Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
July 7, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Regarding disallowance of Security Transaction Tax - The assessee is only a broker who has collected STT on behalf of the stock exchanges and has paid the same to the latter - STT is required to be excluded u/s 88E - AT
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Transactions in shares - in case of brokers loss arising on account of purchase and sale of shares under forced circumstances and under compulsion will not be covered by Explanation to Section 73.- AT
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Exemption u/s 11 - amount of unrecoverable fee, treated as bad debts, is also allowable to the appellant trust while computing its surplus and application of its income for the purpose of granting exemption u/s 11 - AT
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The expression "full value of sale consideration" is not the same as "fair market value" as appearing in section 55A. - AT
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Scope of reference u/s.55A vis-a-vis section 50C of I.T. Act. - for the purposes of the computation of capital gain u/s. 48, a reference can be made to DVO only in a situation as prescribed u/s. 50C of the Act. and not otherwise. - AT
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Deduction under Section 80-IA - preparing of designs and drawings - Activity of the assessee falls within the meaning of the word 'manufacture' or produce used in Section 80-IA - HC
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TDS - assessing authority has issued certificates authorizing the payment without deduction of tax - payer cannot be treated as an assessee in default even if tax is found payable under Act - HC
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Inclusion of any sum u/s 68 in the hands of the assessee - Merely because the transactions are through bank channels, the assessee would not be entitled to the benefit - HC
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Income-tax (seventh Amendment) Rules, 2012 - Amends rule 12(1) - Notification
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Dis-allowance u/s 40A(2) - assessee has not discharged its primary onus to prove that entire interest-bearing funds including partners’ capital account were entirely used for the purposes of the business. - AT
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Expenditure incurred on sponsorship & other expenses of Polo tournament - there was no business benefits to the assessee by making such expenditure on advertisement. - treated as personal expenditure - AT
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Salary versus Commission - Amount paid to be treated as salary even though it was reflected as commission - No TDS u/s 194H - AT
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Reduction of addition made by the AO by CIT(A) - the reasoning given by the CIT(A) namely that the documents were lost in theft in the face of the departmental objection that the theft took place subsequently may not be relevant reasoning - AT
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Levy of penalty u/s 271(1)(c) - mere withdrawal of depreciation by the assessee at the assessment stage itself does not amount to be a valid reason for treating the transaction as non-genuine and for coming to a conclusion that it had concealed income or furnished inaccurate particulars of such income. - AT
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Valuation of Closing stock - method of weighted average rate adopted by assessee - A.O. without giving any observation /calculation has finalized the valuation on an add-hoc basis. Said approach of assessment of the A.O cannot be approved. - AT
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Benefit u/s 80-IB - The assessee has sold these apartments to various purchasers who in turn are using it as service apartments for which the assessee cannot be held liable in any way and on that ground he cannot be denied the benefit. - HC
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development and construction of residential flats - joint development agreement - benefit of Section 80IB(10) in proportion to the share to which they are entitled to in the built up area allowed - HC
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Deduction under Section 80-IB (10) - If that area does not exclusively belong to the owner of residential unit and if he has to share that common area with the owner of another residential unit, then that common area has to be excluded from the built-up area.
- HC
Customs
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Verification of genuineness, of duty credit scrips issued under Chapter 3 of FTP, before registration. - Circular
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Amendment in para (4) of Circular No. 38/2010-Customs, dated 27.09.2010-Served From India Schemes(SFIS) – reg:- - Circular
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Amends Notification No.52/2012-CUSTOMS (N.T.) - Rate of exchange of conversion of each of the foreign currency with effect from 22nd June, 2012. - Notification
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Import of Crude Palm Sterin - Classification - Chapter Heading 15.11 or 38.23. - matter remanded back to decide afresh in view the case Jocil Ltd (2010 (12) TMI 24 (SC)) - AT
DGFT
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Removal of Minimum Export Price (MEP) of Basmati rice. - Notification
Service Tax
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Accounting Code for payment of service tax under the Negative List approach to taxation of services, with effect from the first day of July 2012 - regarding. - Circular
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Clarification on Point of Taxation Rules - regarding. - Circular
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Extended period - authorised service station for Maruti - Service tax cannot be collected twice on the same service and this is the basic principle of law - AT
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Cenvat credit and trading of goods - trading activity is not an exempted service and credit is not admissible on the input services in respect of the trading activity. - AT
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GTA - receiver of goods transport services - 75% abatement - instructions issued in the Circular by the Board cannot be a mandatory condition when the notification does not have such conditions - AT
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Cenvat Credit - If invoice is addressed to the head office of a company cannot be a reason enough to deny cenvat credit if it is otherwise available to assessee. - AT
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Demand of service tax - advertisement agency service - activity for arranging the celebrities for promotion – covered under BAS category - AT
Central Excise
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Suppression of fact - cenvat credit LDO - When there is a specific exclusion on availment of input credit, the submission that there was no suppression of this fact just because there was no column in ER-1 or no specific requirement of intimating the department or submitting invoice, is not acceptable - AT
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Valuation - job work - inclusion of job work charges in the value – in case value of comparable goods is known, the same can be adopted for goods manufactured by the job worker. - AT
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Marketability of goods - bus body parts manufactured and supplied to their divisional office – not available in market no point of levy of duty - AT
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CENVAT Credit – M.S. Channels and M.S. Beams - same were used as rollers to move the finished goods - cenvat credit allowed - AT
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Cenvat Credit - Rule 6 - Press-mud is a by-product or waste. - Just because the press mud is processed further resulting in exempted product, it cannot be said that the appellant is required to maintain separate accounts - AT
