TMI Tax Updates - e-Newsletter
July 4, 2018

Case Laws in this Newsletter:

GST Income Tax Customs Corporate Laws Insolvency & Bankruptcy Service Tax

News

1. GST - Concept & Status (01-07-2018)

2. NITI Aayog to organise India’s First Global Mobility Summit

3. RBI Reference Rate for US $

4. CBDT's order regarding linking of PAN with Aadhaar while filing of ITRs

5. Exchange of Tariff concessions through Fourth Round of Negotiations under Asia Pacific Trade Agreement

6. Auction for Sale (Re-issue) of Government Stocks

Notifications

DGFT

1. 16/2015-2020 - dated 2-7-2018 - FTP

Amendment in import policy of fresh ginger under Chapter 09 of the ITC (HS) 2017, Schedule -I (Import Policy)

2. 15/2015-2020 - dated 2-7-2018 - FTP

Amendment in import policy of Peas under Chapter 7 of the ITC(HS) 2017, Schedule-I (Import Policy)

GST - States

3. 61/GST-2 - dated 29-6-2018 - Haryana SGST

Notification regarding extension of suspension of reverse charge mechanism under section 9(4) of the HGST Act,2017

4. 24/2018-STATE TAX - dated 12-6-2018 - Jharkhand SGST

Notified authority for conducting examination of Gst practitioners.

5. 11/2018-STATE TAX (RATE) - dated 12-6-2018 - Jharkhand SGST

Notified reverse charge on certain specified supplies of goods under section 9(3).

6. 15E/2018 -State Tax - dated 29-6-2018 - Maharashtra SGST

Notifies that on or after the 1st July 2018, no e-way bill shall be required to be generated for the intra-State movement in the State of Maharashtra Goods and Services Tax Rules, 2017.

7. F.NO.FIN/REV-3/GST/1/08 (Pt-1)/172 - dated 13-6-2018 - Nagaland SGST

Nagaland Goods and Services Tax (Nineteenth Amendment) Rules, 2018.

8. F.NO.FIN/REV-3/GST/1/08(PT-I)/140 - dated 14-5-2018 - Nagaland SGST

Notified the waiver of late fee payable for failure to furnish return in form GSTR-3B.

9. F.1-1l(92)-TAX/GST/2017(part) - dated 2-7-2018 - Tripura SGST

Notification on State Level Screening Committee on Anti-Profiteering for the State of Tripura.

10. F.1-11(96)-TAX)/GST/2017 - dated 2-7-2018 - Tripura SGST

Notification regarding Tripura Appellate Authority for Advance Ruling.

11. NO.28/2018-STATE TAX - dated 25-6-2018 - West Bengal SGST

West Bengal Goods and Services Tax (Sixth Amendment) Rules, 2018.

Circulars / Instructions / Orders

GST - States

1. No.09/2018 — GST (State) - dated 15-6-2018

Clarifications of certain issues under GST - regarding.

DGFT

2. 17/2015-2020 - dated 3-7-2018

Introduction of new Para 3.24 in the chapter 3 of the Handbook of Procedures, 2015-20

Customs

3. 102/2018 - dated 25-6-2018

Carriage of loaded/empty containers from one Indian Port to another gateway port in coastal vessels-reg.

Highlights / Catch Notes

GST

• Cast Iron Brackets and Clamps Classified Under Chapter Heading 7325 for Rust-Protected, Non-Machined Products.

  Case-Laws - AAR : Classification of brackets and clamps of cast iron - the applicant does sand blasting and apply enamel to protect the product from rusting. The brackets and clamps so manufactured are not machined by the applicant - fall under Chapter Heading 7325.
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• Cryo Containers Classified Under Heading 9617 for GST: "Vacuum Flask and Other Vacuum Vessels.

  Case-Laws - AAR : Classification of Cryo Container, also known as Liquid Nitrogen Containers - Cryo Container classifiable under Heading 9617 as ‘Vacuum Flask and other vacuum Vessels, Complete with cases parts thereof other than glass inner’.
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• Tripartite agreement on dairying development clarifies transactions aren't between related parties; Schedule-1 GST Act provisions not applicable.

  Case-Laws - AAR : Tripartite Agreement - scope of supply - developing dairying in the respective states - the supply cannot be treated as between the related parties. - Provisions of Schedule-1 of GST Act, relating to free supply (without consideration) to related party does not attract.
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Income Tax

• Interest from Bank Fixed Deposits Not Exempt for Club, Taxable u/s 11 Due to Mutuality Principle Violation.

  Case-Laws - AT : Exemption u/s 11 - principle of mutuality - the interest earned by the assessee club on certain fixed deposits kept with certain banks who are also corporate members of the assessee is not covered by the mutuality principles and would therefore, be chargeable to tax in the hands of the assessee.
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• Court Rules Hawala Transactions Bogus u/s 69; Receipts in Books Deemed Illegitimate.

  Case-Laws - AT : Unexplained investment - addition u/s 69 - hawala transactions - since once it is found that the transactions were merely bogus in nature without carrying out any actual transactions, the receipt thereof in the books could not be held to be genuine.
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• Company Penalized u/s 271(1)(c) for False Agricultural Income Claim Without Proof in Land Records.

  Case-Laws - AT : Penalty u/s 271(1)(c) - claim of agricultural income in the hands of company - how the assessee can claim as cultivator as its name is not appearing in the revenue land records maintained either as lessee of the land or the cultivator? - Levy of penalty confirmed.
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• DRP's Changing Perspective Doesn't Invalidate Past Findings; Each Year's Decision Stands Independently Despite Future Changes.

  Case-Laws - HC : TP - The findings or the premise taken by the Dispute Resolution Panel (DRP) in the subsequent year does not render the findings in the previous years per se illegal or unsustainable merely because the Dispute Resolution Panel (DRP) takes a different view in the subsequent years.
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• Tribunal Rules Depreciation Deduction Allowed Despite Non-Utilization of Plant and Machinery.

