Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
July 30, 2015
Case Laws in this Newsletter:
Income Tax
Service Tax
Central Excise
TMI SMS
Articles
News
Notifications
Customs
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34/2015 - dated
28-7-2015
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ADD
Seeks to levy definitive anti-dumping duty on imports of Compact Fluorescent Lamps (CFL), originating in or exported from the People's Republic of China for a period of five years.
DGFT
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16/2015-20 - dated
28-7-2015
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FTP
Amendment in export policy of sawn timber-addition of ports for export to Nepal.
Income Tax
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132/2015 - dated
4-6-2015
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IT
U/s. 35AC, IT ACT, 1961 - Eligible Projects or Schemes, Expenditure On – Can Support, New Delhi
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131/2015 - dated
4-6-2015
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IT
U/s. 35AC, IT ACT, 1961 - Eligible Projects or Schemes, Expenditure On – Lok Kalyan Samiti, New Delhi
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130/2015 - dated
4-6-2015
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IT
U/s. 35AC, IT ACT, 1961 - Eligible Projects or Schemes, Expenditure On – CRY, New Delhi
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129/2015 - dated
4-6-2015
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IT
U/s. 35AC, IT ACT, 1961 - Eligible Projects or Schemes, Expenditure On – Savali, Pune
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128/2015 - dated
4-6-2015
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IT
U/s. 35AC, IT ACT, 1961 - Eligible Projects or Schemes, Expenditure On – Jamia Islamia Ishaatul Uloom, Maharashtra
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127/2015 - dated
4-6-2015
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IT
U/s. 35AC, IT ACT, 1961 - Eligible Projects or Schemes, Expenditure On – Seth Tarachand Ramnath Charitable Ayurvedic Hospital Trust, Pune
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126/2015 - dated
4-6-2015
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IT
U/s. 35AC, IT ACT, 1961 - Eligible Projects or Schemes, Expenditure On – Vedanta Foundation, Mumbai
Highlights / Catch Notes
Income Tax
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Penalty levied under Sec.271C - Ignorance of law, it is trite, is no excuse in law and if that be so, ignorance of law cannot also be a reasonable cause as contemplated under Section 273B. - levy of penalty confirmed - HC
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Claim of registration under Section 12A - The question of assessing the activities of the Trust would arise only after the Trust is registered and carries on the activities. At the time of initial registration, the same cannot be a question to be considered - HC
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Reopening of assessment - On issuance of show cause notice by the DRI, the AO has formed an opinion about there being escapement of income of the assessee chargeable to tax - reopening sustained - HC
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The properties acquired by the assessee during the year were being used for the purpose of business and, therefore, the assessee was entitled for the depreciation, and no question of adding annual value as income from house property under section 22 arises - AT
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Chargeability of interest income - interest received in the period prior to commencement of business was in the nature of capital receipt and hence was required to be set off against the pre-operative expenses / project development expenditure - AT
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Disallowance of expenses - The only ground on which the AO has disallowed is that at the time of inspection, very few of the employees of the contractor were present at the premises. The contention of the assessee that the time of inspection was 6 PM is not rebutted by the department - expenditure allowed - AT
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Short deduction of TDS from salary u/s 192 - Disallowance of deduction u/s 80C - The contribution made by the employees is to be treated as contribution to Government Provident Fund and deduction u/s 80C is allowable to these employees - assessee cannot be treated as assessee in default - AT
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Depreciation @ 15% on the electrical installations and further additional depreciation of 10% - electrical installation was to be treated as part of plant and machinery for depreciation at the specified rate provided for plant and machinery. - AT
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Revision u/s 263 by CIT(A) - regarding service tax issue - there is no query as to whether the service tax payment is allowable expenditure or not because the receipt were accounted for by the assessee after reducing service tax there from - revision upheld - AT
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The order passed by the AO u/s 143(3) making addition by applying wrongly the peak redit theory without enquiring in to all the relevant aspects was erroneous as well as prejudicial to the interests of the Revenue, calling for revision u/s 263 - AT
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Speculative transaction - Section 43 r.w.s. 73 - if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover - AT
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Deduction claimed u/s.80IA - turbine division - generation of power unit is separate and distinct undertaking for which separate approval was obtained and it cannot be said that splitting of existing business structure - AT
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Accrual of income - it cannot be said that income has actually accrued to the assessee in one year even though it might have received it in one year. Mere receipt does not ensure accrual unless an equivalent part of the agreed services by the receiver is rendered. - AT
Service Tax
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Denial of CENVAT Credit - Whether certain pollution control services availed by the appellant are eligible to CENVAT Credit under CENVAT Credit Rules 2004 - Held Yes, credit allowed - AT
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Penalty u/s 76, 77 & 78 - non-payment of service tax due to financial hardship - there was a reasonable cause and the case of the Appellant is covered by the provisions of Section 80 of Finance Act, 1994 - penalty waived - AT
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CENVAT Credit - If service tax has been paid by the service provider and service receiver is eligible for the credit, it is not the responsibility of the service receiver to examine the correctness of service tax paid by the service provider - AT
Central Excise
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Denial of refund claim - period of limitation - if the appellant was disputing the levy of duty and was agitating that no duty was payable and that payment was being made because of insistence of the department to pay under threat of seizure of the product, it cannot be said that payments made by the appellant was not made under protest. - HC
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Invocation of extended period of limitation - relevant date u/s 11A - date of knowledge or the date of discovery of the fraud by the Revenue is neither determinative nor decisive - Tribunal's order is ex-facie erroneous and unsustainable in law. It is vitiated by complete non application of mind as well - HC
Case Laws:
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Income Tax
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2015 (7) TMI 955
Penalty levied under Sec.271C - Non deduction of TDS on interest paid thus violation of Section 194A - Whether in the light of the specific exemption provided in section 194A (3)(iv) to such income credited or paid by a firm to a partner of the firm, the assessee is reasonably entitled to entertain the belief that payment of interest by the partners to the firm is similar or similarly placed? - ITAT deleted penalty levy - Held that:- While Section 194A provided for deduction of tax on interest, by virtue of the provisions contained in sub section (3), only such income credited or paid by a firm to a partner of the firm is exempted from deduction. The language of the provision does not leave scope for any ambiguity on the liability of a partner to deduct tax on interest paid by him to the firm and there is absolutely no warrant for a belief to the contrary. That being the legal position, we do not know how the assessees, who admittedly are persons having the services of experienced chartered accountants at their disposal, could entertain a belief that they were not liable to deduct tax at source on the interest paid to the firm. This, therefore, means that the alleged belief of the assessees is certainly not one a reasonable person would have entertained nor such persons would have acted in the same way given the totality of circumstances. Therefore, we cannot accept the plea that the belief allegedly entertained by the assessees was a bonafide one or could be accepted as a reasonable cause as provided under Section 273B. In effect, the defence put forward by the assessees is one of ignorance of law. Ignorance of law, it is trite, is no excuse in law and if that be so, ignorance of law cannot also be a reasonable cause as contemplated under Section 273B. As contended by assessee it may be true that penalty levied under section 201 read with Section 221 has been set aside by the Tribunal accepting the plea of "good and sufficient" reasons urged by the assessees. However, the object of these provisions being different from section 194A read with Section 271C, such an order passed by the Tribunal cannot come to the rescue of the assessees. In any case, principles of res-judicata and estoppel are alien to tax jurisprudence and therefore, this contention also cannot improve the case of the assessees. One another reason which has weighed with the Tribunal is that the firm had declared the interest received in its return and that since the firm had returned loss and was not liable to any tax, no loss was caused to the revenue. In our view, even if the findings are factually correct, statutory provisions do not recognize this as a defence in a proceeding under Section 271C. Thus the orders of the Tribunal are unsustainable - Decided in favour of revenue.