Case Laws:
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Income Tax
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2012 (7) TMI 133
Regarding disallowance of Security Transaction Tax - on account of STT payment in case of broker while computing total income - AO observed that any amount paid on account of STT was not allowable in view of provision of section 40(a)(ib) inserted by the finance act, 2004 – Held that:- Liability on account of STT is the liability of the clients of the assessee who are buying and selling shares and, therefore, the provisions of section 40(a)(ib) will be applicable in those cases and it is because of this reason, the rebate under section 88E is also allowable in case of buyer/seller of shares under section 88E of the Act. The assessee is only a broker who has collected STT on behalf of the stock exchanges and has paid the same to the latter - STT is required to be excluded while computing the income of the assessee from brokerage - authorities are not justified in disallowing the claim of deduction on account of STT in case of the assessee – In favor of assessee Regarding disallowance of loss on account of error trade - loss had occurred on those transactions undertaken on behalf of the clients in which there were errors and transactions were not as per orders booked by the clients – Held that:- in case of brokers loss arising on account of purchase and sale of shares under forced circumstances and under compulsion will not be covered by Explanation to Section 73. - Matter requires fresh examination and in case loss is found to have occurred on account of error trades conducted by assessee on behalf of clients, the claim has to be accepted as business loss – matter remanded to AO for fresh order Regarding disallowance of expenses under section 14A – AO had disallowed the expenses @ 5% of dividend income - CIT(A) has directed the AO to compute the disallowance as per Rule 8D – Held that:- Same issue had been considered by the Tribunal in assessment year 2004-05 and the Tribunal has reduced the disallowance to Rs. 2.00 lacs - in this year are almost identical as no major distinguishing factors have been brought to notice by the ld. Departmental Representative – disallowance of expenses relating to dividend income at Rs. 2,20,000 Regarding disallowance of VSAT, leaseline charges and transaction charges paid by the assessee to the stock exchange as brokerage - AO had disallowed the claim holding that payments were fees for technical service covered by Section 40(a)(ia) and since the assessee had not deducted tax at source the claim had been disallowed – Held that:- VSAT, and leaseline charges, were reimbursement of expenses to the stock exchanges for use of standard facilities and transaction charges were not disallowable - transaction charges paid by the assessee were of the nature of fees for technical services – In favor of assessee Regarding allowability of expenditure incurred by the assessee on account of payment made to stock exchanges for violation of their bye-laws - AO had treated the expenditure as payment for violation of law and disallowed the same under section 37(1) – Held that:- Violation of regulations of stock exchanges did not amount to violation of law - no infirmity in allowing the claim – In favor of assessee Allowability of deduction on account of bad debt - amounts had been taken into account in the computation of the earlier year - AO disallowed the amount only on the ground that the assessee had not established that the debt had become irrecoverable – Held that:- In view of the amendment to section 36(1)(vii) w.e.f. 1.4.1989, the burden is no longer on the assessee to prove that the debt has become bad/irrecoverable - only conditions for allowability of bad debt is that the amount should have been taken into account in the computation of income of earlier year and should have been actually written off in the books - no dispute regarding fulfillment of these conditions - claim of bad debts can not be disallowed Business loss - out of pocket expenses incurred by the assessee in connection with certain work relating to these clients – Held that:- Eexpenses which were required to be reimbursed by the clients were not reimbursed as transactions did not go through - claim has not been controverted by the AO by placing any material on record. Therefore, these expenses which were actually incurred and about which there is no dispute has to be allowed as business loss
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2012 (7) TMI 132
Capital gain – sale of shares - addition made by treating the profit on sale of shares as business profit as against Short Term Capital Gains and Long Term Capital Gains - assessee derives income from purchase and sale of Biri and match box etc. in the name of proprietary concern as well as from business of share trading – Held that:- Assessee declared Long Term Capital Gain on sale of shares on delivery basis and the intention of the assessee was to earn dividend - dividend has been earned by the assessee in respect of investment in shares - assessee has recorded the share transaction in books of account in first set of transaction as investment in shares and second set of transaction investment in shares for the purpose of business - order of CIT(A) that in A.Y. 2005-06 the CIT(A) accepted the assessee’s claim and set aside the order of A.O - to maintain consistency CIT(A) has rightly set aside the order of A.O. and allowed the claim of the assessee in respect of shares for which the assessee has shown Capital Gain – In favor of assessee
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2012 (7) TMI 131
Penalty u/s. 271(1)(c) of the IT Act – AO determined the profit from sale of country liquor in the absence of sale bills - assessee submitted before the AO that all expenses except freight in the trading account are paid to Excise Department and are verifiable and stock register and sale price are checked by the Excise Authorities - estimate of income by applying higher sales and higher gross profit by the AO – Held that:- When the income of the assessee is estimated, there cannot be a case of concealment of income or filing inaccurate particulars of income - assessee disclosed all particulars in the return of income and at the assessment stage, therefore, merely on estimate of income, penalty is not leviable – In favor of assessee
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2012 (7) TMI 130
Quashing the re-assessment proceedings u/s. 148 by CIT(A) - lack of jurisdiction with the Assessing Officer - canceling the penalties u/s. 271(1)(c) - Held that:- CIT-II while passing the jurisdictional order u/s. 120 assigned concurrent jurisdiction in favour of ACIT, who has issued notice u/s. 148 in the case of assessee in respect of the cases falling in the jurisdiction of AO, Circle 4(1), Agra to which circle, the case of the assessee also falls. He was assigned this power and jurisdiction in addition to the work already allotted to him. The assessee has not brought anything on record to show that the concurrent jurisdiction vested in ACIT was withdrawn by CIT concerned on the date of issue of notice u/s. 148. Therefore, ACIT having been authorized to deal with the subject matter was vested with the jurisdiction to deal with the matter in issue. Since he found that income escaped assessment for the assessment year under appeals while scrutinizing the return of assessee for subsequent assessment year 2001-02, therefore, he has rightly exercised jurisdiction u/s. 148 for reopening of assessment u/s. 148 - before issuing notice u/s. 148, ACIT had obtained approval of Addl. CIT, Range IV, Agra, otherwise if he had no jurisdiction over the case of the assessee on the date of approval, the ld. Addl. CIT, Range, would not have granted him approval - as the issue of jurisdiction in favour of the Revenue, therefore, the orders on penalties are also set aside and the penalty appeals are restored to the file of ld. CIT(A)to decided afresh - in favour of revenue.