  Case-Laws - HC : Transfer pricing - The claim of Depreciation does not have a direct, linear or proportionate relationship with the capacity utilization. The Tribunal has rightly held that even without actual utilization of the Plant and Machinery, Depreciation can still be claimed as a deduction from the Operating Profits.
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Customs

• Coastal Shipping Regulations: Steps for Transporting Containers Between Indian Ports with Customs Compliance and Legal Obligations.

  Circulars : Carriage of loaded/empty containers from one Indian Port to another gateway port in coastal vessels - Procedure to be followed.
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DGFT

• DGFT Amends Handbook: No Incentive Certificates for Merchandise Exports from India Scheme in New Paragraph 3.24.

  Circulars : No Incentive Certificate under MEIS - Introduction of new Para 3.24 in the chapter 3 of the Handbook of Procedures, 2015-20
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• DGFT Amends Import Policy for Fresh Ginger Under Chapter 09 ITC (HS) 2017 to Align with Current Trade Rules.

  Notifications : Amendment in import policy of fresh ginger under Chapter 09 of the ITC (HS) 2017, Schedule -I (Import Policy)
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• DGFT Amends Import Policy for Peas Under Chapter 7 of ITC(HS) 2017; New Guidelines for Importers and Stakeholders.

  Notifications : Amendment in import policy of Peas under Chapter 7 of the ITC(HS) 2017, Schedule-I (Import Policy)
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Case Laws:

• GST

• 2018 (7) TMI 76
  Levy of GST on supply made to related party without consideration - Tripartite Agreement - scope of supply - By virtue of tripartite agreement between NDDB, State Government & Unions, whether the arrangement between NDDB and Unions would be considered as supply between ‘related persons’ in accordance with Schedule 1 of the Central Goods & Service Tax Act, 2017? - developing dairying in the respective states - state governments have entrusted NDDB to run the management, appoint key managerial persons and provide end to end services which ultimately would help the Unions in developing. - Held that:- Section 7 of CGST Act defines ‘supply’. Some of the scope of supply, as per Section 7c of the Act, are the activities specified in Schedule I, made or agreed to be made without a consideration. One of the activities to be treated as a supply even if made without consideration, as per clause 2 of Schedule I, is the supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business. In the present case, pursuant to the agreements made by the applicant with the state government of Jharkhand and Assam, the applicant provides services to Unions. It is also seen that the actual services are received by the concerned State Governments and the Unions are simply beneficiaries of the services performed by the applicant. Thus, there is no question of exercise of control by the applicant over the Unions. Unions are in fact provide support to the applicant to fulfill the purposes as per the agreements made with the state governments and the applicant and in return they receive the benefits of it - The Unions are only beneficiaries of agreement entered into by the state governments with the applicant. The Unions are required only to provide adequate support to the applicant. In such a situation, there is no kind of relationship between NDDB and the Unions. Hence situation specified at sl no. 5 of Section 15(5) of CGST Act is not found in existence in the transaction between NDDB and WAMUL and NDDB & JMU and accordingly such transactions are not to be considered as related party transactions in GST. Whether the applicant would be required to determine value of activities undertaken by them in accordance with Section 15(5) of CGST Act, 2017 read with Rule 28 of the CGST Rules, 2017? - Held that:- Since the answer to the first part of the points raised by the applicant is negative no need to examine the next point of them. Ruling:- The transactions undertaken by NDDB and Unions in accordance with the agreements made by NDDB with State Government of Assam and Jharkhand are not to be considered as supply between ‘related persons’ in accordance with Schedule I of Central Goods and Service Tax Act, 2017 read with Section 15 of CGST Act and corresponding provisions under the Gujarat Goods and Services Tax Act, 2017.

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• 2018 (7) TMI 75
  Classification of manufactured goods - Cryo Container, also known as Liquid Nitrogen Containers - Whether supply of Cryo Container (Liquid Notrogen Containers) is classifiable under HSN 7613 0019 or HSN 9617 0012 in the GST regime? - Held that:- The subject product primarily serves dairy organizations, animal husbandries, cattle breeding farms, infertility clinics for semen preservation for artificial insemination / livestock breeding and serves pharmaceutical companies for storage of biological samples for medical research / vaccine preservation. Thus, these ‘cryo containers’ are meant primarily for preservation or storage of semen, biological samples etc. Though the ‘cryo containers’ can be utilized for small quantity transportation of Liquid Nitrogen, as mentioned in the brochure of the product, it cannot be said to be primarily used for transport or storage of compressed or liquefied gases. Chapter Heading 7613 covers ‘Aluminium containers for compressed or liquefied gas’ - the ‘cryo containers’ are vacuum vessels wherein vacuum and super insulation between inner vessel and outer vessel provides long term preservation or storage of semen, biological samples etc. - the ‘cryo containers’ are not primarily used for compressed or liquefied gases, the same would not be covered by Chapter Heading 7613. The Government of India, Ministry of Finance (Department of Revenue), New Delhi vide F.No. 154/6/88-CX.4 dated 29.12.1988 clarified that high vaccum cryogenic containers are appropriately classifiable under heading 96.17 of Central Excise Tariff. Ruling:- The product ‘Cryo Container’ being supplied by the applicant is classifiable under Heading 9617.

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• 2018 (7) TMI 74
  Classification of manufactured goods - brackets and clamps of cast iron - The applicant is of the view that though the products manufactured by it are used by building construction industry in hanging wash basin, commodes and urinals etc., the said products manufactured by it are required to be classified under Chapter Heading 7325 or 7308 or 7326 of the HSN - Whether the article manufactured by the applicant fall under Chapter Heading 7308, 7325 or 7326 of the HSN or any other heading? - Held that:- The applicant manufactures cast articles, does sand blasting on the CI Casting for cleaning purpose and applies enamel so that the article does not get rusted. The articles manufactured by the applicant are not machined. Chapter Heading 7325 covers all cast articles of iron or steel, not elsewhere specified or included - the brackets and clamps of cast iron manufactured by the applicant are product of casting industry, inasmuch as on the rough CI Casting of the said product, the applicant does sand blasting and apply enamel to protect the product from rusting. The brackets and clamps so manufactured are not machined by the applicant therefore the same cannot be termed to have acquired the essential character as parts of sanitary ware - the articles (brackets and clamps) manufactured by the applicant fall under Chapter Heading 7325. Ruling:- The articles (brackets and clamps) manufactured by the applicant fall under Chapter Heading 7325.