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2015 (7) TMI 954
Claim of registration under Section 12A - whether Tribunal erred in allowing the appeal by ignoring the clauses found in the Memorandum of Association, which permitted the assessee to utilize the funds for religious purposes and carry on commercial activity by constructing and letting out community hall? - Held that:- It is settled law that in the first year when the trust is sought to be registered, it could not have carried on any activity, thus the question of verifying the genuineness of such activities cannot be considered. The refusal to register the Trust on such ground by the DIT (Exemptions) could not thus be justified. The Tribunal has relied on case of Sanjeevamma Hanumanthe Gowda Charitable Trust – vs - Director of Income Tax (Exemptions) [2006 (3) TMI 91 - KARNATAKA High Court] wherein held that for arriving at the satisfaction for genuineness of the Society or Trust, the Commissioner has to look at the objects of the Trust and it is not authorized to go into the nature of the activity by which the income is derived by the Trust. In the present case, the question is with regard to the registration of the Trust in question wherein the objects have been clearly specified. The question of assessing the activities of the Trust would arise only after the Trust is registered and carries on the activities. At the time of initial registration, the same cannot be a question to be considered. In our view, the Tribunal has rightly allowed the appeal and directed the DIT (Exemptions) to register the Society as a religious Trust under Section 12A of the Act. - Decided in favour of the assessee
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2015 (7) TMI 953
Reopening of assessment - reopening based on information that two Horses Tuscan and Brave Act were purchased at ₹ 1,38,729/- and ₹ 10,09,641/- was actually ₹ 5,32,784/- and ₹ 2,16,96,697/- respectively as detected by Directorate of Revenue Intelligence and customs duty of ₹ 1,87,540/- and ₹ 58,54,471.68 having been paid - Held that:- Bare reading of Section 147 of the Act would indicate that it empowers the assessing Officer to assess or re-assess the income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. In the instant case, the assessing officer on conclusion of the assessment for the year 2003-04 on 29.10.2004 has issued the notice for its re-opening and the reason assigned as could be discerned from the order sheet was on account of the information which has been secured from the Directorate of Revenue Intelligence, Mumbai Zonal Unit, I floor, Construction House, Ballard Estate, Mumbai that assessee had indulged in under invoicing its imports and consequent to investigation, the suppressed customs duty payable by the assessee has been quantified at ₹ 89,43,152/-. On issuance of show cause notice by the Directorate of Revenue Intelligence, the jurisdictional assessing Officer has formed an opinion about there being escapement of income of the assessee chargeable to tax. As to whether the said "reason to believe" of such escapement of income to tax by the assessee is justifiable or not, would not be an exercise which can be undertaken by the assessing Officer at the stage of issuing of notice. In that view of the matter, contention of the assessee cannot be accepted. CIT(Appeals) as well as the Appellate Tribunal were not justified in arriving at a conclusion that re-opening the assessment under Section 147 of the Act by issuance of notice under Section 148 by the assessing Officer was improper. Hence, the substantial questions of law framed hereinabove have to be answered in favour of the revenue. Perusal of records that the jurisdictional assessing Officer in the reassessment order dated 21.07.2006 has arrived at the value of "Brave Act" horse at ₹ 2,16,96,697/- and that of "Tuscan" horse at ₹ 5,32,784/- which undisputedly was not the value determined by the Settlement Commission while accepting the claim of the assessee for arriving at a settlement and directing payment of differential customs duty. In that view of the matter, we are of the considered view, it would be just and appropriate to remit the matter back to the assessing Officer for adjudicating said factual aspect. Accordingly, matter is remitted to the assessing Officer.
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2015 (7) TMI 952
Penalty under Section 271(1) - ITAT deleted penalty - Held that:- AO initiated penalty proceedings in respect of the addition made and confirmed it. The CIT (Appeals) was of the opinion that in the given circumstances of the case since the appellant upon receipt of notice filed a revised return that circumstance weighed predominantly AO to impose penalty. The CIT(A) consequently set aside the penalty; the revenue's grievance that this score was rejected by ITAT. We considered the circumstance of the case. It is quite evident from the materials on record that the AO was considerably swayed by the revised return and the figures disclosed therein. The CIT(A) correctly understood the law in the light of the decision of Supreme Court in CIT V. Reliance Petroproducts Pvt. Ltd. [2010 (3) TMI 80 - SUPREME COURT ] and directed the revocation of penalty. The ITAT affirmed the decision. Being factual in nature and disclosing no apparent loss or perversity, this Court is of the opinion that no substantial question of law arises. - Decided in favour of assessee.
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2015 (7) TMI 951
Unexplained purchases - ITAT directing the estimate of addition as made by the CIT(A) be further reduced to 10% of the alleged purchases - Held that:- It is non speaking and non reasoned order and as such no reasons have assigned while restricting the disallowance to 10% of the unexplained purchases. Therefore, as such the matter is required to be remanded. However, instead of remanding the matter to the learned ITAT considering the request made by the learned counsel for the respective parties, on merits we ourselves have considered the matter on merits and on the basis of admitted facts. It has come on record and it is not disputed by the Revenue that in the case of assessee GP rate was higher compared to the subsequent assessment year. The GP disclosed at the rate of 1.11% by the assessee is satisfactory as compared to AY 200001 where the GP was of 0.98%. Under the circumstance, in the peculiar facts and circumstance and considering the decision of the Division Bench of this Court in the case of Simit P Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) where this Court confirmed the final order passed by the learned ITAT restricting the disallowance to 10% of the unexplained purchases, though not approving the method and manner in which the learned Tribunal has decided the appeal, however on merits and in the peculiar facts and circumstances narrated herein above, we confirm the ultimate final order passing by the ITAT. Consequently, present Tax Appeal is dismissed. - Decided against assessee.
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2015 (7) TMI 950
Disallowance of claim of depreciation on (i) Residential house property at 10, Mistry Manor, 62A, Napean Sea Road, Mumbai and (ii) Premises at C-6, Corianthian, 17 Off Arthur Bunder Road, Colaba, Mumbai - CIT(A) allowed claim - Held that:- D.R. even though vehemently relied on the order of the Assessing Officer but could not adduce any cogent material or evidence before us, which may compel us to reverse the finding of the CIT(Appeals). It is not denied that the property No. 10, Mistry Manor, 62A, Napean Sea Road, Mumbai was allotted to Smt. Anita Krishna, Di rec tor so that she can look after business activity carried on by the assessee-company in Mumbai. Similarly in respect of property at C-6, Corianthian, 17 Off Arthur Bunder Road, Colaba, Mumbai, no evidence was brought to our knowledge by the ld. D.R. which may prove that the assessee was not having its Office there - Decided in favour of assessee. Addition of annual value as income from house property under section 22 for two properties - Held that:- Since we have already confirmed the order of CIT(Appeals) that both the properties acquired by the assessee during the year were being used for the purpose of business and, therefore, the assessee was entitled for the depreciation, and no question of adding annual value as income from house property under section 22 arises. - Decided in favour of assessee. Addition on set off of the past business losses - CIT(A) deleted addition - Held that:- Provisions of section 79 are applicable where there is a change on the last day of the previous year the shares of the company carrying not less than 51% of the voting power were beneficially held by the persons who beneficially held shares of the company not less than 51% of the voting power on the last date of the year or years in which the loss was incurred. The preamble of this section requires that there must be a change in the shareholding. In the case of the assessee, we noted that there is no change in the shareholding pattern, the old 10 shareholders, who were having the entire share capital as on 31.03.2004 continues to hold the shares as on 31.03.2007. In the case of the assessee the change in the shareholding pattern is due to the induction of the fresh capital not due to the transfer of the shares from one shareholder to another. In view of this fact, we do not find any illegality or infirmity in the order of the CIT(Appeals). We accordingly confirm the order of the CIT(Appeals) directing the Assessing Officer to allow the set off of brought forward loss from the assessment year 2004-05. - Decided in favour of assessee.
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2015 (7) TMI 949
Chargeability of interest income - claimed to be capital receipt by the assessee and set off against the project development expenditure - Held that:- Ratio of the finding of in the case of Indian Oil Panipat Power Consortium Ltd. vs. ITO, (2009 (2) TMI 32 - DELHI HIGH COURT ) would be squarely applicable to the facts of the assessee’s case, because admittedly in the case under appeal before us the share capital as well as loans were raised for the specific purpose of setting up of the power generation plants. The business of the assessee has not been commenced and therefore, as per above decision, the interest received in the period prior to commencement of business was in the nature of capital receipt and hence was required to be set off against the pre-operative expenses. The assessee has already set off the interest income against the pre-operative expenses which is titled as “project development expenditure”. In view of above, we are of the opinion that the interest income of ₹ 1,35,87,158/- as well as ₹ 7,91,51,306/- was a capital receipt not chargeable to tax during the year under consideration. - Decided in favour of assessee.