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2012 (7) TMI 129
Addition warranted u/s 68 - assessee contested that the identity and financial capacity of the donor and genuineness of the transaction which is through banking channel - Held that:- In case of gift from Smt. Neelam Kumari, though in the photocopy of gift deed it was mentioned that gift was given by donor out of natural love & affection, however, appellant failed to furnish evidence showing that the donor was related to him by way of relationship or friendship. In spite of sufficient opportunity, the assessee failed to produce the L/h of Smt. Neelam Kumari. Even the complete address of L/h was not furnished - survey at the office premises of Shri D K Agarwal, CA, reveled that as many as 292 trusts are being operated from the aforesaid address with no actual business being conducted. This clearly indicate that Narmada Benefit Trust was created with the sole intention of defrauding the revenue by providing fictitious entries in respect of gift etc. There are unexplained cash deposits in the bank account of aforesaid trust, in such circumstances gift advanced by Smt. Neelam Kumari cannot be held as genuine gift. In the case of Ratan Singh from whom gift of Rs.2 lacks received though his L/h has confirmed the facts, however, copy of bank accounts was not produced. During the concerned year, the total income of Ratan Singh was only Rs.1,49,750 and from the copy of his capital account produced by L/h it appears that Late Shri Ratan Singh has given gift of Rs.5,10,000. Appellant failed to produce bank statement or books of account of late Shri Ratan Singh, in such circumstances creditworthiness of Ratan Singh remained unproved. A person having measure income of Rs.1,49,750 cannot have sufficient fund to give gift to the tune of Rs.5,10,000 - Decided against assessee. Additional ground challenging jurisdiction u/s 147 as the reasons recorded with regard to escapement of income are not specific but are general in nature - Held that:- As the assessee did not point out any mistake in the original order, in the light of section 254(2) which provides power to ITAT to amend the order with a view to rectifying any mistake apparent from the record, passed by it under sub-section (1), no reason exists so as to disturb the original finding of the I.T.A.T. that neither any mistake in this regard has been pointed out by the assessee at the time of hearing nor such mistake has been pointed in M.A. order by the Tribunal - against assessee.
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2012 (7) TMI 128
Disallowance of interest expenditure under section 36(i)(iii) - AO stated that the assessee has diverted interest bearing funds to the sister concern without interest - Held that:- As regards the contention of the assessee that the interest free loans/advances were not given out of borrowed funds the advances to the sister concerns is not acceptable as the assessee has failed to furnish any evidence to prove as the money was received back in the next F.Y. and the amount was given on account of mutual understanding - the assessee's claim that the advance was given for some deal but he failed to furnish any documentary evidence in support of the contention - nothing has been brought on record that the sale deed for the purpose of which ostensibly the money was advanced has been executed as merely filing a sale agreement of third party and saying they have deposited sale deed against the advance is not acceptable as no other evidence has been filed. Share application money and sundry creditors shall also be available with the assessee as interest free - Held that:- share application money as interest free is not acceptable as the assessee is a private limited company and share application money has been kept as a trustee of that application money - as the Sundry Creditors is pertaining to the business of the assessee, therefore, it cannot be said to be interest free own capital or reserve available with the assessee for giving interest free advance - as decided in CIT vs. Radico Khaitan Limited [2004 (9) TMI 37 (HC)] if the assessee is having sufficient capital and reserve fund, to that extent interest free advance given to the sister concern cannot be disallowed. In case of otherwise position proportionate disallowance is warranted - on perusal of Balance Sheet and P&L Account for the year under consideration, the interest free own fund in the form of capital and reserve after reducing loss available with the assessee is only Rs.21,02,941/- (35,09,000 – 14,06,059) - remit the matter back to the file of the AO to make necessary calculation of amount of disallowance on proportionate basis - partly allowed in favour of assessee.
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2012 (7) TMI 127
Disallowance u/s 14A by invoking Rule-8D - interest claim of the assessee is disallowable on the ground that the assessee has used the interest bearing borrowed funds in the investment of shares - Held that:- The interest expenses is allowable under section 36(1)(iii) such disallowance cannot be made in case where the assessee is having sufficient interest free funds - As decided in case of CIT vs. Hero Cycles Limited, 323 [2009 (11) TMI 33 (HC)] wherein it has been held that disallowance under section 14A is not permissible where no nexus between the expenditure incurred and income generated has been established - the admitted fact that the assessee was having sufficient own interest free fund to cover the investment made in shares no disallowance can be made under section 14A and Rule 8D can be applicable only where disallowance of interest on borrowed capital warrant for expenses out of such borrowed capital with the amount relating to investment in shares and search and not ascertainable - decided against revenue.