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• Income Tax

• 2018 (7) TMI 70
  TPA - finding of facts arrived at by the ITAT based on the relevant material - comparable selection - ALP - substantial question of law or fact - adjustment sought by the assessee for under utilization of rated capacity - adjustments towards depreciation to make the operative profit positive - Held that:- The claim of Depreciation does not have a direct, linear or proportionate relationship with the capacity utilization. The Tribunal has rightly held that even without actual utilization of the Plant and Machinery, Depreciation can still be claimed as a deduction from the Operating Profits. Not only the learned Tribunal has found similar situation in the case of two named comparables in the year but, the reason assigned by the learned Tribunal itself in the quoted portion of the Order above cannot be said to be per se incorrect or a wrong statement of Accounting Principles. The Assessee Company could not have insisted upon a proportionate reduction of the claim of Depreciation in relation to the under-utilization of its capacity. The different comparables Entities may have different Depreciation Policies, Accounting Methods and despite general economic conditions being common to all, their Profit Margins and claim of Depreciation may differ. Neither the Transfer Pricing Officer(TPO) nor the Tribunal, muchless this Court can undertake any such exercise of comparing the Operating Profit Margins down to the extent of a hair-splitting exercise. It is the broad comparison of the homogeneous comparables, which is envisaged and is done under Section 92-CA of the Act. The findings or the premise taken by the Dispute Resolution Panel (DRP) in the subsequent year does not render the findings in the previous years per se illegal or unsustainable merely because the Dispute Resolution Panel (DRP) takes a different view in the subsequent years. As already held in M/S. SOFTBRANDS INDIA P. LTD. [2018 (6) TMI 1327 - KARNATAKA HIGH COURT] this entire exercise is in the realm of fact finding exercise and unless on the face of it, the findings of the learned Tribunal or the Authorities below is found to be perverse and it can be said that the view taken by them is wholly unsustainable according to the legal provisions, we do not find that any substantial question of law would arise in the matter.

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• 2018 (7) TMI 69
  Penalty u/s 271(1)(c) - rejection of books u/s. 145(3) of the Act and applied the GP rate of 4% - Held that:- Mere basis for penalty by AO is on the basis of his estimation of GP rate of the assessee and AO has rejected the books of accounts of the assessee without pointing out any particular defect in the same and the CIT(A) and ITAT have also confirmed the part of the addition merely on an estimate basis. GP rate has been estimated and no defect has been pointed out by the AO in the books of accounts of the assessee which could lead to the fact that particulars of income have not been disclosed by the assessee. It is a settled law that in case where the income has been estimated by applying a flat estimated rate of profit, and no other specific defects have been established which lead to concealment or furnishing of inaccurate particulars of income, no allegation could be made out against the assessee, making the conduct of assessee punishable with penalty. Case of CIT vs. Metal Products of India [1984 (1) TMI 36 - PUNJAB AND HARYANA HIGH COURT] wherein it has been observed that the addition if made on estimation under the proviso of Section 145(1) of the Act by adopting the view that GP shown in the books of accounts was too low, does not automatically lead to the invocation of penalty. - Decided in favour of assessee.

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• 2018 (7) TMI 68
  Penalty u/s 271(1)(c) - claim of agricultural income - concealment of particulars of income - Held that:- In the instant case the real activity of purchase of the seeds has been planned and arranged in such a way as it look like the agricultural activity but the assessee has not succeeded in camouflaging its real activity. One of the strange features in the kind of arrangement or documentation of the assessee is that in case of no yield or damage of crop, the expenses on labour or service or fertilizer etc. has to be borne by the farmer because in absence of no crop, there would be no procurement price to the farmer and the farmer will get nothing. In such circumstances, how the assessee could explain that the cultivation has been done by the company. Another strange feature is that how the assessee can claim as cultivator as its name is not appearing in the revenue land records maintained either as lessee of the land or the cultivator. If the logic of the assessee of the claim of agricultural income in the hands of the assessee is accepted as one of the opinion, then every businessman in the India, who buys crops from farmer, would become eligible for earning agriculture income by way of getting same lease agreements signed from the farmers and making accounting entries in their books of account to bifurcate the part of procurement price paid to farmer towards lease rent, fertilizer & chemical, labour & service charges. The assessee has made claim of agricultural income in malafide manner and in gross abuse of the provisions of the Act. We hold the assessee liable for concealment of particulars of income. Accordingly, we reverse the finding of the Ld. CIT(A) and uphold the finding of the Assessing Officer on the issue in dispute. - Decided in favour of revenue.

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• 2018 (7) TMI 67
  Unexplained investment - addition u/s 69 - hawala transactions - Held that:- The payment of securities purchased by the assessee has actually been made several months after the purchase thereof, which is abnormal for such type of transactions. It is also undisputed fact that the aforesaid entity, in terms of several judicial pronouncements of this Tribunal, has been found to be a mere paper entity engaged in providing accommodation entries of varied nature as per the requirement of the assessee. The only point of contention as raised by Ld. AR before us is that the addition u/s 69 as unexplained investment could not be made since the transactions were recorded in books of account and payment was through banking channel do not appeal to us since once it is found that the transactions were merely bogus in nature without carrying out any actual transactions, the receipt thereof in the books could not be held to be genuine. - Decided against assessee.