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2015 (7) TMI 948
Disallowance of Short-landing i.e. short receipt of goods - AO held that the assessee had unnecessarily claimed this amount in the books of account, but that the assessee should have recovered this amount from its principal companies which supplied the goods to it short either through raising debit notes or reducing the bills amount - Held that:- As during the relevant financial year, the short-landing is only 0.05% on sales and 0.07% of the cost of goods sold by the assessee. It is also worth mentioning that the loss is not pertaining to a single item but is the total of many items imported by the assessee. In the case of shipment, it cannot be disputed that there is a possibility of wastage in quantity due to various factors such as leakage, drying up, evaporation etc., particularly since the goods imported are chemicals. In such a scenario, wastage in transit appears to be common and loss of such shortage of goods delivered to the assessee particularly when it is negligible has to be allowed as expenditure to the assessee. We appreciate the contention of the assessee that raising debit or credit note on small amounts might be more costly than setting off the above shortage. Further, it is to be left to the wisdom of the businessman as to the method he wants to adopt to make a transaction cost-effective. Therefore, we are of the opinion that the claim of the assessee of short-landing particularly because it is negligible as compared to its sales and cost of goods sold, has to be allowed. - Decided in favour of assessee. Error in preparation of goods receipt and physical difference - disallowance of these items on the ground that the difference is due to the error committed by the warehouse personnel and that the assessee should have claimed the loss from such contractor and further that it is not the expenditure of the assessee - Held that:- As long as the loss is arising out of the business operations of the assessee and the genuineness of the same is not doubted by the AO, it is immaterial as to whether the loss is arising out of error committed by the external service provider or the assessee, it is the loss of the assessee and it can be claimed by the assessee. Further this view is in consonance with the decisions relied upon by the assessee (cited supra). The argument of the assessee that write off of negligible amount of loss on account of above error is cost effective as compared to claims to be made against the third party and the costs involved in processing such claims finds favour with us particularly since loss on account of these two items is only 0.01% and 0.02% on sales and cost of goods respectively. - Decided in favour of assessee. Disallowance of Breakage charger @ 50% - Held that:- The only reason for making disallowance is that handling of these bottles is by a professional agency and therefore the loss should also have been claimed from them because the assessee is making payment to the professional agency towards these services. On going through the chart filed by the learned counsel for the assessee showing the ratio of the loss on such breakage to sales, we find that loss on account of breakage is 0.07% of the sales during the relevant assessment year which is negligible as compared to the huge turnover of the assessee. The assessee is making payment to the professional agency for the services rendered by them but the breakage is not attributable to the employees of the professional alone. In such a situation, we do not agree with the observation of the AO that the assessee should have claimed the loss from the professional agency only. As long as the loss is on account of business activity carried on by the assessee, it cannot be disallowed.- Decided in favour of assessee. Management fee paid to Sigma Aldrich USA disallowed - Held that:- Neither the AO nor the CIT(A) has brought out any details of the services rendered by the AEs to the assessee and as to how the knowledge is made available to the assessee to bring it within the provisions of section 40(a)(ia) of the Act for non-deduction of tax at source. For coming to the conclusion that the knowledge is made available to the assessee, the nature of the transaction has to be looked into. Merely holding that the work of catalogue printing, brochures etc., is not a highly specialized one and is available within the country, cannot be said to be a specialized activity requiring making available of the technology to the assessee. Therefore, we deem it fit and proper to remit this issue to the file of the AO for reexamination of the nature of the transaction and only if it falls within the definition of ‘technical and consultancy services’ under the India- USA DTAA, the provisions of sec. 40(a)(ia) can be applied. Decided in favour of assessee for statistical purposes. Disallowance of staff welfare expenses - Held that:- It the assessee has not furnished bills and vouchers in support of its claim. The burden is on the assessee to furnish the necessary details in support of the claim of expenses made by it. In the absence of such details, the AO has made disallowance which has been restricted to 15% by the CIT(A). We do not see any reason to interfere with the order of the CIT(A) on this issue. - Decided against assessee. Disallowance of Travelling expenses - Held that:- CIT(A) on perusal of the evidence filed by the assessee has observed that several of these are invoices drawn by Wipro towards ‘SAP Functional Consultancy Charges’ rather than involving travel per se. He also observed that both the invoicing and invoiced parties are addressed at Bangalore and therefore they do not support the assessee’s contention of having provided full and complete details of travel before the AO. The learned counsel for the assessee has not produced before us any other supporting evidence other than that filed before the AO and the CIT(A) to rebut the above finding of the CIT(A). Therefore, we do not see any reason to interfere with the order of the CIT(A) on this issue. - Decided against assessee. Treatment of SAP costs - AO disallowed 50% of the same and brought it to tax - CIT(A) deleted disallowance - Held that:- Genuineness of the payment made by the assessee is not doubted by the AO nor is the purpose of the program being for assessee’s business is doubted by the AO. As long as the expenditure is for the purpose of business, the same cannot be disallowed. As rightly pointed out by the CIT(A), questioning the speed or validity of the SAP system for the assessee’s business for purpose of disallowance of expenditure is beyond the scope of the AO unless he points to specific reasons to hold that the system is not used for business of the assessee. Therefore, we do not see any reason to interfere with the order of the CIT(A) - Decided against revenue. Payment towards logistic services, warehouse management and customs clearances disallowed - Held that:- The only ground on which the AO has disallowed is that at the time of inspection, very few of the employees of the contractor were present at the premises. The contention of the assessee that the time of inspection was 6 PM is not rebutted by the department. Such being the time of inspection, explanation of the assessee that the employees of the contractor have already left for the day is not unacceptable. Since the expenditure is for the business purpose of the assessee, an ad hoc disallowance of the same is not justified - Decided against revenue. Expired inventory disallowed @ 50% - Held that:- On nature of the assessee’s business, we agree with the contention of the assessee that the goods of the assessee which are nearing expiry date have to be written off. Further, the ratio of such goods to sale is only 0.12% on sales and 0.18% on cost of goods sold. Therefore, we are of the opinion that such disallowance is not called for. - Decided against revenue. Stock issued for Genosys production as consumables disallowed - Held that:- Though the assessee has claimed that Genosys Production has manufactured the products and offered income from sale of these products as assessee’s income, the CIT(A) has not verified the same and has accepted the contentions of the assessee at face value and allowed relief to the assessee. In view of the same, we deem it fit and proper to remit this issue to the file of the AO to verify the assessee’s contention and if it is found to be correct, then no disallowance shall be made. - Decided in favour of revenue for statistical purposes. Quality rejects disallowed - Held that:- Neither the AO nor the CIT(A) has doubted the genuineness of the expenditure and the CIT(A) has allowed 25% of the claim as allowable deduction by holding that the quality check measures are an integral part of any professionally managed company and it is not likely that quality measures would be treated in a casual manner, thus requiring significant write off. From the chart given by the assessee, we find that the quality rejection amounts to 0.13% of sales and 0.17% on cost of goods sold. Considering the nature of the goods manufactured by the assessee, it cannot be presumed that the quality of goods is always met and that write off is not necessary. Therefore, since genuineness of the expenditure has not been doubted by the authorities below, we are inclined to grant full relief to the assessee on this issue - Decided in favour of assessee.
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2015 (7) TMI 947
Rectification of mistake - indirect expenses debited to the profit and loss account by the assessee - Held that:- Assessing Officer has asked the assessee to furnish complete details and the assessee could not furnish the same. Similar was the position before the ld. CIT(A), but the ld. CIT(A) has deleted the addition having observed that the assessee was not under any obligation to maintain separate balance sheet and profit and loss account for each and every unit. While adjudicating the issue, the Tribunal has given a categorical finding that the assessee is not under any obligation to prepare separate balance sheet and profit and loss account for each and every unit, but whenever the assessee was asked by the Assessing Officer to furnish the details of a particular expense debited to the profit and loss account, the assessee is under obligation to furnish the complete details. Since the assessee has not furnished complete details before the ld. CIT(A), the deletion of addition was not proper. However, the Tribunal has restored the matter to the ld. CIT(A) for re-adjudicating the impugned issue afresh. The Tribunal has examined the facts and given a categorical finding on this issue. The findings of the Tribunal cannot be reviewed under the garb of rectification. If the assessee is aggrieved with the findings of the Tribunal on a particular issue, the remedy available to the assessee is not under section 254(2) of the Act but lies somewhere else. The ld. counsel for the assessee has tried to dispute the findings of the Tribunal and seeking a review of the order of the Tribunal which is not permissible under section 254(2) of the Act and we accordingly reject this Miscellaneous Application. - Decided against assessee.
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2015 (7) TMI 946
Deduction u/s.80P(2)(a)(i) - interest earned on the FDs placed by with banks - Held that:- In view of the judgement of in the case of CIT v. Tumkur Merchants Souharda Credit Cooperative Ltd. [2015 (2) TMI 995 - KARNATAKA HIGH COURT] it has been clearly mentioned that the money meant for lending, remaining surplus, there being no takers, if deposited in banks for earning interest, such interest income would be attributable to the business of banking carried out by the assessee. We are of the opinion that the facts of the case here fit perfectly well with the facts in the judgment mentioned above. We, therefore, hold that assessee was eligible for claiming deduction u/s.80P(2)(a)(i) of the Act, on the interest earned on the FDs placed by it with banks, this being a part of its business income. We do not find it necessary to interfere with the order of the CIT (A). - Decided in favour of assessee.
