMI 690
Reassessment proceedings u/s 147 Proceedings already set aside in earlier assessment year on similar facts Held that:- The initiation of the reassessment proceedings with respect to the AY 2005-06 has been set aside, which were sought to be initiated on the ground on which the reassessment proceedings by observing that there was no failure on the part of the assessee to disclose truly and fully all material facts - the reassessment proceedings for the AY 2005-06 with respect to the very assessee, which were sought to be initiated on the very ground on which the reassessment proceedings are initiated for the subsequent AY 2006-07 and 2007-08 are set aside by the Court and the facts are similar to that of the AY 2005-06, the reassessment proceedings for the AY 2006- 07 and 2007-08 deserve to be quashed and set aside Decided in favour of Assessee.
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2014 (7) TMI 689
Reassessment notice u/s 147 r.w 148 Opinion of audit party - Held that:- Mere opinion of the audit party cannot form the basis for the AO to reopen the closed assessment that too beyond four years from the end of relevant assessment year The decision in COMMISSIONER OF INCOME TAX Versus SHILP GRAVURES LTD [2013 (11) TMI 581 - GUJARAT HIGH COURT] followed - If the reassessment proceedings are initiated merely and solely at the instance of the audit party and there was no independent application of mind by the AO with respect to subjective satisfaction for initiation of the reassessment proceedings, the notices cannot be sustained and the same deserves to be quashed and set aside Decided in favour of Assessee.
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2014 (7) TMI 688
Remission or cession of trading liability u/s 41(1) Bad debt not written off in books Held that:- The Suit filed by M/s. TAFE Limited (Creditor) against the assessee for recovery of ₹ 1.09 crores is still pending and the assessee has continued to show the amount as outstanding liability in its Book of Accounts, both the CIT(A) as well as the Tribunal rightly held that the amount cannot be included in the account of the assessee u/s 41(1) - there was no cessation of liability of the assessee - No error has been committed by the Tribunal in confirming the order of the CIT(A) Decided against Revenue.
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2014 (7) TMI 687
Jurisdiction of Tribunal for rectification u/s 254(2) Mistake apparent on record Held that:- CBDT has issued a Circular No. 68 [F. No. 245/17/71-A & PAC], dated 17.11.1971 explaining as to when a mistake apparent from the record could be corrected in the event of a subsequent decision delivered by the Supreme Court of India - relying upon Assistant Commissioner of Income Tax Vs. Saurashtra Kutch Stock Exchange Ltd. [2008 (9) TMI 11 - SUPREME COURT] - an error apparent on the record means an error which strikes one on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions - where the business continued, the valuation of the closing stock would have to be determined either at cost price or market price, whichever is lower - decision passed by the Tribunal based on an earlier decision of the Supreme Court is a mistake apparent from the record and consequently a rectification application u/s 254(2) is maintainable - the Tribunal was justified in passing the order u/s 254(2) of the Act Decided against Revenue.
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2014 (7) TMI 686
Indo-Malaysia Treaty expression used in Article- 8 - Freight income from operation of shipping business - assessee is not the "owner", "lessee" or the "charterer" of the feeder vessels - Department has held that the chartering of some space or slot charter arrangement cannot be equated with chartering of a complete ship and just by issuing bill of lading for the entire voyage, the assessee cannot be said to be involved in operation of ships Held that:- the operation of a ship can be done as charterer which does not mean to own or control the ship either as an owner or as a lessee - charterer is a hirer of a ship under an agreement or arrangement to acquire the right to use a vessel or a ship for the transportation of a good on a determined voyage, either the whole of the ship or part of the ship or some space of the ship in a charter party agreement - the word "charterer" includes a voyage charter of a part of a ship or a slot, as it is also arrangement or agreement to hire a space in a ship owned and leased by other persons. The facility of slot hire agreement with the feeder vessels to complete the voyage is not merely an auxiliary or incidental activity to the operation of ships, but inextricably linked. If the transportation of cargo by feeder vessels belonging to other enterprise is only a part of main voyage by the mother ship i.e., owned or leased by the assessee enterprise, then it has to be taken as a part and parcel of the operation, which is inextricably linked with the completion of the entire voyage - The linkage between the transportation by feeder vessels, mother vessels of the ship owned by the assessee has to be established - insofar as the issue of linkage between the voyage performed between the feeder vessels and mother vessels, the assessee has been able to establish before the AO which is evident from the observations of the AO - there is no ownership or control of entire ship because the risk under the charter party agreement or arrangement is upon the owner of the ship who generally assumes an operational risk for transporting the cargo of the person who has hired the ship and the hirer agrees to pay for conveyance of goods on a determined voyage - The risk of the assessee is towards its customers from whom he has agreed to transport the cargo/goods from the destination port of booking to the final destination port - such a strict interpretation of the word "charterer" as adopted by the Department cannot be sustained. Transportation of cargo in the container belonging to the assessee from Indian Port i.e., Port of booking to the Hub Port through feeder vessel by way of space charter/slot charter arrangement, falls within the ambit of the word "charterer" and, therefore, it cannot be segregated form the scope of "operation of ships" as defined in Article-8(2) of the Indo-Malaysian treaty - the voyage between the Indian Port to the Hub Port through feeder vessel and from Hub Port to final destination port through mother vessel owned/leased by the assessee are inextricably linked and there is complete linkage of the voyage and, therefore, the entire profits derived from the transportation of goods carried on by the assessee is to be treated as profits from operation of ships and, therefore, the benefit of Article-8, cannot be denied to the assessee on the part of the freight from voyage by the feeder vessels Decided in favour of Assessee. Levy of interest u/s 234B of the Act Held that:- The decision in DIT(IT) v. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] followed - the assessee is not liable for levy of interest u/s 234B - the assessee was not liable to pay any advance tax on the basis of double income relief certificate issued by the Income-tax Department and the fact that the freight of the assessee was deductible at source having regard to the specific provisions of section 209(1)(d) and, therefore, the duty was cast upon the payer to deduct the tax at source and failure on the part of payer to do so, no interest can be imposed on the payee assessee under section 234B Decided partly in favour of Assessee. Treatment of interest income Income from other sources or not - nature of interest received on refund u/s 244A Held that:- The decision in ACIT v. Clough Engineering Ltd., [Asstt. CIT Versus Clough Engineering Ltd.] followed - the tax on interest has to be at a beneficial rate under Article-11 of the Indo- Malaysian treaty Decided against Revenue.