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• 2018 (7) TMI 66
  Addition made on statement made during survey proceedings - Held that:- Revenue has made additions by heavily relying upon the statement made by the partners during survey proceedings without making much effort to corroborate the same with some further evidences, which could be found during survey proceedings. At the same time, the assessee has also failed to demonstrate any bonafide of the retraction made subsequently and the reasons given, in this regard, are not much plausible in nature. More of factual in nature and the decision has to be arrived at on the basis of factual matrix and observations made by lower authorities during assessment 3.12 Lacs u/s 41(1) on account of remission of trading liability could not be sustained since Ld. First appellate authority, after appreciating the ledger of the concerned entity namely Sterling Lab has noted that the said party had, in fact, debit balance on the date of survey and the amount was never written off by the assessee in his books of accounts. No infirmity in the stand of first appellate authority in this regard. Addition excess stock found during survey proceedings could also not be sustained since we find that no working, whatsoever, has been given by the survey team so as to arrive at the impugned additions. The assessee has alleged that the stock was lying at three places, which were never visited by the survey team. Out of these three godowns / warehouses, it is undisputed fact that the survey team never visited two places and only dispute is with regard to godown situated at Bhiwandi. This very fact supports the stand of the assessee that no effort, whatsoever, has been made to arrive at actual discrepancy, if any, between physical stock vis-à-vis stocks as per books of accounts. This is further corroborated by the fact that working of discrepancies in the physical stock, valuation thereof, position as per books of accounts and the method of arriving at the impugned addition could not be adduced / demonstrated by the revenue. Therefore, we find no reason to interfere with the stand of Ld. CIT(A) in this regard. Addition of excess cash found during survey proceedings we find that stand of revenue plausible one. It is noted that the addition represent excess cash found at the time of survey proceedings, which the partners of the assessee firm also admitted by way of statement during survey. Now, merely by way of retraction, the aforesaid fact could not be negated. No effort has been made by the assessee to reconcile the actual cash found vis-à-vis cash as per books of accounts on the date of survey rather the AR is merely harping on the point that the statement was made by the partners under pressure. Since the complete onus to reconcile the cash balance on the date of survey rest upon assessee, which has remained un-discharged. Therefore, this addition to the extent of 8,99,749/- stand confirmed. FAA stand reversed to that extent. - Decided partly in favour of revenue.

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• 2018 (7) TMI 65
  Disallowance of stock written-off - Held that:- No doubt, stocks written off in respect of raw materials is chargeable to P&L account, but it is the duty of the assessee to prove beyond doubt before the authorities that such write off is raw materials, which are used in the production process of final products. Since the assessee has failed to produce any kind of evidence before the lower authorities, we deem it appropriate to set aside the issue to the file of the AO to consider afresh the issue in the light of claim of the assessee that stock written off pertains to raw materials. Adjustment of capital subsidy received from Government of West Bengal and re-calculation of depreciation and also treatment of excess capital subsidy received as revenue receipt - Held that:- Although assessee claims to have received capital subsidy towards assets already created in the books of account, no evidence has been filed before the AO or CIT(A) to prove that such capital subsidy has been received pertains to earlier period on assets already created. No doubt, any capital subsidy received from the government under incentive scheme is to be reduced from the assets already acquired in earlier period - issue needs to be re-examined by the AO in the light of the claim of the assessee that capital subsidy received from state government pertains to earlier period. If the AO found that such subsidy pertains to earlier period, then the AO is directed to allow deduction from opening WDV of respective block of assets. The assessee is directed to file necessary evidence to prove its claim. Insofar capital subsidy as revenue receipt, we find that the AO has wrongly treated capital subsidy received from state government as revenue receipt without appreciating the basic fact that the state government has given capital subsidy @15% of total investment made in assets. When the state government has given subsidy amount of 15% of total assets created by the assessee, there is no meaning for the AO to reduce it from the assets created during the current year to treat the balance amount as revenue receipts. Therefore, set aside this issue also to the file of the AO to cause necessary enquiries in the light of claim of the assessee that such capital subsidy pertains to earlier period. Set aside this issue also to the file of the AO to cause necessary enquiries in the light of claim of the assessee that such capital subsidy pertains to earlier period. If the AO finds that the capital subsidy received from government pertains to earlier period, then the AO is directed to allow deduction from opening WDV of the block of assets. The assessee is directed to file necessary evidence. In any case, capital subsidy cannot be treated as revenue receipt.

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• 2018 (7) TMI 64
  Disallowance made u/s 14A - Held that:- Disallowance under Rule 8D(2)(iii) by considering only those scrips which has yielded dividend. Hence considering the fact that major portion dividend income has been received from shares held as stock in trade, that too out of a single scrip, we are of the view that it may not be appropriate to apply the provisions of Rule 8D in the instant case. Accordingly we are of the view that the requirements of provisions of sec. 14A shall be met, if the disallowance is made at 5% of the dividend income earned by the assessee. Order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance u/s 14A to 5% of the exempt income earned by the assessee. Disallowance of expenses claimed u/s 35(1)(iii) - cancellation of registration granted u/s 12AA - Held that:- Genuineness of payment of donations cannot be doubted in the instant case, particular in the absence of any material to support the view taken by the AO. Hence we agree with the contentions of Ld A.R that the AO was not justified in rejecting the claim of weighted deduction. CIT(A) has placed reliance on the cancellation of registration granted u/s 12AA to M/s Bioved Research Society with retrospective effect. The registration granted u/s 12AA and the approval granted u/s 35(1)(ii) operates on different field. CIT(A) was not justified in placing reliance on the order of cancellation of registration u/s 12AA of the Act. In the instant case, it is the contention of Ld A.R that the approval was not cancelled till date. Before us, the revenue did not furnish any material to refute the contentions of Ld A.R. There is no justification in rejecting the claim of weighted deduction claimed u/s 35(1)(ii) of the Act. Addition made u/s 56(2)(viia) - Held that:- Provisions of sec. 56(2)(viia) should be applicable only in cases where the receipt of shares become property in the hands of recipient and the shares shall become property of the recipient only if it is “shares of any other company”. In the instant case, the assessee herein has purchased its own shares under buyback scheme and the same has been extinguished by reducing the capital and hence the tests of “becoming property” and also “shares of any other company” fail in this case. The tax authorities are not justified in invoking the provisions of sec. 56(2)(viia) for buyback of own shares. Set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition made u/s 56(2)(viia) of the Act. - Decided in favour of assessee.