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2015 (7) TMI 945
Validity of assessment order under section 144 - Held that:- Assessee could not substantiate the incorrectness in the action of the Assessing Officer for passing the assessment order under section 144 of the Act. We, however, have carefully perused the orders of the lower authorities and we find that the requisite information sought by the Assessing Officer were not furnished by the assessee before him, therefore, the action of the Assessing Officer was approved by the ld. CIT(A) and during the course of hearing of the appeal no defect was pointed out in the order of the ld. CIT(A). We accordingly confirm the order of the ld. CIT(A) approving the action of the Assessing Officer for completing the assessment under section 144 of the Act. - Decided against assessee. Profit inclusive of reversal of NPA provisions - Whether CIT(A) correct dismissing the additional ground taken by the appellant that the profit of ₹ 2,86,25,894/-was inclusive of reversal of NPA provisions of ₹ 2,01,97,000/-initially made by the appellant in A.Y, 2004-2005 and 2006-2007 respectively without appreciating the fact that the profit to the extent of Rs,2,01,97,000/- was only the book entry and not the actual profit? - Held that:- The ld. CIT(A), re-examined the issue in detail and has finally held that the Assessing Officer is free to allow loss to the assessee after revising the assessed loss in assessment years 2004-05 and 2006-07 after carrying out proper verification for relevant assessment records of the earlier assessment years, instead of giving a proper direction to re-compute the income keeping in view the provisions for reversal entries initially made in earlier years. Assessing Officer is required to assess proper income in the hands of the assessee. Therefore, the events of earlier years should be kept in mind while computing the real income of the assessee. Since the assessee has placed evidence with respect to the provisions of NPA in earlier years, the said facts require a proper verification. We accordingly modify the order of the ld. CIT(A) and direct the Assessing Officer to examine the claim of the assessee in the light of earlier assessment orders relevant to the assessment years 2004-05 and 2006-07. - Decided in favour of assessee for statistical purposes. Addition on account of possible leakage - Held that:- The assessee has claimed expenses at ₹ 12,32,067/- but it could not produce the supporting evidence before the Assessing Officer and the Assessing Officer has made disallowance of 20% of the total claim which was reduced by the ld. CIT(A) to 10%. Since the assessee could not produce evidence in support of the expenses, we find no infirmity in the ad hoc disallowance made by the ld. CIT(A). - Decided against assessee. Non-deduction of tax on interest debited to the profit and loss account - disallowance u/s 40(a)(ia) - Held that:- Disallowance of ₹ 2,58,538/- is proper for want of non-deduction of TDS under section 40(a)(ia) of the Act. So far as deletion of addition of ₹ 23,37,707/- on account of production of form 15H is concerned, we raised a specific query from the ld. counsel for the assessee as to when it was filed and whether any comments were called from the Assessing Officer, as there is no specific finding of the ld. CIT(A), but the ld. counsel for the assessee could not furnish any explanation to the satisfaction of the Bench. We are, therefore, of the view that this issue with regard to production of form 15H relating to ₹ 23,37,707/- requires fresh adjudication by the Assessing Officer. We accordingly set aside the order of the ld. CIT(A) and restore the matter to the file of the Assessing Officer with a direction to verify the production of form 15H and after making verification, disallowance under section 40(a)(ia) of the Act may be re-computed - Decided partly in favour of assessee for statistical purposes.
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2015 (7) TMI 944
Addition on confiscation of stocks of scrap Rail and scrap Cast Iron by the District Authorities against the dues of KESCO - Held that:- CIT (A) decided the issue against the assessee by holding that there is no dispute regarding the value of confiscated stock of ₹ 50,92,490/- for which only possession has changed but the right remains with the assessee only. Before us also, same argument is made without establishing that entire stock of 832.809 M.T. was auctioned for ₹ 2.03 lacs because on page 24 of the paper book, no quantity is mentioned and hence it is very much possible that this sale proceeds of ₹ 2.03 Lacs is for sale of only a small part of 832.809 M.T. and the remaining part is still unsold or was sold by the assessee prior to seizure. Moreover, this amount of ₹ 2.03 Lacs is said to have been adjusted against outstanding demand of KESCO of ₹ 71,21,300/-. If this demand of KESCO of ₹ 71,21,300/- or any part thereof is already accounted for in books, then the payment to KESCO is to reduce sundry creditor only and in that situation, sale proceeds of stock has to be considered as income only and the balance has to be considered as stock in absence of any evidence that entire stock was sold for ₹ 2.03 Lacs. If this demand of KESCO is other than liability as per books than also the assessee has to establish that deduction is allowable for the same but the assessee has not even explained the nature of the liability said to be payable to KESCO. Hence, we do not find any reason to interfere in the order of learned CIT (A) on this issue. - Decided against assessee. Addition on the basis of profit on sale outside books of excess stock shown in the stock statement ubmitted to the bank by the assessee - CIT(A) deleted the addition - Held that:- The present issue is covered in favour of the assessee by the judgment of Hon’ble Jurisdictional High Court rendered in the case of CIT vs. Khan & Sirohi Steel Rolling Mills (Supra). Learned CIT (A) has decided this issue by following this judgment and learned DR could not point out any difference in facts. Hence, we decline to interfere in the order of learned CIT (A) on this issue. - Decided against revenue, Unexplained investment made in the purchase of unrecorded stock - CIT(A) deleted the addition - Held that:- CIT (A) has given a categorical finding that purchase shown in the stock statement submitted to bank almost tallies with value reflected in books of accounts. He has also given this finding that books of accounts are not rejected and no other adverse circumstantial evidence is brought on record by the A.O. After making these observations, he has decided this issue by following this judgment of Hon’ble Jurisdictional High Court rendered in the case of CIT vs. Khan & Sirohi Steel Rolling Mills (2005 (1) TMI 680 - ALLAHABAD HIGH COURT). Learned DR of the revenue could not controvert these categorical findings of CIT (A) and he could not show as to how this judgment of Hon’ble Jurisdictional High Court rendered in the case of CIT vs. Khan & Sirohi Steel Rolling Mills (Supra) is not applicable. Hence, we decline to interfere in the order of learned CIT (A) on this issue also - Decided against revenue. Disallowance out of depreciation on plant & machinery which as per the assessing officer were not put in to use during the period under reference - CIT(A) deleted the addition - Held that:- none of the judgments followed by learned CIT (A) is applicable in the present case. Moreover, this is admitted position of facts that the industrial unit was not working and although it is claimed that some machines were used in course of trading but no evidence is brought on record in support of this contention. No evidence is brought on record in support of this contention also that the machines were kept ready for use. This also is not the case of the assessee that the operation of industrial unit has restarted even till now i.e. in the year 2015. Considering all these facts, we hold that the order of learned CIT (A) on this issue is not sustainable and therefore, we reverse the same and restore that of the A.O. - Decided in favour of revenue. Addition u/s 43B on account of penal interest charged by the bank and interest payable to bank - CIT(A) delted addition - Held that:- Disallowance was made by the A.O. on account of interest payable on cash credit account and on account of penal interest charged by the bank. Learned CIT (A) has given a categorical finding that in the relevant year, section 43B did not cover interest on cash credit account. He has also given a finding that the penal interest was for contravention of contractual obligation between borrower and lender and not for infraction of any law. Learned DR of the revenue could not controvert any of these findings of CIT (A). Hence, we find no reason to interfere in the order of CIT (A) on this issue. - Decided against revenue. Validity of assessment order u/s 143(3) - Held that:- Learned CIT (A) held that since the notice u/s 143 (2) was not validly served on the assessee within prescribed time, the assessment is void and he annulled the same. We find no infirmity in the order of CIT (A) in the facts of the present case and therefore, we decline to interfere in his order. See Anil Kumar Goel vs. ITO [2007 (2) TMI 260 - ITAT LUCKNOW-A ] - Decided against revenue.
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2015 (7) TMI 943
Addition u/s 68 - Production of cash book - Verification by AO - Onus to prove - Held that:- assessee had indeed produced a cash book before the AO. - Once assessee produced a cash book, the onus was on the assessee to prove the entries therein. If it was unable to do so, AO could certainly invoke Section 68, even otherwise AO can invoke Section 69, if source of investment is not properly explained. Assessee cannot wriggle out of its obligation under law, by citing a reason that books of accounts were prepared under the instruction of the AO. No doubt, assessee had returned its interest income under the head “Other sources”. But application of Section 68 and Section 69 are not restricted to business income. It can encompass any type of income, as the facts may call for. Confirmation filed by the assessee at pages 22 to 36, did carry the address of the persons from whom it had received cash. None of these persons were examined by the lower authorities. Further, accumulation of cash in cash-book perse cannot be a reason for disbelieving the source of a deposit in Bank. An assessee might have myriad of reason for withdrawing cash from bank or keeping cash with him. Unless the distance of time is such as to make it unbelievable, in our opinion explanation of source should not be brushed aside. We are therefore, of the opinion, that rules of justice require a verification of the confirmation filed by the assessee, by the AO, by issuing proper summons. If the parties do not attend the summons on if the assessee fails to produce them, AO can take an adverse view and make an addition. For the limited purpose of this verification, we set aside the orders of the authorities below and remit the issue of addition of ₹ 12.00 lakhs back to the file of the AO. - Decided partly in favour of assessee.