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2012 (7) TMI 126
Addition made on account of unrecoverable fees - amount of unrecoverable fee as taxable income as expenditure is considered as bad debts in the sections of ‘Business and Profession’ and since the assessee is a trust and covered u/s. 12AA so it can not take the benefit of those sections application for B & P - CIT(A)deleted the addition made by AO - Held that:- the appellant has claimed exemption u/s 11 on the basis of registration u/s 12AA and fulfillment of prescribed conditions regarding accumulation, amount expended on objects of the trust, modes of investments, application of income etc, no such violation of any of the conditions has been found by the A.O. during the entire course of assessment proceedings. For the purpose of computing income and its application u/s 11, real income received by the appellant is to be treated as income for the purpose of application - as various courts have held that the amount of depreciation debited to the accounts of a charitable institution has to be deducted to arrive at the income available for application to charitable purposes even when the said capital expenditure has also been allowed for purposes of application of income. By following the same analogy, amount of unrecoverable fee, treated as bad debts, is also allowable to the appellant trust while computing its surplus and application of its income for the purpose of granting exemption u/s 11 - in favour of assessee.
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2012 (7) TMI 125
Refusal to grant approval u/s 80G(5)(vi) - scope of enquiry by Commissioner while dealing with an application under section 80G(5)(vi) - the assessee trust/institution runs an educational institution and enjoyed continuous registration u/s. 12AA - Held that:- On examination of objects of the assessee institution, the same were prima facie appeared to be charitable in nature. Therefore, according to Rule 11AA of the IT Rules, the assessee complied with the requirements for extension of the approval. All inquiries have been conducted by the ITO (Tech.) - Held that:- Order sheet written by ITO (Tech.) was not approved by former CIT or officiating CIT who passed the order denying grant of approval. Thus, there was no reason to believe that any of the Commissioners, above, have called for any documents or information from the assessee institution in order to satisfy themselves about the genuineness of the activities of the assessee institution or the funds as desired under the Rule 11AA . The impugned order is passed by CIT, Aligarh without giving any opportunity of being heard to the assessee and the impugned order was also passed beyond the period of 6 months from the date of filing of application - These facts would clearly prove that enquiries were done by the ITO (Tech.) without any authority of law as genuineness of the activities of the assessee and give opportunity of being heard to the assessee institution, cannot be delegated to the ITO (Tech.) - that the impugned order is passed in most mechanical manner without complying with the provisions of law, thus grant of renewal of approval u/s. 80G(5)(vi)is warranted - decided against revenue.
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2012 (7) TMI 124
Provision for Warranty - dis-allowance - AY 06-07 - Held that:- Issue is now covered in favour of the assessee by the judgment in the case of Rotork Controls (India) Ltd (2009 (5) TMI 16 (SC)). It is undisputed that method of accounting adopted by the assessee for this year regarding making provision in respect of warranty expenses is consistently followed by the assessee in the subsequent years - Decided in favor of assessee. Dis-allowance u/s 14A read with Rule 8D of interest expenditure and administrative expenses - Held that:- Since no interest bearing borrowed funds were used for investment in shares and, therefore, no dis-allowance is called for out of the interest expenditure. However, dis-allowance of ₹ 50,000/- out of administrative expenses will meet the ends of justice. Export commission - dis-allowance - failure of assessee to furnish evidence regarding actual rendering of any services by the agent - Held that:- It is undisputed that export sales have been made during the year. In view of additional evidences produced by assessee, it is found that sufficient material has been brought on record in support of this contention that services were rendered by the agent. Once it is found that the services were rendered and commissions is paid, the same should be allowed as business expenses - Decided in favor of assessee.
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2012 (7) TMI 123
Allowance of expenditure of HRC Plant as revenue expenses - Revenue contested that same was shown in the balance sheet as capital work-in-progress as commercial production had not started - Held that:- for the purpose of excise duty, the whole factory was considered as a one unit in the excise return and therefore the view taken by the AO that HBI and HRC were two different units was not correct - as the new project was a part of existing business as there was complete integration and interlacing of both the units, therefore the expenditure incurred such as interest on borrowed funds and general administrative expense have to be allowed. As regards the debenture issue expenses the debentures are not compulsorily convertible into shares as these were optionally convertible and therefore the conversion would depend upon option if any exercised by the debenture holders. Therefore it could not be said that intention was clearly to issue shares. Obviously the intention was to raise loan which could be converted into shares in future if any option was exercised. Thus,the debenture issue expenses considering the judgments in Ashima Syntex Limited. Versus Assistant Commissioner Of Income-tax Central Circle - 2(3)[2006 (3) TMI 188 (Tri)] have to be allowed - decided in favour of assessee. Deletion of disallowance of interest expenditure on the working capital of HRC Division - shown by the assessee company as Deferred Revenue expenditure - Held that:- As it has already been held that HRC project is part of the existing business of the assessee all revenue expenditure have to be allowed - in favour of assessee. Deletion of disallowance of lease rent - assessee had debited in the P&L account expenses on account of rent paid on leasing transactions less by Rs.25.15,95,039, while filing the return of income the assessee claimed this difference as a deduction - Held that:- The deduction claimed by the assessee was in respect of its actual liability of payment of lease rent to the lessor and the treatment in the books of account will not alter the character of the expenditure when it comes to claiming deduction while computing total income under the Act - no prejudice is caused to revenue - decided in favour of assessee. Deletion of addition of provision made for doubtful debts to the Book Profit u/s115JA - Held that:- By virtue of Finance(No.2) Act, 2009, clause (g) inserted in the Explanation contained in Section 115JA(2)the amount or amounts set aside as provision for diminution in the value of any asset, is specifically mentioned - that provision for doubtful debts and doubtful advances did not fall within clause (c) of the said Explanation in as much as they amounted to provision in respect of diminution in the value of asset - as provision made for doubtful debts which is debited to the P&L Account has to be added for arriving at the book profit, the addition made by the AO has to be restored - decided in favour of revenue. Maintainability of appeals only on ground of low tax effects - Held that:- As the appeals of the revenue have to be dismissed as not maintainable as the tax effect involved in these appeals were only notional as the income ultimately determined in assessment for these years was only a loss and as these appeals were filed prior to 15/5/2008 from which date notional tax effect was also considered as tax effect for filing appeals. Thus these appeals are dismissed - decided against revenue.