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• 2018 (7) TMI 63
  Disallowance of trademark and license fee - Allowable revenue expenditure - capital expenditure or revenue expenditure - Held that:- One-time consolidated amount paid can be considered as a payment for use of the trademark in the business of assessee. Since it has an enduring benefit and is applicable till assessee ceases to be a subsidiary of GRM Holding/GMR Group, we are of the opinion that this amount is to be treated as ‘capital asset’ and depreciation on that u/s. 32(1)(ii) is allowable. It is admitted that without acquiring the aforementioned trademark and license, assessee would have had to commence business from scratch and through the gestation period and by acquiring aforesaid business rights/ license, assessee could incidentally boost its revenues. Onetime consolidated payment is in the nature of ‘intangible asset’ as specified in Section 32(1)(ii) and are accordingly eligible for depreciation on the cost at which they are acquired. Thus, the amount of 3,37,50,000/- is to be considered as capital asset u/s. 32(1)(ii) and necessary depreciation is to be allowed. There is no dispute with reference to commercial expediency or with reference to being capital in nature. AO and CIT(A) disallowed the entire amount as capital expenditure, but they failed to consider whether the said amount is eligible for depreciation u/s. 32(1)(ii). AO to allow depreciation on the amount of 3,37,50,000/- treating it as capital asset and allow the balance amount of 35,90,480/- paid towards annual recurring license fee as revenue expenditure, in tune with the amounts allowed in later years. Assessee’s grounds are accordingly considered allowed partly.

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• 2018 (7) TMI 62
  Penalty u/s 271(1)(c) - not struck of irrelevant portion in the show cause notice - Held that:- Hon’ble Bombay High Court following the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT] came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. Show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. - Decided in favour of assessee.

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• 2018 (7) TMI 61
  Nature of loss - allowability as busniss loss - assessee settled the account with the client and agreed to bear the losses - Held that:- Since the assessee is in share business and looking to the future business prospects and in order to retain the client agreed to bear the loss to the extent of 3,78,440/- and claimed the same as expenditure. Existing position of the client Mr. Jagdish Jhawar was squared off in January 2004 and to settle the matter and maintain trade relationship, the assessee had agreed to bear the loss on which settlement was agreed upon in March 2004 and the amount was claimed as expenditure/loss. We also find that the trades with this client were resumed from 15.03.2004 and the assessee had earned brokerage from the said client immediately in the next year amounting to 3,29,492/- in respect of F 1,40,870/- in respect of share trading. We find that due to the said relationship only the assessee was able to make good the loss suffered due to settlement with the client. CIT(A) confirmed the disallowance by holding that the transaction cannot be held to be revenue in nature. Loss borne by the assessee is in the nature of a business loss. The business and commercial expediency of making the settlement with the client and agreeing to bear the loss to the extent of 3,78,440/- is very well established on records. - decided partly in favour of assessee.

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• 2018 (7) TMI 60
  Penalty proceedings u/s 271(1)(c) - Invalid notice - non striking off inapplicable portion in the notice - Held that:- We are of the considered view that the AO has initiated penalty u/s 271(1)(c) by issuing show cause notice u/s 274 without striking off inapplicable portion in the notice. Therefore, it is a clear case of non application of mind by the AO as to whether penalty has been initiated for furnishing of inaccurate particulars of income or concealment of particulars of income. Even in the penalty order, the AO has levied penalty under Explanation 1 to section 271(1)(c) which is applicable for deemed concealment of particulars of income. AO was not clear while initiating penalty u/s 271(1)(c) and hence, the whole penalty proceedings is vitiated and consequently, penalty levied by the AO u/s 271(1)(c) cannot survive. - Decided in favour of assessee.

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• 2018 (7) TMI 59
  Reopening of assessment - proceedings initiated after a period of 4 years - Held that:- In the instant case the assessment was completed u/s 143(3) on 24.12.2011 and there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment for which income has escaped assessment. Therefore, the proviso to section 147 is clearly applicable to the facts of the present case. CIT(A) has not addressed the case of the assessee from this angle, therefore, his finding on the issue of validity of reassessment proceedings is incorrect and not in accordance with law. We, therefore, hold that the reassessment proceedings initiated after a period of 4 years from the end of the relevant assessment year where the original assessment was completed u/s 143(3) is barred by limitation and, therefore, void ab-initio. Such reassessment proceedings initiated by the Assessing Officer is bad in law and void ab-initio. Accordingly, the same is quashed - Decided in favour of assessee.

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• 2018 (7) TMI 58
  Exemption u/s 11 - principle of mutuality - whether profits are not income u/s 2(24) - society itself has declared its taxable income u/s 2(24) of the Act on account of bank interest etc. - Held that:- This issue is squarely covered against the assessee by the decision in case of Bangalore Club Vs. CIT [2013 (1) TMI 343 - SUPREME COURT], wherein, it has been held that the interest earned by the assessee club on certain fixed deposits kept with certain banks who are also corporate members of the assessee is not covered by the mutuality principles and would therefore, be chargeable to tax in the hands of the assessee. Enhanced compensation - taxable only when it attained finality irrespective of the remedial provision included in the income w.e.f 01.04.2004 u/s 45(5)(c) - Held that:- This issue has already been decided in case of CIT Vs. Ghanashyam (HUF)[2009 (7) TMI 12 - SUPREME COURT] wherein, it has been held that the enhanced compensation is liable to be taxed u/s 45(5) in the year of receipt and interest is also chargeable to tax in the year of receipt as interest on excess compensation u/s 28 of the land acquisition Act form part of the compensation only which is chargeable to tax u/s 45(5) in the year of receipt. However for the purposes of quantification the ld AO is directed to verify the exact amount of interest and compensation received. Credit of the tax and TDS - Held that:- Bank interest is chargeable to tax in the hands of the assessee as it is not covered by the Principles of mutuality relying on the decision of the Hon'ble Supreme Court. With respect to the chargeability of the compensation and interest thereon we have held that it is chargeable to tax in the year in which it is received. Therefore, as we have already held that, there is an income, which is chargeable to tax in the hands of the assessee; this appeal of the revenue becomes infractuous in view of the chargeability of enhanced compensation of 8.73 crores and bank interest also. In view of this the amount paid by the assessee u/s 140A and the amount of TDS is required to be adjusted against the tax liability of the assessee. Therefore, we direct the ld AO to recompute the tax liability for assessment year 2003-04 after granting credit of the tax and TDS. Changeability of tax on the bank interest - Held that:- Income by way of interest received on compensation or on enhanced compensation referred to any clause (b) of section 145A is chargeable to tax as income under the head income from other sources. Section 145A (b) the interest received by the assessee shall be deemed to be the income of the year in which it is received. Accordingly, we allow ground Nos. 1 and 2 of the appeal of the revenue holding that the compensation and interest thereon is chargeable to tax in the year in which it is received. However for the purposes of quantification the ld AO is directed to verify the exact amount of interest and compensation received . Inadmissible expenditure - Held that:- According to provision of section 57(iii), the deduction of any other expenditure laid out of expenditure wholly and exclusively for the purpose of making or earning such income is available. In the present case the expenditure are OD interest, audit expenditure, salary expenditure, legal expenditure, meeting expenditure etc. They are not capital expenditure in nature. Legal fees are incurred for the purpose of the compensation earned. In view of the above, we do not find any infirmity in the order of the ld CIT (A) in allowing the claim of expenditure of 5041804/- u/s 57(iii) of the Act. Taxation of enhanced compensation and interest thereon - Held that:- This issue is squarely covered against the assessee by the decision of the Hon'ble Supreme Court in case of Bangalore Club (supra) therefore; we hold that bank interest of 5025433/- earned by the assessee is chargeable to tax. Therefore, out of total interest income the bank interest is to be fully charged to tax without deduction of expenditure u/s 57(iv) of the Act. In view of this ground No. 2, 3, 5 and 6 of the appeal of the assessee are decided accordingly.