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2015 (7) TMI 942
Validity of Reopeing of assessment - Income assessed under wrong head - Held that:- Though it is the contention of the assessee that in the past the interest income on inter corporate deposits has been assessed as business income on the ground that the assessee has been engaged in the business of financing, bill discounting and inter corporate deposits, however, we find that the assessee in its written submissions dated 07.10.11 made to the Income Tax Officer has fairly admitted that the interest on fixed deposit with bank of ₹ 1,150/- and interest on IT refund of ₹ 4,580/- had inadvertently remained to be offered as income from other sources. The Ld. AO, while reopening the assessment, has also considered the said interest on bank deposits and interest with IT refund and has formed the opinion that the said income was assessable under the head “Income from other sources”. Since this fact of assessment of above income under the wrong head has also been admitted by the assessee, hence the order of the AO forming his opinion for reopening the assessment particularly in relation to the above said interest income on bank deposits and IT refund can be held to be justified. - Matter remanded back - Decided partly in favour of assessee.
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2015 (7) TMI 941
TDS from salary u/s 192 - Disallowance of deduction u/s 80C - short deduction of tax at source from payment of the salary - Interest u/s 201(1 A) - CIT(A) allowed claim for subsequent assessment years - Held that:- CIT(Appeals) in subsequent assessment years as noted and following the judgement of the High Court [2015 (4) TMI 272 - PUNJAB AND HARYANA HIGH COURT] allowed appeals of the assessee. The ld. CIT(Appeals) noted in these orders that the Provident Fund accounts of the employees of the assessee University are to be maintained by the office of CAG and consequent action to be taken qua transfer of funds from private Trust to the CAG. The contribution made by the employees is to be treated as contribution to Government Provident Fund and deduction under section 80C is allowable to these employees. The ld. CIT(Appeals), in view of the judgement of the Hon'ble High Court held that the assessee cannot be treated as assessee in default and accordingly, allowed the appeal of the assessee. - order of the ld. CIT(Appeals) cannot be sustained. The assessee, therefore, cannot be held to be assessee in default and accordingly, the orders of authorities below are set aside - Decided in favour of assessee.
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2015 (7) TMI 940
Penalty u/s 271 - Furnishing of inaccurate particulars of income of assessee - Held that:- CIT(A) has rightly held that the disclosures made by the assessee in this regard were bona fide and were not false or fanciful. We find that Ld. CIT(A) further observed that the assessee did not file inaccurate particulars of income in claiming deduction of the aforesaid amount. Therefore, the penalty levied by the Assessing Officer under section 271(1)(c) of the Act was rightly deleted by the Ld. CIT(A). In view of the above, we are of the view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same. - Decided against Revenue.
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2015 (7) TMI 939
Disallowance of depreciation on electrical installation - The assessee had claimed depreciation @ 15% on the electrical installations and further additional depreciation of 10% - Assessing Officer held that the electrical equipment was eligible for depreciation only at 15% as the same fell within the “electrical fittings” which were required for the power distribution to the plant and machinery - Held that:- A perusal of the items as mentioned in page 2 of the assessment order for the assessment year 2006-07, which are substantially the electrical items in respect of the claim of depreciation, shows that these are items which form part of the plant and machinery. These items are not simple electrical fittings, for example industrial cables, power distribution board, control cabin, converter panel, etc. do not have standard alone function. They are part of the plant and machinery. The electrical fittings as mentioned by the Income Tax Rules on which depreciation is specified at 10% are such items which can function on a standard alone basis such as fan, light and the attachments thereto representing wires, switches, etc. The items which have been mentioned in page 2 of the assessment order clearly are not simple electrical fittings. These go to form part of the plant and machinery. Consequently the same would have to be held to be eligible for depreciation at the rate provided for plant and machinery. - electrical installation was to be treated as part of plant and machinery for depreciation at the specified rate provided for plant and machinery. Revenue has not been able to dislodge this specific finding of the ld. CIT(Appeals), consequently the finding of the ld. CIT(Appeals) on this issue stands confirmed. - Decided against Revenue.
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2015 (7) TMI 938
Revision u/s 263 by CIT(A) - regarding service tax issue - Held that:- This is by now settled position of law that if there is lack of enquiry by the Assessing Officer or if there is lack of application of mind by the Assessing Officer, the assessment order is erroneous and prejudicial to the interest of Revenue and in those situations, the learned CIT can exercise his powers u/s 263 of the Act. A very general query was raised by the Assessing Officer in his questionnaire dated 16/12/2010 and the assessee was asked to file copy of service tax account and copy of challans in order to enable the Assessing Officer to verify as to whether the payment was made or not but there is no query as to whether the service tax payment is allowable expenditure or not because the receipt were accounted for by the assessee after reducing service tax there from as has been stated by learned CIT in his notice and Learned A.R. of the assessee could not point out any defect in the reply available on pages 28 to 31 of the paper book also. There is no reply regarding service tax aspect and therefore, in our considered opinion, there is complete lack of enquiry on service tax aspect by the Assessing Officer. Commission payment aspect - Held that:- Assessing Officer has very much raised a query regarding services rendered by commission agents with documentary evidence. But in the reply of the assessee, he has furnished copy of agreement and copy of commission bills along with the details of provisions of commission on handling charges, TDS, date of payment of TDS etc. but there is no evidence furnished by the assessee before the Assessing Officer regarding services rendered by the commission agents. Hence, in our considered opinion, there is lack of application of mind by the Assessing Officer even after making query and therefore, in the facts of the present case, the exercise of the revisionary power by learned CIT u/s 263 appears to be proper. - Decided against assessee.
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2015 (7) TMI 937
Revision u/s 263 by CIT(A) - sources for the deposits found in the SB Account with Axis Bank have not been examined and enquired into, as in the absence of details for sources for deposits in the SB Account, the Assessing Officer ought to have added back the total deposits found in the bank account u/s. 69 instead of making peak addition u/s. 68 - Held that:- The cash summary prepared and furnished by the assessee also does not indicate the source of cash receipts/inflow shown therein on various dates. The information and material furnished by the assessee before the Assessing Officer therefore, was not sufficient to apply peak credit theory for the purpose of making addition on account of cash deposits found to be made in the bank account of the assessee with Axis Bank, and as rightly concluded by the learned Commissioner, the order passed by the Assessing Officer under S.143(3) making addition by applying wrongly the peak redit theory without enquiring in to all the relevant aspects was erroneous as well as prejudicial to the interests of the Revenue, calling for revision under S.263. The direction given by the learned Commissioner to the Assessing Officer in his impugned order is very specific to reassess the income for the year under consideration after carrying out necessary enquiries in his order. It is thus not a case where the learned Commissioner can be said to have kept the scope of the fresh assessment wide open, as sought to be contended by the learned counsel for the assessee.The impugned order of the learned Commissioner is accordingly upheld - Decided against assessee.
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2015 (7) TMI 936
Addition treating business loss as speculative loss in respect of loss on account of forex derivative contracts (Exotic Cross Currency Option Contracts) - Held that:- Explanation to sec.73 creates a deeming fiction by which among the assessee, who is a company, as indicated in the said Explanation dealing with the transaction of share and suffer loss, such loss should be treated to be speculative transaction within the meaning of sec.73 of the Act, notwithstanding the fact that the definition of speculative transaction mentioned in sec.43(5) of the Act, the transaction is not of that nature as there has been actual delivery of the scrips of share. As per the definition of sec.43(5), trading of shares which is done by taking delivery does not come under the purview of the said section. Similarly, as per clause (d) of sec.43(5), derivative transaction in shares is also not speculation transaction as defined in the said section. Therefore, both profit/loss from all the share delivery transactions and derivative transactions are having the same meaning, so far as sec.43(5) of the Act is concerned. Again, in view of the fact that both delivery transactions and derivative transactions are non-speculative as far as sec.43(5) is concerned, it follows that both will have the same treatment as far as application of Explanation to sec.73 is concerned. Therefore, aggregation of the share trading profit and loss from derivative transactions should be done before the Explanation to sec.73 is applied. Both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of “speculative transaction” exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) is concerned goes to confirm that both will have same treatment as regards application of the Explanation to Section 73 is concerned, which creates a deeming fiction. From the above decision of the Calcutta High Court in the case of Baljit Securities Pvt. Ltd. cited [2014 (6) TMI 475 - CALCUTTA HIGH COURT] the issue stands covered in favour of the assessee. However, we make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly. This ground is allowed as indicated above. - Decided in favour of assessee. Treating the capital of the firm introduced by the partner by cash as unexplained income u/s.68 - Held that:- If any capital is introduced by the partner, the assessee shall prove the identity of the partner, genuineness of the transaction and credit worthiness of the partner. In the present case, if the partner confirmed the introduction of the capital from their account then the burden cast upon the assessee is discharged as held by the Andhra Pradesh and Telangana High Court in the case of CIT vs. M. Venkateswara Rao, [2015 (3) TMI 153 - ANDHRA PRADESH HIGH COURT]. Accordingly, in the interest of justice, we remit the issue back to the file of the Assessing Officer with a direction to the assessee to place necessary evidence confirming the capital contribution by above partner before the Assessing Officer. This issue is remitted back to the file of the Assessing Officer for fresh consideration. - Decided in favour of assessee for statistical purposes.