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2014 (7) TMI 685
Chargeability of Interest u/s 234B(1) or 234B(3) - Wrong charging of interest Held that:- CIT(A) righty of the view that the intimation u/s 143(1)(a) is not an assessment and if the assessment for the first time is completed u/s 147 then the case will fall under sub-section (1) of section 234B - assessment for the first time was completed under the provisions of section 147 therefore, the case will fall under the provisions of sub-section (1) of section 234B - going by the Explanation 2 to Section 234B, when the assessment was made for the first time u/s 147 r.w section 143(3), the assessment is a regular assessment attracting the provisions of sub-section (1) of Section 234B - assessment is a regular assessment and not a reassessment thus, the order of the CIT(A) is upheld Decided against Assessee.
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2014 (7) TMI 684
Unpaid leave encashment u/s 43B Held that:- CIT(A) was rightly of the view that assessee did not pay leave encashment - by granting leave to employees, leave encashment provision cannot be claimed - disallowance can be made if payment is not made by the assessee till due date of filling return theses claims are allowable only on payment in the year in which payment is made, the same is not allowable since no payment was made during the - there was no infirmity in the order Decided against Assessee. Prior period expenses Held that:- The entry for recording interest accrual based on debit note recorded in financial books on 30/4/2005, being the extended financial year under company law last year, the reversal of the said on 31/3/2006 was treated as prior period in the 11 months financial accounts under the company law for FY 05-06 - submissions of the assessee with regard to the reversal of entry is not decided by the CIT(A) - CIT(A) has allowed the claim of bad debt of the assessee thus, the matter is remitted back tot the CIT(A) for fresh consideration Decided in favour of Assessee. Expenses for scientific research u/s 35(2AB) Held that:- The term 'in-house' used in section 35(2AB) must be viewed in the context of which it has been used. If by utilizing the staff or resources of an organization, research is conducted within the organization rather than through utilization of external use of resources or staff, it can be stated to be an in-house research - The decision in CIT vs. Cadila Healthcare Ltd. [2013 (3) TMI 539 - GUJARAT HIGH COURT] followed the AO is directed to allow the claim of assessee Decided in favour of Assessee. Claim of interest Interest considered as diverted for non-business purpose Held that:- The addition on the basis that the advances given have been continuing for a long period of time - the decision in Commissioner of Income-tax Versus Raghuvir Synthetics Ltd. [2013 (7) TMI 806 - GUJARAT HIGH COURT] followed - no businessman can be compelled to maximize its profit - The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act it has to see that the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits Decided in favour of Assessee. Disallowance u/s 14A r.w Rule 8D Held that:- AO has not given any finding with respect to the expenditure incurred on administrative head by the assessee - no disallowance with respect to administrative expenses can be made - The decision in Torrent Power Ltd. vs. DCIT [2012 (11) TMI 59 - ITAT, AHMEDABAD] followed - the AO is directed to delete the addition made on account of disallowance of administrative expenses - the issue of disallowance of interest expenses is being restored back to the file of CIT(A) to give a clear finding as to how the provisions of section 14A of the Act would be applicable under the facts when the investments are vested unto the assessee-company by way of amalgamation and arrangement approved by the Honble Gujarat High Court Decided in favour of Assessee. Depreciation of building of plant and machinery Held that:- The assessee has produced the evidence of electricity power consumption that goes to show that the Plant was running and this fact is not rebutted by placing any contrary evidence on record by the Revenue that the electricity so consumed for any other purpose the decision in ACIT vs. Ashima Syntex Ltd. [2000 (8) TMI 22 - GUJARAT High Court] followed - the AO is directed to allow the depreciation as claimed by the assessee Decided in favour of Assessee. Calculation of adjusted book profit - Provision for doubtful debt and dimunition in the value of investment Held that:- The provision of bad and doubtful debts has been reduced from the gross debtors and the net sundry debtors are shown as asset in the balance sheet - the provision for bad and doubtful debts cannot be termed as a provision for liability but is in the nature of diminution in the value of asset - the decision in ACIT vs. Vodafone Essar Gujarat Ltd. [2012 (6) TMI 415 - ITAT, Ahmedabad] followed Decided in favour of Assessee. Reduction in Prior paid expenses Computation of taxable income u/s 115JA of the Act Held that:- The amount was reduced by the assessee passed on after approval of the company in its AGM, which was also accepted by the auditors - the AO could not have made any further adjustment dehors the provisions of Section 115JA of the Act The decision in CIT vs. Meghmani Organics Ltd. [2014 (7) TMI 673 - GUJARAT HIGH COURT] followed - decided in favour of Assessee. Short deduction of TDS u/s 40(a) Held that:- Provision of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account - The decision in CIT vs. M/s S.K.Tekriwal [2012 (12) TMI 873 - CALCUTTA HIGH COURT] followed - with regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139 - it is not the case of non-deduction of tax or after deduction of the tax the same is not deposited in the Government Account, but it is a case where there is a shortfall in deduction of tax Decided against Revenue. Product registration expenses Capital expenses or not Held that:- It cannot be gainsaid that the expenses for garden had nexus with business activity - It can well be treated for business purpose and can be claimed as revenue expenditure - the expenses for foreign country registration was for business purpose only, because the same helped the assessee in marketing its products in the foreign countries and promoting the sales - The decision in Commissioner of Income Tax vs. Torrent Pharmaceuticals Ltd. [2013 (4) TMI 570 - GUJARAT HIGH COURT] - thus, the order of the CIT(A) is upheld Decided against Revenue.