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2012 (7) TMI 122
Renewal of recognition u/s. 80G(5)(vi) of the Income-tax Act - scope of enquiry by Commissioner while dealing with an application under section 80G(5)(vi) – Held that:- assessee continues to enjoy registration u/s. 12A(a) of the Act vide certificate of registration same would imply that assessee qualifies the condition prescribed in clause (i) of section 80G(5) of the Act and its objections raised by the commissioner are beyond the scope of enquiry at the present stage - objections raised by the commissioner may be relevant for the purposes of assessment of the income of the assessee in the respective assessment years by the assessing authority, but are certainly outside the purview of the scope of enquiry required to be carried out by the commissioner while granting approval u/s. 80G(5)(vi) of the Act - Commissioner directed to grant the renewal of recognition of the assessee u/s. 80G5(vi) of the Act in accordance with the law
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2012 (7) TMI 121
Whether Commissioner is justified in substituting full value of consideration disclosed by the assessee on transfer of a capital asset with the fair market value – validity of revisionary proceedings - V.O. failed to take cognizance of auction at Vasant Kunj is prior to the sales effected by the assessee - report of the V.O. can be termed as an erroneous one which has been effected in the assessment order and which resulted the assessment order as erroneous. The cognizance taken by the Learned Commissioner to that extent can be justified – Amount of Rs. 33,47,66,257 directed to be substituted in place of Rs. 12,78,79,481 by the Learned Commissioner. This amount of Rs. 33,47,66,257 cannot be substituted. The appeal of the assessee is partly allowed. Area of operation of Section 55A of the Act is "to ascertain the fair market value of a capital asset". Since section 48 of the Act through which capital gain is computed prescribe to compute the gain on the "full value of the consideration received or accruing as a result of the transfer". Therefore, section 55A cannot give any assistance to compute the capital gain u/s.48 of the I.T. Act. - The expression "full value of consideration" (Sec. 48 ) does not have the same meaning and can not be used in place of "fair market value" (Sec. 55A). Scope of reference u/s.55A vis-a-vis section 50C of I.T. Act. - for the purposes of the computation of capital gain u/s. 48, a reference can be made to DVO only in a situation as prescribed u/s. 50C of the Act. and not otherwise. Section 142A - "Estimate by Valuation Officer in certain cases" - In this section as well there is no power vest with AO to seek the help of Valuation Officer in respect of determination of capital gain prescribed u/s.48 of the Act. The expression "full value of sale consideration" is not the same as "fair market value" as appearing in section 55A. Action of CIT for substituting the full value of consideration disclosed by the assessee with the fair market value is not sustainable.
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2012 (7) TMI 120
TDS - Discount on advertisements – Assessing Officer stated that advertising agents collect money from clients who want to place their advertisements in the various media published/run by it and pass on the money to the assessee after deducting the discount/commission at 15% - AO proposed to treat the assessee as defaulter u/s 201 – Held that:- Assessee cannot be held as an assessee in default - amounts are nothing but discounts and are recognised as such by the entire trade - A trade discount, and admittedly it is not in dispute that the subject matter of the claim is a trade discount, and not an expenditure, clearly therefore there does not arise the question of applicability of section 40A(2)(b) - assessee is not liable to deduct tax u/s 194H – In favor of assessee Payment of data circuit rentals - Assessing Officer noticed that in the publication division and ETV other channels division, the assessee made payments towards use of data circuit lines to BSNL and that the assessee has not made TDS on these payments – Held that:- Payment of data circuit rentals cannot be regarded as fees for technical services - tax is not deductible on payment Data circuit rentals – In favor of assessee Payment of band width charges – Held that:- Payment made for using bandwidth and network operation are not technical services and tax needed not be deducted from such payments u/s 194J - payments of bandwidth are not liable for TDS under section 194J – In favor of assessee Payments of internet charges - Held that:- payments of Internet Charges are not liable for TDS – In the case of Skycell Communications Ltd. (2001 (2) TMI 57 (HC)) - provisions of section 194J are not applicable to the impugned payments – In favor of assessee Payment of Data Circuit Rental Charges – assessee not deducted TDS - Held that:- connectivity charges cannot come under the purview of technical/professional services. It is similar to telephone connection and therefore, provisions of section 194C are inapplicable – In favor of assessee TDS - Payment of transponder Rent – Assessing Officer held that the services provided are of very technical nature requiring highly skilled professionals - AO held that the assessee was liable to make deduction of tax at source u/s 194J on the transponder rent and raised demand accordingly – Held that:- Nature of facility that the assessee has obtained by making the impugned payment - payment of transponder charges is not fee for technical services - Income arising to IGL out of payments received from applicant is neither in nature of ‘royalty’ under Act nor is fee for technical service - Revenue’s appeals dismissed Payments to News service agencies - assessee deducted tax at source u/s 194C from payments made to various news service agencies - Assessing Officer held that the payments fall u/s 194J - work carried out by news paper agents requires professional qualifications and skills. Though, the data collected by such reporters has to be reviewed glossed up and made fit to be published/presented. Nevertheless, procurement of the basic data cannot be done without qualified reporters who utilise their professional skills for collection of the same. Further, the newspapers employ reporters who have been trained to have interrogative ability, presence of mind and have specialised in a way for doing their work and hence they are rendering work in their professional capacity - CIT(A) is right in deducting TDS u/s 194J and not under section 194C and dismiss the assessee’s appeal on this issue – Against assessee TDS - Payment of software expenses - Assessing Officer treated the assessee as defaulter u/s 201(1) r.w.s. 194C for non deduction of TDS on software expenses paid by the assessee - assessee submitted that the provisions of section 194C are not attracted for the reason that these parties did not carry out any work for the assessee within the meaning of section 194C of the Act – Held that:- Assessee is making payments to various agencies on revenue sharing basis from the income generated through advertisements by way of telecasting the serials or programmes produced by the agencies - mode of payment is nothing but a payment for contract of work and is squarely covered by explanation III to section 194C which says ‘work’ shall include programmes for such broadcasting or telecasting - nature of payments fall within the purview of section 194C