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2015 (7) TMI 935
Deduction claimed u/s.80IA on turbine division denied - assessee company was engaged in manufacture of paper and production of electricity from windmills constructed co-generation building during financial years 2003-04 and 2004-05 to house the new Turbine cum boiler unit to produce steam and electricity - Held that:- The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new an identifiable undertaking separate and distinct from the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. For the assessment year 2008-2009, the lower authorities for co-generation plant granted deduction u/s.80IA of the Act. They impliedly agreed that the new machinery and plant have been installed under separate premises and it is not appropriate to deny the same deduction for the assessment year 2009-2010. The new unit had power as the main product and apart from servicing the captive consumption in the paper unit also could service the other power requirements. The pricing of power is also subjected to the various power tariff prescriptions. It can be clearly seen that the new undertaking is therefore not formed by the splitting up of the old undertaking. There is no case also made out by the lower authorities that the new undertaking is formed by the splitting up of the existing business. Further, the Supreme Court in the case of Textile Machinery Corporation (1977 (1) TMI 3 - SUPREME Court ) wherein held that new unit established by the assessee for manufacturing articles used as intermediate products in the old division, which the assessee was buying from the market earlier, is not reconstruction of business already in existence. To constitute reconstruction, there must be transfer of assets of the existing business to the new industrial undertaking. In our opinion, generation of power unit is separate and distinct undertaking for which separate approval was obtained and it cannot be said that splitting of existing business structure. Therefore, in our considered opinion, the lower authorities are not correct in denying the deduction under section 80IA of the Act. - Decided in favour of assessee.
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2015 (7) TMI 934
Sale of agricultural land - AO treating the income from sale of agricultural land as business income also upheld by CIT(A) - assessee claimed the same as exempt from income tax treating the same as agricultural land which is situated at a distance of more than 8 kms from the limit of any municipality - Held that:- There is no dispute to the fact that the land sold in question are agricultural lands. We do not find logic behind the argument of the Revenue that the assessee is definitely a man of means and there was no compelling circumstance to sale the land and therefore, such income has to be taxed as business income. In our opinion, if any income is otherwise exempt from tax as per the statute, the same cannot be brought to tax merely because assessee is a man of means or that the money so obtained has been utilised for some business in an organised manner etc. It is for the assessee to decide his affairs in the way he likes and the Revenue has no business to direct or advise the assessee to manage his affairs. We find an identical issue had come up before the Tribunal in the case of the brother of the assessee wherein the Assessing Officer treated the surplus from sale of agricultural land as business income which was held by the CIT(A) as exempt being surplus from sale of agricultural land. Since in the instant case the assessee has sold the agricultural land in the year 2005 which were held by him for more than 7 years except in one case where the same was held for about 4 years, the details of which are extracted at para 11 of the impugned order and since there is also no dispute to the fact that the assessee was deriving regular agricultural income from the same land and further considering the fact that the Assessing Officer in the assessment order for A.Y. 2008-09 passed u/s.143(3) on 27-12-2010 has accepted the claim of the assessee that gain on sale of agricultural land at ₹ 96,61,250/- is not liable to tax and no addition has been made in orders passed u/s.143(3) for A.Yrs. 2001-02 and 2003-04, therefore, we are of the considered opinion that the CIT(A) was not justified in bringing to tax the surplus on sale of agricultural land as business income. - Decided in favour of assessee. Treating agriculture income as undisclosed income under section 69A - Held that:- The agricultural income shown by the assessee during the impugned assessment year appears to be on the higher side. It is also an admitted fact that out of the total gross receipt of ₹ 7,69,115/- the assessee has received only an amount of ₹ 3 lakhs in cheque and the balance amount has been received in cash. The expenses claimed by the assessee are also unverifiable. Considering the totality of the facts of the case and the past records net agricultural income of ₹ 4,00,000/- for the impugned year, in our opinion, will meet the ends of justice - Decided partly in favour of assessee.
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2015 (7) TMI 933
Rejection of the books of accounts - assessment order under section 144 r.w.section 145(3) - Held that:- The defects pointed out by the AO are of such a nature, which authorize him to harbour a belief that true income of the assessee cannot be deduced from those accounts. For example, the assessee had adopted incorrect method of accounting with regard to the purchases and sale of licence premium in trading and profit & loss account. The assessee has been showing such sales in profit & loss account, but it has not been recognizing any opening and closing stock of licence premium. It is quite difficult to cross verify such an item. The electricity expense are manufacturing expenses, these must have been debited to manufacturing account, whereas, the assessee has debited in the profit & loss account. Therefore, considering the concurrent findings of both the authorities on this issue, we do not see any reason to interfere in the order of the CIT(A) on this issue in rejecting books of accounts - Decided against assessee. Disallowance of labour charges - AO allowed labour charges at the rate of ₹ 240 per carat. This disallowance of ₹ 60/- per carat is multiplied with the total carats of diamonds, then the addition, therefore, worked out to ₹ 45,44,029/- - Held that:- even if this disallowance is confirmed, then the assessee will not be burdened with any tax liability, because the moment the expenses will be disallowed, its profit ratio will increase and it will claim deduction under section 80HHC at an higher amount. Therefore, for the purpose of taxability, it is an academic issue and revenue neutral. Respectfully following the order of the ITAT in the Asstt.Year 2002-03, coupled with the fact that ultimately this issue will not bring any tax to the Revenue, we allow this ground of appeal partly, and confirm the adhoc disallowance of ₹ 10 lakhs, which is in the same ratio, as made and confirmed in the Asstt.Year 2002-03 - Decided partly in favor of assessee. Valuation of closing stock - AO took the value of the diamond at cost - Held that:- There is no dispute with regard to the proposition that closing stock is to be valued either at the market price or at cost, whichever is lower. The working given by the assessee before the CIT(A) as well as before us in the paper book is altogether an unscientific calculation, because, the assessee has reduced the cost by sale value of the items sold. Whereas, it ought to have reduced the cost by the cost of items sold. In sale value, profit is also embedded. Therefore, the method of the assessee in working out the balancing figure is not correct. The learned First Appellate Authority has rightly rejected the contentions of the assessee. We do not find any merit in this ground of appeal. It is rejected. But, we direct the AO to give credit of this addition in the opening stock of the diamonds in the next year. - Decided against assessee. Disallowance of labour expenses - Held that:- After due consideration of the record, and well reasoned findings recorded by the AO, pointing out defects in the details maintained by the assessee, we are of the view that the CIT(A) has rightly upheld the disallowance - Decided against assessee. Ee-computation of the deduction under section 80HHC after excluding the job work receipts from the total turnover - Held that:- The ld. CIT(A), after taking into consideration the job work receipt, commission, interest etc. directed the AO to reduce 90% of net receipts from the eligible profit while working out the deduction admissible under section 80HHC of the Act. In our opinion, the ld.CIT(A) has appreciated the controversy in right perspective and does not call for any interference. The order of ld.CIT(A) is in line of latest decision of Hon’ble Supreme Court in the case of ACG Associates Capsules Ltd. Vs. CIT [2012 (2) TMI 101 - SUPREME COURT OF INDIA] . In view of the above discussion, we do not find any merit in this appeal. - Decided against revenue. Addition on account of valuation of closing stock of rough diamond - Held that:- As far as purchase of diamond is concerned, there is no dispute. Thus, the invoices are of no help for the assessee. Similarly, as far as the transmission of rough diamonds from Mumbai to Surat, is also not a relevant fact for deciding this issue. The assessee is required to demonstrate on the basis of day-to-day stock register in quality-wise, that a particular rough diamond were purchased by it were consumed in manufacturing. The remaining diamonds in the closing stocks are directly linked to a particular purchase invoice. There is no such details maintained by the assessee. It is not cross-verifiable. The chart prepared by the assessee is self-styled, just mentioning about the availability of one lot of diamonds in the closing stock. The ld.CIT(A) has appreciated the controversy in right perspective, and has gone through the stand of the assessee. Therefore, we do not find any reason to interfere in the order of the ld.CIT(A) on this issue. - Decided against assessee. Value of rejected diamonds - AO has adopted the value on net realized average value of rejection as accepted by CIT(A) - Held that:- No error in the method adopted by the AO. He valued the rejected diamonds at net realized average value, whereas, the assessee did not disclose any basis. Therefore, we do not find any error in the order of the CIT(A). - Decided against assessee. Addition of closing stock of polished diamonds - Held that:- The value of the closing stock has to be adopted by the assessee either at market price or at cost, whichever is lower. The AO has adopted the average cost for the purpose of value of the closing stock. We have upheld the same in the Asstt.Year 2003-04. Relying upon our order in the earlier part of this order, we do not find any reason to interfere with the order of the CIT(A). - Decided against assessee.