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2014 (7) TMI 683
Linkedin Profiles to be taken as evidence or not - Determination of permanent establishment (PE) in India - Admissibility of additional evidence Held that:- Section 254(1) provides that the Tribunal may, after giving both parties to the appeal an opportunity of being heard, "pass such orders therein as it thinks fit" - the Tribunal has all the powers vested in it which are vested in the income-tax authorities with reference to section 13 - The basic ingredient for exercising powers under Rule 29 for admission of additional evidence is that Tribunal should come to the conclusion that a particular document would be necessary for consideration to enable it to pas orders or for any other substantial cause - The document can be brought to the notice of Tribunal by either party. At the time of admission of additional evidence the Tribunal is required to examine whether prima facie the evidence is relevant to the facts in issue or not - As per section 3 of the Evidence Act, one fact is set to be relevant to another when the one is connected with the other in any of the ways referred to in the provisions of Evidence Act relating to the relevancy of facts - The fact in issue u/s 3 of the Evidence Act means and includes any fact from which either by itself or in connection with other facts the existence/ non-existence nature or extent of any right, liability or possibility asserted or denied in any suit or proceedings necessarily follows. Establishment of PE - Whether there is PE or not (which is primarily a factual finding to be recorded by Tribunal after due appreciation of facts on record) Held that:- In course of survey while recording the statement of Chief Finance Officer Shri Chandan Jain a specific question was put to him to provide the names of employees of GEIPL who were working in the other GE group entities in India for which he answered that he will check and revert back - it cannot be said that AO had not made inquiries regarding the employees of GEIPL who were working for other GE entities - The assessee did not provide this information. Inordinate Delay In Filing Evidence Held that:- The assessee cannot be permitted to first scuttle the investigations/ inquiries by not furnishing the necessary information and then claim benefit out of the same. At the end of the day it is the determination of correct taxability of assessee, which should guide the proper course of action. There is no gain saying that pitted against the technicalities and cause of justice, cause of justice should prevail. Whether linkdin profiles is hearsay evidence - Held that:- Section 60 of the Evidence Act requires that oral evidence must in all cases what-ever, be direct. It is well settled law that admission though not conclusive is binding and decisive on point unless it is successfully withdrawn or proved to be erroneous - The Linkedin profiles are in the nature of admissions of persons on their job profile. The data is in pubic domain. The strict Rules of Evidence are not applicable to income-tax proceedings. The evidences sought to be filed by Revenue are only supporting in nature and would assist in appreciating the facts in a more judicial manner. - Linkedin profiles filed by the department admitted. - Decided in favor of revenue.
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2014 (7) TMI 682
Expenses on scholarship paid for charitable purposes Exemption u/s 11 - Held that:- CIT(A) has brushed aside all the objections of the AO by stating that by way of trivial procedural lapses, this in itself does not change the nature of application of income towards charitable purposes which is factually verified and accepted by the AO as such - the address of the applicant is of Calcutta - The application is addressed to the President of the assessee society at Kanpur it could not be understood as to how an application dated 16 th May, 2003, by a person residing in Calcutta, had reached to the President of the assessee society on 17th May, 2003 and thereafter, the managing committee of the assessee society had formed a scholarship committee who has called this person from Calcutta for interview and this person appeared before the scholarship committee for prolonged interview on 17th May, 2003 and thereafter, the said scholarship committee had reached to the conclusion to recommend granting of scholarship to Mr. Adheesh Bhagat as per the minutes signed on 18 th May, 2003 at 11.30 a.m. - The chronology and timing of the events support the case of the AO that there was no genuine process of selection/interview and it was all manipulation made by the assessee society and the scholarship was granted to Mr. Adheesh Bhagat at the sole discretion of the Vice President / President who intentionally avoided to appear before the Assessing Officer for fear of interrogation. It may be considered to be a good basis for considering the eligibility of applicant but when the application along with the enclosures cannot reach to the managing committee of the assessee society and the scholarship committee in time i.e. by 17th May, 2003 and it is not shown as to how Mr. Adheesh Bhagat was contacted for attending the interview and how he reached Kanpur for attending interview, all these material cannot justify his selection because these material cannot be available before the selection committee along with this fact that the candidate Mr. Adheesh Bhagat cannot be available for interview on 17 th May 2003 in the chronology of events discussed above - the impossibility of interview of Mr. Adheesh Bhagat by the selection committee, as claimed in the absence of any positive material having been brought on record by the assessee thus, the order of CIT(A) is not sustainable Decided in favour of Revenue. Allowability of depreciation as capital expenses - Entire cost of capital expenditure already allowed as deduction u/s 11 of the Act Held that:- The decision in ACIT vs. Saraswati Gyan Mandir Shiksha Sansthan [2014 (7) TMI 626 - ITAT LUCKNOW] followed - allowing exemption u/s 11 is not equal to allowing deduction - allowing exemption means that the income is not liable to tax but the income remains the same and it does not get reduced, although such income is not taxable because of the operation of section 11(1) of the Act - exemption is allowed at the time of acquisition of assets and depreciation is allowed at the time of user of assets, it does not amount to double deduction Decided partly in favour of Revenue.
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2014 (7) TMI 681
Penalty u/s 271(1)(c) Concealed income as surrendered certificates Held that:- The AO is required to arrive at a finding that explanation offered by the assessee, in the event he offers one, is false or not bonafide - The AO must record a finding that the explanation is not only bonafide but all the facts relating to the same and the material income was not disclosed by him - the addition made by AO on account of surrender Certificates u/s. 41(1) of the Act was on the basis of the details filed in the return of income and after applying the provisions of section 41(1) of the Act the decision in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] followed - the facts does not warrant levy of penalty - CIT(A) has rightly deleted the penalty Decided against Revenue. Excess claim of foreign travel Inaccurate particulars furnished Held that:- There is no iota of any concealment brought out on record even the disallowance is just for the sake of disallowance - assessee has filed complete details in respect to foreign travel expenses before the AO during the course of assessment proceedings and also filed explanation during the course of penalty proceeding u/s. 271(1)(c) of the Act - nowhere the AO has proved concealment or the explanation furnished by assessee is false or not bonafide - the assessee is not liable for penalty for concealment of income u/s. 271(1)(c) of the Act Decided against Revenue. Excess claim of depreciation on leasehold properties Inaccurate particulars furnished Held that:- Once the assessee has taken lease for 99 years the assessee is entitled for depreciation - Once the assessee is entitled for depreciation then where is the question of levy of penalty - the assessee filed complete details of depreciation before the AO while filing the return of income and also during assessment proceedings - there is no question of concealment of income on depreciation - CIT(A) has rightly deleted the penalty Decided against Revenue. Income earned from dividend Held that:- A return of investment cannot be construed to mean "expenditure" and if it is construed to mean "expenditure" in the sense of physical spending still the expenditure was not such as could be claimed as an "allowance" against the profits of the relevant accounting year under sections 30 to 37 of the Act and, therefore, section 14A cannot be invoked - The decision in CIT v. Walfort Share & Stock Brokers (P.) Ltd.[ 2010 (7) TMI 15 - SUPREME COURT] followed - the order of CIT(A) is upheld in deleting the penalty as the deemed dividend or estimated dividend cannot be subject matter of penalty u/s. 271(1)(c) of the Act and no penalty can be levied for concealment of income on such income Decided against Revenue. Addition u/s 14A r.w. Rule 8D Expenses related to exempted income Held that:- The assessees investments in Bonds and shares in companies and units of mutual funds which generated its exempt dividend income or Tax free interest were made out of its own funds instead of funds borrowed from the Certificate Holders - neither the fund borrowed from the Certificate Holders nor the interest payable on borrowed fund could be attributed to the exempt dividend income or tax free interest and hence no part of the Interest could be disallowed in terms of Rule-8D(2)(ii) of the Rules - If so, the disallowance in terms of Rule 8D(2)(ii) of the rules is required to be taken at nil as shown by assessee in its enclosed Revised computation of disallowance under Rule-8D of the rules - The assessee is able to prove that the exempted income earned is out of its own funds not from borrowed funds Decided against Revenue. Nexus between exempted dividend income and Demat Account Held that:- Assessee could not substantiate how this demat expenses are correlated with long term capital gain and short term capital gain there is no reason to believe the argument of assessee that the demat charges are not on account of dividend income - the dividend income is earned out of investments held in demat account but what is the proportion of this expenditure cannot be said at this stage because facts are not available regarding proportionate expenses Decided partly in favour of Revenue. LTCG disallowed Price per share arbitrarily considered Held that:- The AO has no power to enhance the sale price unless he proves that the consideration for transfer of capital asset was understated in the instrument or the consideration received is lesser than what actually it is Relying upon ITO Vs. K. P. Varghese [1981 (9) TMI 1 - SUPREME Court] there is no evidence before AO that assessee has received amount higher than the declared sum of ₹ 53.59 lacs and that also without any basis Decided against Revenue.