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2012 (7) TMI 119
Deduction under Section 80-IA - Manufacturing activity - preparing of designs and drawings - number of workers employed - Section 80-IA(2)(V) of the Act - Held that:- Activities of the assessee involves various activities as per the requirement of their clients - Activities fall in the category of preparing engineering drawings, designs and other technical know how - what is transferred to the client is not the intellectual property, the consideration of which is for supply of drawings and design. Instructions given for preparing the equipment according to the drawings and also its installation when it is installed - Activity of the assessee falls within the meaning of the word 'manufacture' or produce used in Section 80-IA - assessee has employed nearly about 400 persons as work force to carry out its activities - Tribunal was justified in extending the benefit of Section 80-IA to the assessee - In favour of the assessee Whether assessee would be entitled to claim 80-O deduction - Services rendered or agreed to be rendered was utilized by the foreign company in India – Held that:- Assessee was rendering service from India, which service was being made use of by the foreign enterprise outside the country. Therefore, it is not a case of service being rendered inside India - Assessee has not rendered any service in India in connection with the entire project - Service is rendered from India to a foreign enterprise and therefore, Section 80-O is attracted and the Tribunal rightly extended the said benefit - In favour of the assessee Whether the Tribunal was correct in proceeding to hold that Section 80-IA and 80-O deduction operate under two different spears and the assessee would be entitled to claim both the deduction on the same income of project – Held that:- Section 80-IA and Section 80-O both fall under the heading deductions in respect of certain incomes both are independent of each other - assessee is entitled to claim deduction under both the Sections - overall claim under both Sections has to be restricted to the total profits and gains of eligible accounts from the total profits and gains - provision 9A to Section 80-IA was inserted by Finance Act No.2, 1988, which came into effect from 1.4.1998 that limitation was not there for the earlier assessment years - In favour of the assesses Whether the Appellate Tribunal was right in not apportioning the financial cost and operating expenses which had to be allocated to the export income before working out the deduction under Section 80-HHB of the Act – Held that:- no allocation of overheads in computing, the deduction is necessary - there is no error committed by the Tribunal on this issue of deduction under Section 80-HHB Whether the Tribunal was justified in the facts of the case in holding that Section 80-O deduction shall not be allowable on gross amount of foreign exchange brought into India and further, it should also not be allowed on net foreign exchange brought into India i.e., foreign exchange received minus foreign exchange expended – Held that:- Expenses in India currency cannot be taken into consideration - assessee is entitled to benefit only on the net income - claim of the assessee for deduction on the gross receipts rejected – Against assessee
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2012 (7) TMI 118
TDS - assessing authority has issued certificates authorizing the payment without deduction of tax - after the issuance of the said certificate the assessee made payments as against each invoices without any deductions – Held that:- Under section 197, there is no obligation on part of payer to pay tax as long as certificate issued under section 197 is in force and not cancelled and - payer cannot be treated as an assessee in default even if tax is found payable under Act - assessee could not have deducted tax at source - he cannot be treated as a defaulter under law - He is not an assessee in default as understood under Section 201 of the Act - In favour of assessee
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2012 (7) TMI 117
Deduction u/s.10AA - whether foreign exchange fluctuation was not part of the sale proceeds – Held that:- Foreign exchange fluctuation is liable to be treated as part of the sale proceeds and consequently liable to be included in the export turnover - Assessing Officer is directed to re-compute the deduction u/s.10AA by including the exchange gain and loss when computing the export turnover Arms' Length Price - transactions where the sale price to Associated Enterprise was lower than the sale price to non-Associated Enterprise – Held that:- On the purchase the assessee has a positive differential i.e. the assessee purchases at a lower price from its AE than the non-AE and when its sales to the AE, its selling price is lower than the selling price as compared with the non-AE - Assessing Officer is directed to re-compute the ALP by taking into consideration both the net difference on the sale from the AE and purchase from the AE. The Assessing Officer may look into the fact as to the margins of the profits in regard to the transactions done by the assessee with its AE, as also the non-AE transactions and then compute the adjustment of ALP - assessee stand partly allowed for statistical purposes. Whether 5% tolerance limit prescribed by the second proviso to Section 92V(2) would apply only in those cases where more than one comparable price has been adopted to arrive at the Arm's Length Price – Held that:- claim of the assessee for 5% of tolerance limit cannot be granted as no arithmetical mean as provided in the first proviso has been determined – Against assessee Levy of interest under sections 234A, 234B and 234C of the Act – Held that:- Levy of interest under sections 234A, 234B and 234C are consequential in nature, the same are dismissed - Appeal of the assessee is partly allowed for statistical purposes
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2012 (7) TMI 116
Inclusion of any sum u/s 68 in the hands of the assessee - assessee had received loans from various partners - the trial balance so submitted by assessee showed credits of unsecured loans from different parties aggregating to Rs. 4,54,07,931 and debits of Rs. 1,09,46,081 - Tribunal directed the AO to take note of only those credits where the lenders have confirmed for having lent monies to the assessee - Held that:- As it is reveled from the material on record that the assessee has maintained two books of account, but for the search, the kachcha books would not have come to light. The entries in the kachcha books are not reflected in the regular books of account maintained by the assessee and merely because the kachcha books are found during investigation and that the assessee owns the said books and also contends that the entries found therein are true and correct, it is not safe for the authorities to act on such entries - If the assessee wants to have the benefit of the entries in the said books, as he did not produce voluntarily it is for him to substantiate it by such acceptable evidence as to the correctness of those entries - As no explanation is forthcoming for not examining those creditors who in the normal course would have come forward and conformed those entries the Tribunal was justified in excluding those credit entries which are confirmed by the creditors and those entries which are not supported by creditors directing the AO to accept the cash credits wherever the lenders have confirmed for having lent the monies to the assessee and not in other cases - against assessee. Treatment of the unsecured loans - Tribunal considered it as genuine and bona fide - Held that:- Merely because the transactions are through bank channels, the assessee would not be entitled to the benefit - without conducting an enquiry with regard to the identify of the payer i.e. creditors, creditworthiness of the said payer and the genuineness of the transaction it cannot be considered bonafide - in favour of the revenue