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2015 (7) TMI 932
Accrual of income - Contribution received from the members - whether is to be assessed in the year of receipt or assessee is to be permitted to spread over, over a period of five years? - whether CIT(A) has erred in confirming the addition received as capital contribution from members for discharge through effluent channel constructed by the assessee? - Held that:- As decided in earlier years of assessee's own case [2010 (10) TMI 717 - ITAT, Ahmedabad] a clear right is given by the assessee-company to the members to utilise its capital facilities for a period of 99 years for discharge of agreed quantities of effluent. Thus the one-time membership fee is not in fact in return for any obligation or services rendered by the assessee in one year. It is a receipt in advance for an obligation to be rendered in future. Thus it cannot be said that income has actually accrued to the assessee in one year even though it might have received it in one year. Mere receipt does not ensure accrual unless an equivalent part of the agreed services by the receiver is rendered. - Following the decision of Asst. CIT v. Mahindra Holidays and Resorts (India) Ltd. (2010 (5) TMI 524 - ITAT, CHENNAI) we hold that the assessee was justified in deferring the revenue for taxation for four years. Respectfully following the above order of the ITAT, we set aside the issue as far as determination of taxability of the receipts received in this year to the file of the AO. The ld. AO shall re-work the amount out of the contribution received in this year on the basis of the Tribunal’s findings in the Asst.Year 2001-02. In other words, the receipt received by the assessee during the accounting period relevant for this assessment year is also to be spread over, over a period of five years. The total receipt cannot be assessed in this year. Enhancement made by the ld.CIT(A) is concerned, we do not find any error in the order of the ld.CIT(A), because, the assessee ought to have shown that the amount as income on the basis of claim made in earlier years, i.e. whatever amount representing the alleged 1/5th ought to be offered for taxation in this year. The ld.First Appellate Authority has rightly made the enhancement. - Decided partly in favour of assessee for statistical purposes.
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Service Tax
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2015 (7) TMI 970
Denial of CENVAT Credit - Whether certain pollution control services availed by the appellant are eligible to CENVAT Credit under CENVAT Credit Rules 2004 or not - Appellant was required to maintain certain standards of effluent from Appellant's factory as a mandatory and statutory necessity. - Held that:- permissions granted by Gujarat Pollution Control Board under The Water (Prevention And Control of Pollution) Act, 1974, that Appellant was required to maintain certain standards of effluent from Appellant's factory as a mandatory and statutory necessity. When the activity is required to be done mandatorily under a statutory obligation, then it cannot be said that the same is not in relation to the manufacture of finished goods in Appellant's factory. This principle was settled by Hon'ble Supreme Court in the case of Indian Farmers Fertilizer Co-op. Ltd Vs CCE Ahmedabad (1996 (7) TMI 141 - SUPREME COURT OF INDIA), where duty free raw material Naptha used for effluent treatment plant, was held to be eligible for exemption. - treatment of effluent from a factory has to be considered as essential and integral part of the process of manufacture. The ratio of this judgment will be applicable to the services availed by the Appellant - Decided against Revenue.
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2015 (7) TMI 969
Admissibility of CENVAT Credit - outdoor catering services - Held that:- It is the claim of the Appellant that no expenses paid to the service provider is borne by the staff of the Appellant. For this purpose, Appellant filed certain documents for the first time before the Bench. Once certain documents are produced for the first time before the Bench, the case cannot be decided directly on the basis of these documents. The same are required to be examined by the Adjudicating authority to see whether the services of outdoor catering are received by the Appellant and entire cost absorbed by him. - Matter remanded back - Decided in favour of assessee.
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2015 (7) TMI 968
Penalty u/s 76, 77 & 78 - non-payment of service tax due to financial hardship - Appellant is not contesting the Service Tax liability alongwith interest but are claiming waiver of penalty under Section 80 of Finance Act, 1994 - Cleaning services - Held that:- The amount of Service Tax required to be paid for this period was more than ₹ 1 Crore. There is weight in the argument of the Appellant that due to payment of earlier dues, there was a financial difficulty in making the payment when the amounts received from the client for the year 2010-2011 and 2011-2012 were used for making the payments for the earlier Service Tax dues. The learned Chartered Accountant also brought to the notice of the Bench certain letters issued by the tax recovery officers of the Income Tax Department written directly to the clients of the Appellant that amounts due to M/s Aqua Master Clean should be directly paid to the Income Tax Department. Though these letters were issued after the period involved in these demands, but it gives an indication that there was a financial hardship on the part of the Appellant for not discharging the duty liability for the year 2010-2011 to 2011-2012 in time. Accordingly, it is held that there was a reasonable cause and the case of the Appellant is covered by the provisions of Section 80 of Finance Act, 1994 - Decided in favour of assessee.
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2015 (7) TMI 967
Penalty u/s 76 & 78 - Business auxiliary services - Receipt of commission - Held that:- By not paying service tax during the relevant period appellant cannot claim the benefit of Section 80 of Finance Act 1994 and therefore penalty is imposable. - a lenient view is called for, which has been taken by the original authority in the facts and circumstances of the case which show that appellants promptly paid the tax as soon as the omission was pointed out. I also find that these were initial years of levy of service tax on the services and also initially commission agents were exempted and these are facts which have been rightly taken into account by the original authority - Decided in favour of assessee.
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2015 (7) TMI 966
Denial of CENVAT Credit - input services - non payment of service tax by the provider of serivces to the revenue - Invoices received by the appellant showed that they had paid rent on equipment and on this rent on equipment, service provider had charged service tax which was paid by them - Held that:- If service tax has been paid by the service provider and service receiver is eligible for the credit, it is not the responsibility of the service receiver to examine the correctness of service tax paid by the service provider. That amounts to assessment by the service receiver of the service received by him. It is not at all the responsibility cast on him. There are several decisions taking a view that examination of correctness of tax paid is not the responsibility of the service receiver and department cannot deny the credit of service tax on this ground. In the case of Ultratech Cement Ltd Vs CCE Nagpur [2010 (12) TMI 90 - CESTAT, MUMBAI], it was held that departmental authorities have no jurisdiction over service recipient, cannot sit in judgment over the correctness of the tax paid and it is not proper to deny the assessee CENVAT credit of service tax paid by agencies engaged by them. In the case of Treads direct Ltd., Vs CCE Calicut [2013 (3) TMI 476 - CESTAT BANGALORE], it was held that the question as to whether input is dutiable cannot be agitated at the end of manufacturer of final product. - there is absolutely no case for the Revenue to deny the CENVAT credit and accordingly the impugned order is set aside - Decided in favour of assessee.
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2015 (7) TMI 965
Denial of refund claim - accumulated Cenvat Credit - Commissioner (Appeals), rejected their appeal holding that the amount of refund cannot exceed the amount of Cenvat credit as per S.T. 3 return and as the invoice for some services mentioned the Ranjangaon address being, not registered address - whether professional bills were addressed, is the address of the group company which was subsequently recognized as registered office of the appellant by Revenue - Held that:- Refund of Cenvat Credit cannot be restricted to the amount of credit availed during the period, as per the service tax return because, it is a case of continuous business activity under ‘business entity concept'. The appellant is entitled to avail refund under the spirit of Rule 5 of CCR read with notification No. 5/2006 (as amended) read with clarification Circular dt. 26.2.2010 (supra). Thus the appellant is also entitled to refund of ₹ 78,795/-, rejected on account of non-inclusion in service tax return for the period. Thus, the appeal is allowed and the impugned order is set aside so far as it relates to rejection of refund. - Decided in favour of assessee.
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Central Excise
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2015 (7) TMI 964
Clandestine removal of goods - Undervaluation of goods - second show cause notice on the same cause of action - Held that:- On the statement of respondent No.5 given earlier, the adjudicating authority had dropped the proceedings accepting the explanation furnished. In view thereof, the CESTAT has held that there could not have been second show cause notice on the same cause of action. In this behalf we do not find any error in the order passed by the CESTAT. Adjudicating authority had studied not only the evidence but also discussed the same in the show cause notice. He found that even when those particulars and materials which are against the respondent No.1 as disclosed in the show cause notice, the respondent No.1 said nothing in defence. This is precisely the reason given by the adjudicating authority in confirming the demand. Thus, we do not agree with the findings of the CESTAT that adjudicating authority has not given any reasons or discussed the evidence. When there was no repetition of the material and the evidence mentioned in the show cause notice by the respondent No.1 it was not necessary to discuss the same on that account and this course was adopted by the adjudicating authority, and rightly so, to avoid repetition. Thus, insofar as the issue of under-valuation is concerned, we find substance in these appeals and to that extent order of the CESTAT is contrary to law and is accordingly set aside. - Decided partly in favour of Revenue.