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• 2018 (7) TMI 57
  Initiation of proceedings u/s 153C - search was conducted against the assessee-company under section 132 - documents seized belonged to the person other than the person searched - Held that:- A.O. made the addition based on books of account that the share application money have not been explained by assessee-company. Such material found in survey is not relatable to the material found during the course of search in the case of the person searched because the balance-sheet does not belong to assessment year under appeal. There is no incriminating material found during the course of search against the assessee-company so as to record any satisfaction note against the assessee-company. There is no reason to believe that A.O. of the searched person would have recorded any satisfaction note that any money, bullion, jewellery, or other valuable article or thing or books of account seized or requisitioned belongs or belonged to a person other than the person searched under section 153A. Therefore, conditions of Section 153C of the I.T. Act are not satisfied in this case. No infirmity in the order of the Ld. CIT(A) in holding that initiation of proceedings under section 153C of the I.T. Act are improper and bad in law. No interference is called for. Ground Nos. 1 and 2 of the appeal of the Revenue are accordingly dismissed.

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• Customs

• 2018 (7) TMI 82
  Classification of imported goods - Plant Leaf Extract - appellant claiming CTH classification No. 13021990 - the adjudicating authority held that the goods are actually insecticides and classifiable under CTH 38089199 - Confiscation - Held that:- The report of IICT, Hyderabad has unequivocally stated that the samples sent to them were not pesticides. While a miniscule quantity of matrine has been detected, no presence of oxymatrine is reported. The absence of matrine finding a place in the substances specified or included in the definition of insecticides in 3 (e ) of the Insecticides Act, 1968, will only mean that the presence of matrine, and that too in such a miniscule quantity cannot make the impugned product to be nomenclatured as insecticides and classified under CTH 38089199 - appeal dismissed - decided against Revenue.

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• 2018 (7) TMI 81
  Quantum of redemption fine and penalty - confiscation of excess quantity of mobile phones present in the consignment - the appellants have all along been requesting for reduction in redemption fine and penalty since the differential duty liability comes to only 19,000/- - Held that:- When the duty liability of the imported goods valued at 3,87,310/- is only around 19,000/-, the quantum of redemption fine of 2,00,000/- imposed is surely not commensurate with the differential duty liability - Further, while deciding the quantum of redemption fine, the facts and circumstances including the margin of profit, market price of the goods confiscated etc., have to be taken into account. There is no such exercise forth-coming in the impugned order. The appeal is allowed to the extent of reducing the redemption fine under Section 125 ibid to 50,000/- without making any further interference in the impugned order - penalty do not require any interference - appeal allowed in part.

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• 2018 (7) TMI 80
  Rectification of Mistake - case of appellant is that the Tribunal while passing the impugned final order failed to consider the issue of jurisdiction even though the said issue was raised by the appellant in the written submissions filed on the date of hearing i.e. 19.05.2017 - Held that:- The case was posted for hearing on several dates prior to 19.05.2017. On 22.03.2017, none appeared for the appellant and the Tribunal directed to issue notice as a last opportunity adjourning the case to 07.04.2017. On 09.02.2017, Revenue prayed time to adjourn the matter since similar batch of cases involving issue of SCN issued by SIIB, DGCEI and DRI are posted to 16.02.2017. Thus, on Revenue raising the issue of jurisdiction, the Bench adjourned the matter on 09.02.2017. The records do not show that the appellant/counsel had at any point of time raised the issue of jurisdiction. This Bench had heard the matter for the first time on 19.05.2017. In the circumstances, we are not able to give any credence to the affidavit filed by the ld. Counsel for appellant. A close study of the facts of this appeal reveals that the SCN dt. 21.05.2002 in this case has been issued only by the Commissioner of Customs, Chennai who is definitely not only an Officer of Customs but also the proper officer of Customs for the purposes of Section 2 (34) as also Section 28 of the Act from the very inception of the Customs Act, 1962 - the argument of Ld. Advocate that the Commissioner of Customs is not a 'proper officer' to issue SCNs under Section 28 of the Customs Act, 1962 is misconceived. This forum had rightly found it not necessary to dwell into the aspect raised by the Ld. Advocate in his written note dated 19.05.2017 and had decided the matter only on merits - there is no apparent mistake on the Final Order No.41334/2017 dt. 26.07.2017, which requires rectification - ROM application dismissed.