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2012 (7) TMI 104
Unexplained Investment - advance for construction of vessel - addition made on ground of difference in value shown as advance in balance sheet of assessee and amount shown in books of holding foreign company - rejection of books of accounts - Held that:- In present case, assessee in its books of accounts has recorded the investment of ₹ 18.85 crores and such investment is fully supported by relevant material, simply because M/s Coeclerici Logistics S.P.A. has recorded different amount i.e. ₹ 23.22 crores in its balance sheet for the year ended on 31st March 2006 on the basis of its own accounting method and considering the fact that the assessee was not required to make such payment before the delivery of the vessel and further the assessee has filed relevant material to show that such payment was made by the assessee as per the terms of the agreement in the subsequent assessment years which has also accepted by the Revenue in the said assessment years, we are of the view that in the absence of any material to show that the assessee has made such payment of ₹ 4.36 crores during the FY relevant to AY under consideration, the A.O. was not justified in rejecting the books of accounts and in making such addition. Section 69 is attracted when investment is not recorded in books of accounts, assessee fails to explain or explanation is found unsatisfactory. None of conditions are existing. Order of CIT(A) deleting addition upheld - Decided in favor of assessee. Preliminary expenses - establishment expenses - dis-allowance on ground that assessee has not commenced its business activities and as such the question of claiming deduction u/s 35D does not arise - Held that:- Since agreement with M/s Coeclerici Logistics S.P.A. has taken place on 11-2-2006, therefore, business of the assessee has commenced on 11-12-2006 i.e. the year under consideration and hence both the claims made by the assessee are allowable - Decided in favor of assessee.
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2012 (7) TMI 103
Validity of revisionary order passed u/s 263 - order revised on ground that interest bearing funds has been utilized for non-business purposes - assessee, a partnership firm, had shown payment of interest to partners of Rs.72,65,894/- on their current accounts, and had made investment in non business asset viz residential building to the tune of Rs.5,84,60,738/-- Held that:- In the present case, though the AO had made certain enquiries, but such glaring feature of the balance sheet was not confronted to the assessee. Such an assessment which has been made without taking into account the position of the outstanding balances as shown in the balance-sheet and the related consequence on the profit disclosed as per the P&L account can give rise to an automatic suspicion that an erroneous order has been passed causing prejudice to the Revenue. Revisionary powers u/s.263 has rightly been invoked - Decided against assessee. Dis-allowance of proportionate interest expenditure on the ground of interest bearing funds have been utilized for non-business purpose - Held that:- The only explanation of the assessee was that the building used for the purposes of the business as well as for the purpose of providing stay for partners. But simultaneously, this fact has also been brought on record that the said building was not treated as a business asset because the assessee has not claimed depreciation on the same. Thus a nexus has been established the non-business assets have factually been funded from the current accounts of the partners. Further, assessee has not discharged its primary onus to prove that entire interest-bearing funds including partners’ capital account were entirely used for the purposes of the business. Dis-allowance made upheld - Decided against assessee.
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2012 (7) TMI 102
Share application money - addition u/s 68 on ground that identify and creditworthiness of the investors and the genuineness of the transactions was not established - Held that:- In the present case, the assessee has provided to the A.O. not only the names of the shareholders but their addresses along with PAN and Bank statements etc. Hence, the assessee has discharged its primary onus and, therefore, in the light of judgment in case of Lovely Exports (2008 (1) TMI 575 (SC)) and also in the case of Divine Leasing and Finance Ltd. (2006 (11) TMI 121 (HC)), the addition made by the A.O. with regard to receipt of share application money cannot be sustained. The same is deleted - Decided in favor of assessee. Unsecured loan - addition - AY 02-03, 03-04 - Held that:- Since assessee has not provided any confirmation of this loan creditor or his address or PAN etc. and nothing has been provided to establish the creditworthiness of this loan creditor. Therefore, addition made is upheld - Decided against assessee. Unsecured loan - addition - AY 04-05 - Held that:- Since all the three ingredients i.e. identity, creditworthiness of loan creditors as well as genuineness of transaction were established. No adverse material had been brought on record by the A.O. and, therefore, the addition made by the A.O. simply on the basis of this aspect hat the notice issued were received back unserved is not justified. Addition deleted. Repairs to plant and machinery - factory expenses - dis-allowance of excess expenditure in comparison to expenditure incurred in previous year - Held that:- Unless it is established that the claim of expenditure is either bogus or is of capital/personal in nature, dis-allowance is not justified. In absence of any contrary material on record, addition made is deleted - Decided in favor of assessee. Unexplained advances - addition made of notional interest - Held that:- When there is no finding to the effect that actually the loan had been granted on interest or that interest has actually been collected and collection of interest was not reflected in the account, no addition can be made on account of notional interest. Addition is deleted. See B & A Plantations and Industries Ltd Vs CIT (1999 (12) TMI 43 (HC)) - Decided in favor of assessee Bad debts and advances written off - dis-allowance - Held that:- Issue is covered in favor of assessee in respect of bad debts by decision in case of TRF Ltd(2010 (2) TMI 211 - SUPREME COURT). However, since assessee could not explain the nature of these advances and unless the nature of advances is business advance, same cannot be allowed - Decided partly in favor of assessee.