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2014 (7) TMI 680
Reopening of assessment u/s 147 r.w 148 Reopening only on the on the basis of retracted statement No further enquiry made Held that:- There may be a substantive assessment without any protective assessment but there cannot be any protective assessment/addition without a substantive assessment/addition - there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition - the AO proceeded to make protective assessment by way of reopening of assessment of the assessee appellant company without being a substantive assessment on the date of assumption of jurisdiction u/s 147 of the Act which is not permissible as decided in M.P. Ramachandaran vs DCIT [2009 (5) TMI 121 - ITAT BOMBAY-E]. Following the decision of CIT vs Dr. R.N. Thippa Shetty [2008 (4) TMI 452 - KARNATAKA HIGH COURT] - if the very basis on which reopening was ordered did not exist, then there was no question of reopening the assessment and thus, notice u/s 148 of the Act deserves to be held as illegal and without jurisdiction - the AO assumed jurisdiction to initiate and reopen reassessment u/s 147 of the Act on the basis of retracted statement of Shri Subodh Gupta which was recorded during the survey on Shri Subodh Gupta in his individual capacity and the AO also proceeded to make a protective assessment/addition without any substantive assessment/addition and without making any further investigation and inquiry about the material and information before him at the time of recording reasons. The AO assumed jurisdiction for reopening of assessment u/s 147 of the Act and for issuing notice u/s 148 of the Act on wrong premise and without any justified, cogent and legal reason - there existed no good or sufficient ground or reason for reopening of the case and issuance of notices u/s 148 of the Act against the assessee company - the condition precedent for valid initiation of reassessment is not being satisfied as the belief that income chargeable to tax has escaped assessment does not exist on the date of assuming jurisdiction u/s 147 of the Act thus, all subsequent proceedings including issuance of notice u/s 148 of the Act were illegal and bad in law Decided in favour of Assessee.
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2014 (7) TMI 679
Depreciation on goodwill Whether goodwill is an asset covered under Explanation (3)(b) of Section 32 of the Act or not Held that:- The assessee had purchased quality register division of KPMG and the consideration made over and above book value of net current asset as appearing in books as on 15.12.2005 was recorded as goodwill and depreciation was claimed by treating the same as intangible asset - CIT(A) rightly followed CIT Vs Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT] - goodwill is an asset which is covered under Explanation (3)(b) of Section 32(1) of the Act which would fall under the expression any other business or commercial rights of similar nature thus, there was no infirmity in the order of the CIT(A) Decided against Revenue.
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2014 (7) TMI 678
Transfer pricing adjustments - Supply of hardware to Indian customers Permanent establishment - Whether the assessee constitutes a Permanent Establishment in India Held that:- The decision in assessees own case for the earlier year has been followed that the employees of group companies did visit in India in connection with Project in India - the employees of the group companies did carry out business of the assessee through the premise of LO or the premise of the subsidiary - the entire business enterprise activities of the assessee is managed by the subsidiary in India and the requisite supply is made from abroad - The contract does not only need loading of the equipments in the ship, but includes number of activities which are carried out in the Indian territory and the compensation / remuneration for that is also included in consideration the order of the CIT(A) is upheld that activities of the assessee in India constitute PE of the Assessee in terms of Article 5 of the Indo US DTAA - The activities carried out by the PE are the core activities of the assessee resulting in generation of income to the assessee and they cannot be considered to be preparatory and auxiliary - the contention of the assessee that it do not have PE in India is rejected. Attribution of profits - How much of the profits arising to the assessee from supply of telecom hardware to Indian customers is attributable to the PE in India Held that:- The decision in assessees own case for the earlier year has been followed that CIT(A) has held that AO was justified in resorting to Rule 10 - when profits are computed under Rule 10 after applying the profit rate, the expenses pertaining to the PE have to be allowed as deduction - CIT(A) has held that income of the PE has to be computed on the facts of each case CIT(A) has held that he was of the view that an attribution of 50% of the profits to the activities of PE in India would be a reasonable attribution. Hardware supply contract was a part of the turnkey contract which involved supply, installation, testing and commissioning etc. - Activities of M/s Nortel India and that of LO of Nortel Canada and services of expatriate workers have also been taken as part of the execution of the work by the PE - CIT(A) has directed the AO to also allow expenses relatable to PE - the gross profit computed by reference to the rate applicable to the global accounts of the assessee, further substantial deduction has been allowed for selling general and marketing expenses and also R&D expenses - 50% of the resultant figure has been attributed to PE - CIT(A) is justified in attributing 50% of the profit to the PE i.e. assessee - assessee constitutes Permanent Establishment in India in terms of Article 5 of the DTAC- attribution of 50% of profits is justified. Research & Development expenses Held that:- The decision in assessees own case for the earlier year has been followed that CIT(A) has held that AO has not verified the allowability of the expenditure CIT(A) that the same will be done if directed by him - the CIT(A) has himself examined the nature of the expenses and examined the allowability of these expenses as to whether the same were incurred wholly or exclusively for the purpose of business - CIT(A) has not even mentioned about the quantum of R&D expenses thus, the matter is to be remitted back to the AO Decided in favour of Assessee.