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2015 (7) TMI 963
Maintainability of appeal - Availability of alternate remedy - Held that:- appeal is not covered by Section 35-L (B) of the Central Excise Act, 1944 and therefore is not maintainable. The only remedy that could be available to the appellant -Department is to approach the High Court by way of an appeal under Section 35-G. - there is no substantial question of law involved in this appeal and, therefore, the appeal before the High Court also is not permissible. However, we leave it for the High Court to decide as to whether any substantial question of law arises or not. - Appeal disposed of.
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2015 (7) TMI 962
Valuation - deduction from assessable value - appellant could not produce the evidence to prove the expenditure incurred under certain heads - Held that:- The position that was taken by the assessee before the authorities was that these expenditures could be actually ascertained only afterwards and for this reason, even a request was made to the assessing officer for provisional assessment as the actual expenditure could not be communicated at the time of assessment having regard to the nature of such expenses. - vital aspect of the matter is glossed over by the CESTAT [2005 (4) TMI 335 - CESTAT, NEW DELHI]. It is also pointed out before us that in the next assessment year, i.e., assessment year 1995-1996, this very contention is accepted by the Commissioner when actual expenses were produced and benefit thereof has been extended to the assessee. - Matter remanded back - Decided in favour of assessee.
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2015 (7) TMI 961
SSI Exemption - Denial of the benefit of Notification No. 175/86 dated 01.03.1986 - Use of other company brand name - Held that:- No doubt, when the brand name or trade name of another person is used by an SSI unit then the SSI unit shall not be entitled to the exemption from payment of excise duty under the aforesaid Notification No. 175/86. However, what is relevant is that the other unit of whose brand name or trade name is used, should be a unit which is not eligible for grant of exemption under this Notification. In the present case, we find that M/s Vikshara Trading itself was a SSI unit which has been claiming exemption and the same was allowed by the Tribunal in 'C.C.E., Ahmedabad v. Vikshara Trading and Investment Pvt. Ltd.' [1996 (8) TMI 204 - CEGAT, NEW DELHI] and the said judgment of the Tribunal has been upheld by this Court which is reported in [2003 (8) TMI 49 - SUPREME COURT OF INDIA]. Accordingly, we set aside the impugned judgment of the Tribunal and hold that the appellant shall be entitled to the exemption under the aforesaid Notification - Decided in favour of assessee.
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2015 (7) TMI 960
Validity of Tribunal's order - CESTAT has relied upon the earlier decision of the Customs, Excise and Gold (Control) Appellate Tribunal in the case of 'Web Impressions (India) Pvt. Ltd. v. CCE Calcutta' [2001 (9) TMI 202 - CEGAT, KOLKATA] - Held that:- CESTAT has further observed that against that judgment, appeal was preferred by the Revenue and the said decision of the CEGAT was upheld. This is factually incorrect inasmuch as the appeal of the Revenue against the aforesaid judgment was not dismissed by this Court. On the contrary, this Court had set aside that order of the CEGAT and remanded the case back to the CEGAT for fresh adjudication of the appeal. - Matter remanded back - Decided in favour of Revenue.
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2015 (7) TMI 959
Waiver of pre deposit - Undue hardship - Held that:- For waiver of the pre-deposit, the appellant is required to show undue hardship that would be caused, in the event, they are required to deposit the amount. In the instant case, we find that no agreement has been raised with regard to hardship. However, prima facie, we find that once the authority permitted the appellant to cross-examine the witnesses, the same should have been done unless further orders denying such cross-examination was passed - appeals directing the appellant to deposit 30% of the duty within four weeks - If the amount is deposited, the Tribunal will ensure and decide the appeal within one year. - Decided conditionally in favour of assessee.
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2015 (7) TMI 958
Denial of refund claim - period of limitation - duty was paid under protest or voluntary - Exemption at consessional rate of duty vide Notification No.140/83-CE dated 5th May, 1983 - Held that:- Appellant had specifically indicated in the declaration form under Rule 173B that they are paying the duty under protest, which was part of their letter dated 24th December, 1996 in which the appellant had categorically insisted that no duty was payable on the product manufactured by them. - The language and content of the letter dated 24th December, 1996 read with the declaration form as reproduced above leaves no room for doubt that the appellant had pleaded in unequivocal terms, namely, that duty was not payable on shampoo manufactured by them. The contents of the letter makes it clear that despite the appellant having lodged the protest in the declaration form, the department was insisting on payment of duty on the manufacture of shampoo and hence, the appellant had put on record for paying the amount under protest with a further prayer to permit the appellant to avail the provisional assessment to duty under Rule 9B of the Rules till the case was finally decided. Appellant had established beyond doubt that the appellant had always been contesting the department's claim for levying duty on the product manufactured by them and regularly agitated that no such duty was payable. In our view, if the appellant was disputing the levy of duty and was agitating that no duty was payable and that payment was being made because of insistence of the department to pay under threat of seizure of the product, it cannot be said that payments made by the appellant was not made under protest. We are of the opinion that the assessee had lodged the protest in accordance with Section 11B of the Act read with Rule 233B of the Rules of 1994. - Tribunal and the departmental authorities have committed a manifest error in non-suiting the appellant's application for refund on the ground that no protest letter was filed in accordance with the procedure prescribed under Rule 233B of the Rules. Since we have held that the protest letter was filed by the appellant, the question of the application being barred by limitation under Section 11-B of the Act does not arise. - Matter remanded back - Decided in favour of assessee.
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2015 (7) TMI 957
Invocation of extended period of limitation - determination of relevant date for issue of notice within 5 years - Duty demand u/s 11A - Held that:- If the goods and which are excisable have to be cleared on payment of duty, but if they are exempted from payment of such duty, it does not mean that there is no power in the authorities to verify and scrutinise the documents based on which the clearance is made. One of the documents at the stage of clearance refers to the Exemption Notification and thereafter the person clearing the goods or removing them urges that there is no duty liability, then, what terms and conditions have been prescribed or whether the exemption is absolute are matters which are to be checked and determined by the authorities - Once it is possible to scrutinise and verify the compliance of the terms and conditions on which the exemption has been issued in this case, then, it will not be possible to hold that a separate period is prescribed for recovery of duty in case of this nature or that the period of five years prescribed would have to be computed only when the breach or violation of the Exemption Notification has come to the knowledge of the Department subsequently. It may be that such fact is discovered or comes to the knowledge of the authorities subsequent to the clearance, however, when the Department desires to recover the amount of duty, then, it must adhere to the period prescribed By section 5 remission of duty on goods found deficient in quantity is dealt. Section 5A confers power to grant exemption from duty of excise. If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon. - Equally, if there is any condition to furnish a Bond and in that behalf it is prescribed that in the event the terms and conditions on which the bond has been given and accepted are breached and violated, a demand can be raised, that that stipulation will not mean that the mandate of section 11A is any way diluted or can be interpreted with the aid of such term or condition of the Bond. Thus, the terms and conditions of the Exemption Notification or of the Bond cannot be of any assistance. That only would enable recovery of duty and further levy of interest, recovery thereof and equally of penalty. In these circumstances, we do not find any provision which would enable us to conclude that the date of knowledge or the date of discovery of the fraud by the Revenue will be the determinative and decisive date. If that is beyond the period of five years, then, section 11A will have to be interpreted accordingly is the express stand and which we find cannot be accepted because the plain language of the statute or the words of the section cannot be brushed aside or ignored. In the light of the clear language of the Statute the Hon'ble Supreme Court arrived at somewhat similar conclusion. In the case of Ahmedabad Manufacturing and Calico Printing Co., Ltd. (supra) the Hon'ble Supreme Court concluded that the mistake can be corrected but the tax can be recovered in the light of the provisions enabling such recovery and in that case, it was held that if the language of the law has clear meaning, it must be given that effect. In the case of S. S. Gadgil (supra), the Hon'ble Supreme Court, after underlying this difference, concluded that a provision of the nature and carved out like section 11A is really not a provision of limitation but a fetter or restriction on the power of the authority to bring to tax escaped income. This is what is clearly held by us. If there is a power to recover and within a specific period, then, the exercise of that power is contemplated within the said period, else there is a fetter or restriction to recover the duty. Tribunal's order is ex-facie erroneous and unsustainable in law. It is vitiated by complete non application of mind as well. That the fraud is of great magnitude and that involvement or the act is admitted does not mean that recovery of duty because of such fraud or as a result of it can be made at any time under section 11A. This was clearly lost sight of by the Tribunal. We do not find that this approach of the Tribunal can be sustained in law - Decided in favour of assessee.
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