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• 2018 (7) TMI 54
  Penalty u/s 114 of the CA 1962 - smuggling - Ketamine Hydrochloride, a restricted item, was attempted to be exported by concealment in the said export consignment by issuing signed blank documents in respect of M/s. Moshee Enterprises, without abundant caution and without any effective control over the employees. Held that:- There is no allegation that the respondents were in any way involved or connived in the attempt to illicitly smuggle out ketamine hydrochloride. At the most, the respondent may have fallen foul of their responsibilities in the CBLR 2013, but failure to control the staff or any other failure of the CBLR cannot translate into doing or committing to any act to render the goods liable for confiscation under Section 113 - penalty not warranted - appeal dismissed - decided against Revenue.

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• Corporate Laws

• 2018 (7) TMI 56
  EOGM eligibility - actions taken by the illegally constituted Board of Directors/EOGM - Held that:- Allegation is totally devoid of substance since there are unquestionable materials on record to show that the proceeding in hand was initiated well within the time. Moreover, it is not correct to say that the proceeding under consideration suffers from defect of parties. Both the parties assailed the case of opponent on some other grounds too. But since the Board Meeting held on 10-03-2016 and the EOGM, held on 23-03-2016 are found to be wholly illegal and unsustainable in law, which make all subsequent actions/deeds, done by unlawfully constituted Board equally illegal, I find it redundant to consider all other disputes, aforementioned. (a) All the meetings of the Board of Directors with all the resolutions passed in such Meeting w.e.f. March, 2016 onwards are illegal, null and void; (b) All resolutions, passed in the Extra Ordinary General meeting, held on 23/03/2016 are illegal, null and void; (c) The appointment of R-3 as Whole Time Director as well as Director and the appointment of R-4 as Director of the R-1 company are also declared illegal and bad in law (d) Petitioner No.1 and Petitioner No.2 are restored to the position which they occupied as on 09th March, 2016. (e) The BOD of the R-1 company is restored to the position as it was on 9th March, 2016. (f) All the acts and deeds done by the company after 10-03-2016 including all the communications done by the R-1 company with ROC and other authorities are also declared null and void. (g) All the acts and deeds done by the company after 10-03-2016 with 3rd Parties are protected from becoming illegal and void for their dealing with an illegally constituted Board of Directors of the Company. (h) The parties hereto are left to bear their own cost. (i) The Board, so restored to the position as it was on 09-03-2016, is directed to resume its business immediately and that too in accordance with prescriptions of law and Rules framed thereunder.business immediately and that too in accordance with prescriptions of law and Rules framed thereunder.

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• 2018 (7) TMI 55
  Oppression and mismanagement - Increase in Share Capital - Held that:- NCLT took note of the letter of the Bank of Baroda dated 24.11.2009 and the circumstances as to why it was necessary to increase the share capital. NCLT took note of the sequence of the events as to how the Original Respondent No.2 had approached Bank of Baroda for additional finance and the Bank of Baroda vide letter dated 24.11.2009 suggested increase in paid up share capital because of which the EOGM was required to be called. The NCLT thus found that the increase in the share capital was justified and the increase in the share capital was done after following due procedure. There is error in these conclusions drawn by the learned NCLT. Thus, on this count, we do not wish to interfere. Removal of Original Respondents 2 and 3 from posts of Directors - Held that:- Sub-Section (6) of Section 169 of the old Act provided that if the Board does not, within 21 days from the date of deposit of a valid requisition in regard to any matters, proceed duly to call a meeting for the consideration of those matters on a day not later than 45 days from the date of the deposit of the requisition, the meeting may be called by the requisitionist themselves. Although the Petitioners were part of the Board of Directors, the requisition (Page 235) of special notice for removal of Directors was given by the Original Petitioners as shareholders. It is not that any Board Resolution as such had been passed. In such circumstances, looking to the reasoning recorded by the learned NCLT and considering the provisions of Section 169 as mentioned above, we do not find that the decision recorded by the learned NCLT that removal of Respondents 2 and 3 was not valid, could be found fault with. Thus we do not interfere on this count also. Parties continue to make allegations and counter allegations against each other with regard to the EOGM called by Respondents 2 and 3 on 27.01.2010 and the EOGM called by the Original Petitioners on 05.03.2010 and whether or not the allotment of shares after the increase in share capital was correct or not. The arguments of the Appellants (Original Respondent Nos.2 and 3) to rely on above documents dated 18.07.2010 and 14.01.2011 and on that basis to set aside the Impugned Order directing distribution of increased share capital, cannot be accepted as neither Company was party to them nor Company adopted them and question of oppression and mismanagement can be decided only by NCLT, which has much broader Jurisdiction to take decisions with regard to interest of Company. Looking to the submissions, we find substance in what the learned counsel for Original Petitioners is submitting. Thus, although the learned NCLT did not record in so many words as to why it was directing that the allotment in respect of increased share capital still needs to be made, there is no reason why we should interfere with the above direction of NCLT in para – 92 (a) of the impugned order. One of the arguments raised by the learned counsel for the Appellants (Original Respondents 2 and 3) is that NCLT directed audit of accounts from 2009 – 2010 on the basis of allegations regarding siphoning but the Order shows that NCLT noted there were allegations of siphoning even for period earlier than 2009-2010. In this regard, Impugned Order shows NCLT considering the grievances of the parties in paragraphs – 36 to 41 and in paragraphs – 85 to 88. It considered the grievances and observed need of audit. Considering the grievances made by parties and observations of NCLT, audit of the accounts may be done since 2008 – 2009. The impugned Order needs to be modified only to that extent. Order In the impugned Order in directions Para – 92(c), instead of words “financial year 2009 – 2010”, we substitute the words “financial year 2008 – 2009”. Rest of the directions given by NCLT in the impugned Order para – 92 are maintained.