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2014 (7) TMI 677
Penalty u/s 271(1)(c) of the Act - Loans and advances written off Held that:- The payment was for protecting the business and not for curing the defect in the title of property - If the assessee had incurred this amount of ₹ 22.84 lakhs on curing the title of the property, the amount would certainly have assumed the character of a capital expenditure not eligible for deduction requiring imposition of penalty - the amount cannot be outrightly characterised as capital expenditure, ineligible for deduction Relying upon Minoo F Mehta vs. CIT [1994 (12) TMI 9 - BOMBAY High Court] - If it is incurred by the assessee for the purpose of creating, curing or completing his title to capital, it must be regarded as capital expenditure - But, if it is for the purpose of protecting its business, it would be considered as revenue expenditure - whereas an expenditure incurred for creating, curing or completing title to the property is capital, any sum incurred to protect the business is revenue expenditure. Claim of the assessee for deduction of such expenses is neither barred by any direct judicial precedents nor is contrary to any specific statutory provision - the question as to whether deduction should be allowed for such write off falls in the realm of debate - the assessee kept on keeping this amount under the head Loans and advances in its balance sheets over the period with the hope of getting reimbursement from the seller of property - But for such chances of recovery to be effected from the seller, the assessee would have claimed deduction for the same on year to year basis, which might possibly have been allowed also - mere fact that the assessee lost the hope of recovering this amount and wrote it off in its books of account, can by no standard be considered as a case of concealment of income or furnishing of inaccurate particulars of income thus, the order of the CIT(A) is set aside Decided in favour of Assessee.
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2014 (7) TMI 676
Deduction u/s 80IB of the Act Income from other sources - Interest earned on FDRs not derived from eligible undertaking Held that:- The decision in CIT Vs. Shri Ram Honda Power Equip [2007 (1) TMI 86 - HIGH COURT, DELHI] - in deducting such interest, the AO will take into account the net interest, i.e., gross interest as reduced by expenditure incurred for earning such interest, (ix) Where, as a result of the computation of profits and gains of business and profession, the AO treats the interest receipt as business income, then deduction should be permissible, in terms of Explanation (baa) of the net interest i.e., the gross interest less the expenditure incurred for the purposes of earning such interest - The nexus between obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assessee for application of the netting principle - there has to be nexus between the payment of interest and earning of interest - CIT(A) only compared between the interest received and interest payment thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO to examine the nexus between the borrowed money and money utilized for the purpose of earning interest income Decided in favour of Revenue.
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2014 (7) TMI 675
Bogus accommodation entries Held that:- The assessee has enclosed copies of account, income tax and assessment particulars, balance-sheet of all the parties in support of these entries under the certificate below the index of the paper book that those were filed before the authorities below and with this submission that all these entries have been duly recorded in the books of accounts and there is no case of any adverse inference - the AO has not bothered himself to verify the correctness of the documents filed by the assessee in support of the genuineness of the claimed unsecured loan from the companies - assessee had furnished the primary evidences, like copy of account, income tax return and assessment particulars as well as balance-sheets of all the parties with this submission that all these entries are duly recorded in the books of accounts and that the entire loan amount was paid through cheques/drafts - the initial burden to establish the genuineness of the claimed unsecured loan was discharged by the assessee - onus was shifted on the AO to dislodge those primary evidences as unreliable evidences to establish his allegation that these were nothing but accommodation entries only - an addition cannot be made merely on the basis of statements recorded during search or survey surrendering an amount for the addition unless it is corroborated by further evidence. CIT(A) has rightly held the action of the AO in making the addition u/s 68 of the Act as unjustified Relying upon CIT Vs. Lovely Exports (P) Ltd [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - even if the share application money received by the appellant company is from alleged bogus shareholder, whose identity is produced by the appellant company, the revenue can always proceed against such shareholders and if necessary re-open their individual assessment - CIT(A) has passed a comprehensive and reasoned order after discussing the case of the parties on issue in details Decided against Revenue. Adjustment of unexplained expenses against credits Held that:- The contention of the assessee cannot be accepted that entries made in the ledger account are rough work as the entries are narrative mentioning the date, mode of payment page no of folio with the amount debited and credited as well as the balance - the surrender made by Shri R. C. Goyal was corroborated with the annexure found during the course of survey which was confronted with him and thereafter Shri R. C. Goyal had surrendered the amount for tax - CIT(A) has thus rightly upheld the action of the AO with the finding that the AO has arrived at the figure after verification - CIT(A) has however following settled principle of law and accountancy, has held that the benefit of netting cannot be denied to the assessee - the statement recorded during the survey was also on the basis of the netting principle - CIT(A) was justified in sustaining the addition to the extent of the net amount Decided against Revenue. Undisclosed cash receipts Held that:- Retraction was made by the assessee and as such the survey statement is even otherwise not admissible - there was totaling mistake of significant nature, it was necessary and obligatory for the AO to bring relevant facts and evidence in support of allegation about receipt of cash - It is self-evident that in the referred document, neither there is reference to any cash receipt or any details relating to name of the party or name of the properties - the principle of natural justice and real income and in the absence of details of the parties and properties in respect of which alleged cash was stated to have been received, there could be no ground for any addition on the basis of vague and unsubstantiated notings Relying upon CIT Vs. Anil Bhalla [2010 (2) TMI 7 - DELHI HIGH COURT] - no addition could be made on the basis of mere jotting on paper in the absence of independent material or proper enquiry or investigation - the order of the AO and CIT(A) cannot be upheld Decided in favour of Assessee.
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2014 (7) TMI 674
Transfer pricing adjustment on interest chargeable to AE Unutilized share application money beyond 60 days treated as loan Held that:- The decision in Bharti Airtel Limited (Bharti Crescent) Versus Additional Commissioner of Income Tax [2014 (3) TMI 495 - ITAT DELHI] followed - the transactions involving payment of share application money could not be treated as international transactions of loan given by the assessee company to its AE merely because there was a delay in allotment of shares - there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of inordinate delay and not the entire period between the date of making the payment and date of allotment of shares. Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares - That aspect of the matter is determined by the relevant statute - it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE - the addition made by the AO/TPO and sustained by the CIT(A) is to be set aside by way of TP adjustment on account of interest chargeable on the amount of share application money paid by the assessee and lying unutilized with its AE treating the same as the transaction of loan Decided in favour of Assessee.
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Customs
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2014 (7) TMI 694
Amendment of the In- Bond Bill of Entry - to amend petitioner's name and to allow release of the goods - Held that:- revenue directed to amend the bill of entry and allow the provisional release of goods only on payment of the entire customs duty payable on such goods by the petitioner and also by giving bank guarantee for the equal sum of duty amount in favour of the Department, pending adjudication of the proceedings initiated against the petitioner and fourth respondent. - Decided in favor of assessee.
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Service Tax
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2014 (7) TMI 709
Classification of services - CENVAT credit - claim of depreciation on capital goods exempted services - Non maintenance of seperate accounts - Credit in respect of trading activity - Held that:- the exact nature of the work undertaken under each category and how it is covered by the definition and whether the amount quantified is correct are not at all forthcoming from the impugned order. Especially crane supply clearly does not appear to be covered under Cargo Handling Service. Similarly while classifying one of the categories under the heading transportation, the learned Commissioner has proceeded to classify it under Cargo Handling. We are very conscious of the fact that the Tribunal is the last fact finding body in the dispute resolution mechanism for indirect tax levy by Central Government and therefore we should be treading carefully when recording our findings of facts and this cannot be done in a hurry. - matter remanded back. Appellant had availed CENVAT credit on capital goods as well as claimed depreciation under Section 32 of the IT Act 1961. - Learned AR submits that the credit was taken in October 2007 and even at the time of adjudication, the appellants could not give the details and could not specifically confirm that they have filed a revised return. The learned counsel also could not clearly show whether the time limit for filing return was over and the return was filed or not. In the absence of any clarity in this regard, we consider that appellant should deposit this amount even if the matter is going to be remanded for de novo adjudication. Reversal of credit towards traded goods - Held that:- Prior to 2008, Information Technology Service was also considered as exempted service and it has been excluded from the definition of Business Auxiliary Service and even then it was held that Information Technology Service is an exempted service and therefore if separate accounts are not maintained, the amount as specified in Rule 6 of CENVAT Credit Rules is required to be paid. The appellant is directed to deposit an amount of ₹ 10,00,000 - stay granted partly - matter remanded back.
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2014 (7) TMI 708
Sanction of rebate of services tax - Export of services - Scientific and Technical Services - Revenue contends that Business Support Service and cannot be considered as Scientific or Technical Consultancy Services - and Revenue contends that GE ITC is extended arm of GE USA - Held that:- GE USA is incorporated under the laws of State of New York and GE ITC is a company incorporated under the Companies Act 1956. This itself shows that both are separate entities. No other evidence has been taken into account to show that GE ITC is an extended arm. Even if it is a subsidiary company, as submitted by the learned counsel, a subsidiary company is considered as a separate entity in the eyes of law. Therefore GE ITC is not an extended arm for GE USA. - Decided against Revenue. Classification of service - Business support service or Scientific and Technical Services - Held that:- appellants are providing a cluster of services and are receiving consideration in the form of cost plus 5% and therefore it has to be held that the service provided is Business Support Service cannot be upheld since for classification, the method by which consideration is determined cannot be the basis. The basis has to be the fact that the services provided should fit into the definition of the service under which it is supposed to be categorized - On the one hand it is appellants claim that they are providing only Scientific and Technical Analysis and specific evidence as regards why any activity of the appellant comes under Business Support Service by explaining the nature of the activity vis-`-vis the definition so pointed out to us. Therefore prima facie this view cannot be supported. Moreover as submitted by the learned counsel, subsequently Revenue itself has issued show-cause notice proposing classification of the services as Scientific and Technical Service. - Decided against Revenue. Non compliance of conditions laid down in Rule 3(2) of Export of Services Rules 2005 - Held that;- Following decision of Gap International Sourcing (India) Pvt. Ltd. and Paul Merchants Ltd. it cannot be sustained that conditions laid down in Rule 3(2) of Export of Services Rules 2005 are not satisfied - Decided in favor of assessee. Cenvat Credit - Nexus between input and output service - Held that:- this aspect was not considered by the lower authorities - though appeal is allowed on merit, matter remanded back to verify the nexus between input and output service and allow the refund claim within 3 months.
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2014 (7) TMI 707
Waiver of pre deposit - Coffee vending machines for employee of the company - Revenue held it as outdoor catering service - VAT paid for the services provided - whether the claim of the appellant that the transactions have suffered Value Added Tax (VAT) and as a consequence thereof, service tax stands excluded, is sustainable- Held that:- there was no material placed before the authorities to come to the conclusion that service tax is not payable in view of Notification No.12/2003-ST - Tribunal, did not order the entire amount, but has exercised its discretion and ordered pre-deposit of ₹ 30,00,000 - Since the VAT component has been paid, the interest of the Revenue is safeguarded as against the disputed claim. In this regard, the plea of the appellant relying on the decision of the Supreme Court in Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes, [2008 (1) TMI 2 - Supreme Court of India], more particularly paragraph (28) is relevant. Tribunal was not justified in ordering the pre-deposit in the manner stated in its order - Order modified to the effect that the appellant shall make a pre-deposit of ₹ 15,00,000 - stay order modified.
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2014 (7) TMI 706
Waiver of pre deposit - Suppression of value of services - Undue hardship - Whether the Tribunal was justified in calling upon the appellant to make a pre-deposit of ₹ 2.50 Crores for entertaining an appeal in terms of Section 35-F of the Central Excise Act, 1944 - Held that:- If a specific amount is charged by the service provider under the mining services agreement, that agreement has to be tested on its own merits in terms of Section 67(1)(i) of the Finance Act, 1994. Nevertheless, falling upon Rule 3(b) of the Service Tax (Determination of Value) Rules, 2006, overlooking the provisions of Section 67(1)(i) of the Finance Act, 1994, may not be justified. In this case, the agreement for providing mining services stands and the appellant has paid service tax in accordance with the value in the said agreement. In any event, Rule 4 of the Service Tax (Determination of Value) Rules, 2006 provides for the method in which the Central Excise Officer can satisfy himself as to the accuracy of any information furnished or document presented for valuation and it provides for a procedure. Such procedure has not been followed in the instant case. The issue as to whether the back to back agreements entered into between the appellant and the service recipients was a method adopted by the appellant to suppress the value of services is also a question that should be answered in the appeal on considering Section 67(1)(i) of the Finance Act, 1994. The plea of financial hardship has been raised by the appellant before the Tribunal and that has also been recorded in paragraph (8) of the order of the Tribunal. We find much force in the plea of the appellant regarding undue hardship and financial difficulty in pursuing the appeal on payment of the pre-deposit as ordered by the Tribunal. The same, therefore, requires to be modified considering the prima facie case of the appellant. - amount of pre-deposit reduced from ₹ 2.5 crores to ₹ 1 crore only - Decided partly favour of assessee.