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• Insolvency & Bankruptcy

• 2018 (7) TMI 73
  Corporate insolvency process - Held that:- The respondent has stated that the respondent and the applicant/complainant entered into a financial transaction wherein the petitioner supplied ACSR Moose for a total consideration to the respondent and due to certain irregularities in the payment made by the respondent, the complainant initiated arbitration proceedings under MSMEDA. The respondent is accepting that the debt for goods supplied by the petitioner is due from them. This is also confirmed by the contents of paragraphs 1 to 4 of the reply in which it is stated that the respondent could not make payment to its suppliers since it did not receive payment of funds from its sister concern MIS Sravanthi Energy Private Limited. In view of the above discussion, it is held that the conditions provided for in section 9(5) (i) (a) to (d) are satisfied in the present case. As regards Section 9 (5) (e) of the Code it has already been discussed above that petitioner has proposed Shri Giridhari Lal Sharma as Interim Resolution Professional and his registration certificate, declaration and consent are at Annexure-1 I (colly) of the petition. We find that that in Form 2 submitted by Shri Giridhari Lal Sharma, he has certified that there are no disciplinary proceedings pending against him with the Board or Indian Institute of Insolvency Professionals of ICAI) of ICAI. The condition of Section 9 (5) (e) of the Code is satisfied. In result thereof the conditions provided for by Section 9 (5) (i) of the Code are satisfied in the present case and the petition is admitted.

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• 2018 (7) TMI 72
  Initiating the Corporate Insolvency Resolution Process - Existence of eligible debt - Held that:- The onus to prove the existence of the alleged existence of bonafide dispute lies upon the respondent. When a person is bound to prove the existence of any fact, the burden of proof lies on that person. When serious allegation of fraud have been raised by the respondent heavy onus lies upon the respondent to show sufficient particulars which prima facie prove the allegations. Therefore, without any specific details, material particulars and evidence the fact of existence of a dispute cannot be sustained. Form the definition of “Operational creditor” and “Operations Debt” it can be seen that the applicant having provided service to the respondent company comes within the definition of Operational Creditors. Similarly, the claim of outstanding dues comes within the definition of Operational Debt. We are satisfied that the present application is complete and the Operational Creditor is entitled to claim his dues towards the outstanding dues from the corporate debtor and there has been a default in payment of the operational debt. Therefore, on fulfilment of the requirements of section 9 (5) (i) (a) to (e) of the Code, the present application is admitted. The Insolvency and Bankruptcy Board of India vide its letter dated 1.1.2018 has recommended a panel of Insolvency Professionals for appointment as Insolvency Resolution Professional in compliance with Section 16(3)(a) of the Code in order to cut delay. The list of recommended Insolvency Professionals provides instant solution to the Adjudicating Authority to pick up the name and make appointment.

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• 2018 (7) TMI 71
  Corporate insolvency process - debt and default - Held that:- It is not the case of the ‘Financial Creditor’ (State Bank of India) that a winding up proceeding under the Companies Act or liquidation proceeding under the ‘I&B Code’ has been initiated against the ‘Corporate Debtor’. Therefore, the ‘Corporate Applicant’ is eligible to file application under Section 10 of the ‘I&B Code’, if there is a debt and default. We find that the Adjudicating Authority has noticed the extraneous factors unrelated to the Resolution Process not required to be disclosed in terms of Section 10 or Form 6, we hold that the Adjudicating Authority erred in rejecting the application on the ground of suppression of facts. There is nothing on record to suggest that the ‘Corporate Applicant’ has suppressed any fact or has not come with the clean hands. The Adjudicating Authority has also not held that the application has been filed by the Corporate Applicant “fraudulently” or “with malicious intent” for any purpose other than for the resolution process or liquidation or that the voluntary liquidation proceedings have been initiated with the intent to defraud any person. In the absence of any such grounds recorded by the Adjudicating Authority, the impugned order cannot be upheld. The case is remitted back to the Adjudicating Authority for admission of the application under Section 10, if the application is otherwise complete. In case it is incomplete, the Adjudicating Authority will grant time to the appellant to remove the defects.

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• Service Tax

• 2018 (7) TMI 79
  Construction of Industrial or Commercial Complex service - non-payment of service tax since 10.9.2004 - Bonafide belief - duty demand with penalty - Held that:- Taking note of the fact that the issue was contentious and also the pleadings of the appellant that he was unaware that the said services are subject to levy of service tax, we are of the considered opinion that the penalties imposed are unwarranted and requires to be set aside invoking section 80 of the Finance Act, 1994 - the penalty imposed under section 78 set aside without disturbing the demand confirmed after 1.6.2007 or the penalty imposed under section 77 of the Finance Act - appeal allowed in part.

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• 2018 (7) TMI 78
  Penalty - wrongful availment of CENVAT Credit - construction services - no intent to evade - Held that:- It is brought out from records that the appellant had disclosed the wrongly availed credit in their ER 1 Returns. This fact indicates that the appellant had no intention to evade payment of duty and the credit was availed under the wrong impression of law - there is no evidence brought forth to establish suppression of facts or intention to evade payment of tax on the part of the appellant - penalty not warranted - appeal allowed - decided in favor of appellant.

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• 2018 (7) TMI 77
  100% EOU - Refund for unutilized cenvat credit - rejection on the ground of time limitation, non-registration of premises, nexus of input services with output services and also on the ground that the adjudicating authority added the turnover of the SEZ units also thereby reducing the eligibility of the refund amount - Held that:- In the case of service providers exporting 100% of their services, there should not be any dispute with regard to time bar - refund claim is not hit by time bar. Refund claim rejection on the ground of non-registration of premises - Held that:- The issue whether respondent is eligible for credit before registration of the premises is decided in the case of m-Portal India Wireless Solutions P. Ltd. Vs CST Bangalore [2011 (9) TMI 450 - KARNATAKA HIGH COURT], where it was held that Registration not compulsory for refund. Refund claim rejection on the ground of addition of turnover of the SEZ units to that of the total turnover of the respondent - Held that:- The formula applied by the Commissioner (Appeals) excluding the turnover of the SEZ units is correct and proper. Refund claim denial on the ground of nexus - input services - outdoor catering services - Rent-a-cab services - Held that:- The period involved is prior to 1.4.2011 and the definition of input services during the relevant period had a wide ambit as it included the words activities relating to business - the Tribunal as well as the Courts have held that the said services are eligible for credit if it is established from records that assessee has used the said service for providing the output services - refund allowed. Appeal dismissed - decided against Revenue.

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