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2014 (7) TMI 705
Levy of penalty u/s 76, 77 and 78 - The commission in revisionary exercise enhanced the penalty - Failure to take registration under that category, to file returns and to periodically remit the service tax due - interest and penalties under Section 75A, 76, 77 and 78 - Held that:- if the appellant remits 25% of the enhanced penalty under Section 78, as now determined by the impugned order, within 30 days from the date of this order , in terms of second proviso to Section 78, that would the sufficient compliance and would discharge the liability in this account. We however notice that the appellant already remitted the penalty of ₹ 24,250/-, imposed by the primary authority under Section 78. This amount is in excess of 50% of enhanced penalty of ₹ 44,864/- imposed by the Revisional Authority. Therefore this is sufficient compliance with the requirement of remittance required under the 2nd proviso to Section 78. - Decided in favor of assessee. Regarding penalty u/s 77 - held that:- since discretion was exercised by the Primary Authority for levying the penalty under Section 77 at ₹ 1000/-, in the absence of a perversity in exercise of the discretion found by the Revisional Authority, we find no justification for enhancement of the penalty to ₹ 2000/- - enhanced penalty set aside - Decided partly in favor of assessee.
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2014 (7) TMI 704
Availment of CENVAT Credit - Premises on which service is provided and credit is availed in its respect was not registered with the Department - Held that:- unregistered premises ought to have registered with the jurisdictional Service Tax Officers as Input Service Distributor in terms of Rule 3 of the Service Tax (Registration of Special Category of Persons) Rules 2005 read with Rule 7 of the Cenvat Credit Rules, 2004 - service tax is not paid by the rented premises as Head Office for all the branches and no service tax registration is so taken by the appellant of such premises issuing credit taking document. In the facts and circumstances, appellant cannot take credit of the document issued by a premises not registered as an Input Service Distributor under the service tax provisions. Argument of the appellant that extended period is not applicable in this appeal will not help their case as nowhere it has been brought to the knowledge of the department that cenvat credit is being taken by the appellant on a document issued by the service recipient who is not registered as ISD under Rule 3 of the Service Tax (Registration of Special Category of Persons) Rules 2005 read with Rule 7 of the Cenvat Credit Rules,, 2004 - Following decision of Mangalore Refinery and Petrochemicals vs. CCE Mangalore [2013 (9) TMI 326 - CESTAT BANGALORE] - Decided against assessee.
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Central Excise
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2014 (7) TMI 699
Compound Levy Scheme - manufacturing of hot re-rolled non-alloy steel bars - Determination of annual capacity - Annual Capacity Determination Rules, 1997 - Held that:- no proceedings could have been initiated under the Omitted Rules (Rule 96 ZQ, 96 ZP and 96 ZO) and after omission of Section 3A of the Act, with effect from 11th May, 2001, in the absence of any saving clause. - In the facts of this appeal, though the initiation of proceedings, by issue of a show cause notice was prior to omission of Rule 96 ZP i.e. prior to 1.3.2001, the proceedings culminated into an adjudication order dated 22.7.2004 only subsequent to omission of the relevant rule. In view of the clear pronouncement by the Gujarat High Court, determination of the appellant's liability, by the adjudication order as confirmed by the order of the ld. Commissioner (Appeals), cannot be sustained - Decided in favour of assessee.
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2014 (7) TMI 698
Recovery from the successor - dues of the previous concern - recovery from the buyer of Land & Building and Plant & Machinery - Held that:- Commissioner (Appeals) has given a detailed finding and has relied upon various decisions of the higher appellant forums and the revenue is not challenging the applicability of the same. Similarly, the Supreme Court decision in the case of Macson Marbles Pvt. Ltd. [2003 (11) TMI 71 - SUPREME COURT OF INDIA] relied upon by the revenue stands duly discussed by Commissioner (Appeals) and has been held to be non applicable. - respondent was not successor in business of M/s. Ganga Sagar & Company. They have purchased the Land & Machinery from MPFC in the year 2001, which was acquired by MPFC in the year 1997. As such, Commissioner (Appeals) has rightly held that the recovery of dues outstanding against M/s. Ganga Sagar & Company cannot be affected against the respondent. - Decided against Revenue.
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2014 (7) TMI 697
Waiver of pre-deposit - payment of duty in advance - Pan Masala Packing machines Capacity Determination and Collection of Duty Rules 2008 - Held that:- if a machine is added or installed during a month after 5th of that month then as per third proviso to Rule 9 of PMPM Rules the differential duty with respect to that machine can be paid by the 5th of the following months. Therefore, prima-facie appellant has a case that duty with respect to sealed and de-installed machines cannot be made to be paid in advance for the entire month if machines were not operational upto 5th of a month. Prime-facie and statutorily no duty liability can be fastened on a manufacturer with respect to goods which have not been manufactured upto the 5th day or till the machine remained sealed in a month when machines manufacturing the goods are not operating - Following decision of M/s. Pm Products Versus CCE, Ahmedabad [2013 (10) TMI 1199 - CESTAT AHMEDABAD] - Stay granted.
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2014 (7) TMI 696
Valuation of goods - Captive consumption - Matter referred to larger bench with following questions of law:- Whether, in the case of inter-unit transfer of goods for captive consumption, the entire value (i.e. 115%/110% of the cost of production) OR the actual cost of production (i.e. 100% of cost) excluding notional loading (i.e. 15%/10%) of the goods manufactured by the one unit, would be the cost of raw material of the another unit (who used the goods in the manufacture of another article) for the purpose of determining value under Rule 8 of Valuation Rules and CAS-4 issued by ICWAI, for transferring the goods to their other unit for further use. Whether the decision of Chennai Bench in the case of CCE Vs. Eveready Industries Ltd. - [2011 (4) TMI 141 - CESTAT, CHENNAI] OR the decision of Mumbai Bench in the case of Tata Iron and Steel Co. Ltd. Vs. CCE had enunciated the correct position of law on the above issue.
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2014 (7) TMI 695
Admissibility of credit on duty paid goods on their return to the factory - Applicability of Rule 16(3) - Held that:- finished duty paid goods have been deemed to be inputs for the purpose of taking credit as per Cenvat Credit Rules, 2004. A combined reading of Rule 16 (1) and 16(2) of Central Excise Rules, 2002 clearly conveys that processes undertaken by the recipient of duty paid goods need not amount to manufacture for taking credit and this Rule talks only of admissibility of Cenvat credit on return of duty paid goods. The processes undertaken may or may not lead to manufacture. There could be a situation where duty paid goods received in the factory for certain processes may not amount to remanufacture or certain goods received back as rejected may be sold to another client without even carrying any process. The whole intention of Rule 16 of Central Excise Rules, 2002 is that a manufacturer should not be made to pay the duty with respect to certain processes on return which may not amount to manufacture. At the same time, it is also essential that a manufacturer does not clear freshly manufactured goods free of duty in the guise of reprocessing of duty paid goods received in the factory. To check this misuse, Revenue may be well within its right to ask the appellant to provide their internal records/ process cards to establish that duty paid goods returned to the factory, for which credit has been taken, have been subsequently removed on payment of duty or were cleared as such where equivalent amount of cenvat credit taken has been reversed. - Matter remanded back - Decided in favour of assessee.
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CST, VAT & Sales Tax
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2014 (7) TMI 703
Condonation of delay - delay of 924 days caused in filing the tax appeal - delay was essentially on account of Governments administrative mechanism, as the file would be travelling from one department to another - Held that:- It could thus be seen that though like any other litigant, the State authorities are also equally bound by the law of limitation, recognizing certain elements of public interest and the impersonal and slow moving machinery of the Government, the Courts have moulded their approach, while considering request of the State for condoning the delay. In the present case, as already noticed, explanation in the form of administrative clearances and consumption of time in the office of the Government Pleader in preferring the appeals are pressed in service for explaining the delay. Further, the duty amount involved in the appeal is also substantially large. Not only the delay is explained by the applicant but the monetary impact in terms of tax involved is also considerable and therefore in light of the discussion above, delay deserves to be condoned. - Following decisions of State of Haryana v. Chandra Mani and Ors. (1996 (1) TMI 378 - SUPREME COURT OF INDIA); and Special Tehsildar, Land Acquisition, Kerala v. K.V. Ayisumma (1996 (7) TMI 551 - SUPREME COURT) - Delay condoned.
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2014 (7) TMI 702
Liability to tax - Exemption from tax - Whether the petitioner is liable to pay purchase tax under section 6A of the Andhra Pradesh General Sales Tax Act in respect of burnt lime notwithstanding the fact that the dealers from whom the petitioner purchased the burnt lime were exempted from payment of sales tax - Held that:- Where there is no collection of tax there is no levy and accordingly the goods which are not subjected to levy of tax at the point of sale could be subjected to levy of purchase tax under section 5A. The appellant carried the matter to the Supreme Court contending that goods being declared goods, under section 14 of the Central Sales Tax Act, 1956, they are subjected to limits placed by section 15 of the Central Sales Tax Act and therefore if iron and steel are subjected to a single point levy of tax at the first point of sale, then there is no question of a second levy or charge at any subsequent point of sale or purchase. liability to tax or taxability under section 5 of the Kerala General Sales Tax Act remains unaffected by an exemption under section 10 of the said Act and consequently the respondent cannot validly shift the burden of tax to the purchaser under section 5A for the same would violate the condition of single stage tax under section 15 of the Central Sales Tax Act - following the decision in Peekay Re-Rolling Mills (P) Ltd.'s case [2007 (3) TMI 356 - SUPREME COURT OF INDIA], we hold that the petitioner cannot be made liable to pay the purchase tax under section 6A of the Andhra Pradesh General Sales Tax Act, 1957 - Decided in favour of assessee.
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2014 (7) TMI 701
Priority of recovery of tax over other dues - Constitutional validity of Notification S.O. No. 95 dated September 1, 2004 - According to the petitioner, if it is to be held that the statutory first charge created by section 29 of the Bihar Finance Act has to prevail, then there would be a direct conflict between the provisions of section 29(4) of the State Financial Corporation Act, which lays down the priority of appropriation and section 29 of the Bihar Finance Act and by virtue of section 46B of the State Financial Corporation Act, the provisions of the State Financial Corporation Act shall prevail - Held that:- The Bihar Reorganisation Act, 2000 provides for the reorganization of the existing State of Jharkhand and the matters connected therewith. The first charge on the property of the dealer or such person for any amount of tax and penalty payable by the dealer or any other person to the State of Jharkhand is not affected by the Bihar Re-organisation Act, 2000 and the State of Jharkhand is entitled to recover its sales tax and penalty since the tax and the penalty shall be the first charge over the property of the dealer and such a person. Only in exercise of its power to recover the tax payable or the penalty, as a first charge on the property of the dealer, the State of Jharkhand issued the impugned notification directing the petitioner Corporation that no industrial unit to be sold without obtaining "no objection certificate" from the Department of Commercial Taxes, Jharkhand, Ranchi. The first charge created in favour of the State in respect of sales tax dues shall have precedence over an existing mortgage in favour of the Bank. The judicial pronouncement settled the law once for all stating that the State has got priority in the matter of recovery of tax, penalty and debts due and the specific statutory charges created under the said Act (notwithstanding the equitable mortgages created by the defaulters in favour of the banks). The impugned Notification S.O. No. 95 dated September 1, 2004 cannot be said to be arbitrary or illegal, and this writ petition is liable to be dismissed - Following decision of State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation [1994 (12) TMI 72 - SUPREME Court] - Central Bank of India v. State of Kerala [2009 (2) TMI 451 - SUPREME COURT OF INDIA] - Decided against the petitioner.
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2014 (7) TMI 700
Valuation - works contract - deduction of expenditure - expenditure incurred for deployment of own machineries and equipments in execution of the works contract - expenditure in respect of the planning, designing and architect's fee / establishment expenditure - excess labour charges to be carried over - Held that:- when an assessee instead of taking the machinery and tools on hire, he purchases the machinery and tool and employs them in the execution of the works contract, he is entitled to deduction, which represents the labour charges, in substitution of which the machinery and tools were employed. The same cannot be denied to him. - assessing authority has to consider the material produced by the assessee on record keeping in mind that for deploying the same machinery and tools, if it had been taken on lease what is the hirecharges, which he should have paid and also take into consideration other circumstances, which may be relevant to the case on hand and determine the amount deductable under the aforesaid head. - Decided in favor of assessee. Deduction of establishment expenditure - Held that:- Whatever amount the assessee wants to claim under the aforesaid heads, he has to furnish the particulars and proof of the same and on considering the same, the assessng authority shall grant the benefit under the aforesaid provisions. Therefore, though the authorities cannot be found fault with for not granting the deduction under the aforesaid head on percentage basis, it would be just and proper to give an opportunity to the assessee to produce before the authorities the actual amount spent for the said on-going project with legal proof and then the assessing authority shall consider the same in accordance with law. - Decided in favor of assessee. Excess labour charges to be carried over - Held that:- assessee's claim under the head labour and other charges in a sum of ₹ 9,14,49,077 at page 7, clause (6) and the assessee was only claiming ₹ 5,76,30,391 for the current year and wanted the balance amount to be carried over to the subsequent year. - the facts were not clearly understood by the authorities and they denied the benefit wrongly - matter remanded back for fresh consideration. - Decided in favor of assessee.
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