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2012 (7) TMI 101
Expenditure incurred on sponsorship & other expenses of Polo tournament - dis-allowance - assessee contended it to be advertising and corporate image building expenditure - Held that:- Majority of the clients of the assessee were sister concerns under the same family management, therefore, there was no business benefits to the assessee by making such expenditure on advertisement. Further promoting the brand SONA is also not of any help to the assessee as most of the clients are from the same group. aforesaid are personal expenses. Dis-allowance upheld Legal & professional charges - Held that:- Assessee has completely failed to establish or to produce any evidence which can prove the fact that this expenditure was incurred wholly and exclusively for the business purpose of the assessee company. Assessee had also failed to contradict the fact that these expenses were personal in nature - Dis-allowance upheld Traveling expenses incurred on travel of company's President for business meetings - dis-allowance on ground that assessee has failed to establish the purpose of such meetings with the prospective clients - Held that:- No details of the prospective clients have been filed. Also, assessee was not having any business connection in those countries. Dis-allowance upheld. Expenditure incurred on training of employees - revenue or capital expenditure - Held that:- Same is revenue in nature - addition made is deleted.
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2012 (7) TMI 100
Addition u/s 68 - unsecured loan - creditworthiness of creditor - Held that:- A.O. examined the creditworthiness of Creditor and found him to be salaried person, earning gross salary of Rs.82,240/-. During the span of two months only, Rs.3,45,000/- in cash was deposited in his bank account before issuing cheque of this amount to the assessee. AO therefore, doubted the creditworthiness of the creditor and ignored the confirmation in respect of this credit filed by the assessee. Hence, CIT(A) was justified in upholding the action of the A.O. in adding a sum of Rs.3,45,000/- and also the interest of Rs.30,695/- on this deposit to the income of the assessee. Business expenditure - tractor hire charges, labour purchase and salary expenses - dis-allowance - Held that:- Since assessee failed to produce supporting evidence for incurring impugned expenses for business purposes, hence CIT(A) was justified in restricting dis-allowance to Rs 1 lac. Appeal of assessee dismissed.
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2012 (7) TMI 99
Salary versus Commission - Treating the commission paid by the assessee as salary by CIT(A) even though it was reflected as commission in his books of account - Revenue contested that CIT ignored the provisions of section 194H r.w.s 40(a)(ia) - the assessee firm was engaged in the trading of mobile and fixed phone connections on commission basis - Held that:- The payment of salary is in line with the specific condition contained in the appointment letter. That being so, the AO obviously erred in observing that the stand taken by the assessee was a mere after-thought so as to avoid taxability. The employees of the assessee firm were given training with the probation period of six months. Thereafter, the employee was to activate the connections sold by the assessee. The payment was as per the activated connections. Section 17 (1)(iv) provides for “salary” to include, inter alia, any commission in view of or in addition to any salary. The payment in the present case being on the basis of the activated connections, was a part of salary - as the payments in question are covered within the definition of “salary” in terms of section 17 it cannot be hit by the provisions of section 194 H - against revenue.
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2012 (7) TMI 98
Reduction of addition made by the AO - revenue contested that CIT(A)allowed the assessee’s claim of expenses without any documentary evidences - Held that:- The explanation pertaining to non judicial stamp paper and loan interest necessarily have to be allowed as non-withstanding the alleged claim of loss of documents in the theft of car which is disputed by the department the fact remains that these are evidences available before different Governmnetal authority namely purchase of non-judicial stamp paper. The factum of loan interest is an evidence available in the bank account of the assessee. The remaining claim of legal charges of deed writer, repair, carpentry, white wash etc. may be examined in the light other than the theft of car also as the Paper Book relied upon before the CIT(A) has not been placed as before - the reasoning given by the CIT(A) namely that the documents were lost in theft in the face of the departmental objection that the theft took place subsequently may not be relevant reasoning as such we restore the issue back to the file of CIT(A) with the direction to pass a speaking order in accordance with law after due verification - in favour of revenue for statistical purposes.
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2012 (7) TMI 97
Levy of penalty u/s 271(1)(c) - AO stated that assessee had claimed depreciation at 100% on special grade steel rolls purchased by it and such castings were leased by the assessee to one - the lease transactions were not genuine, but was only a sham arrangement for providing finance and claiming depreciation - Held that:- As per the lease deed it was clear that the lessor was to purchase equipments selected by the lessee from the supplier chosen by the lessee. According to him, the lessees concerned selected suppliers and based on such selection, assessee had purchased items from the suppliers - The lessor is not a manufacturer nor a dealer and the equipment was to be selected and examined by lessee, the equipment was to be received by the lessee directly from the supplier. In such a situation, assessee cannot fault the assessee if it had believed the documents furnished by the lessee for receipt of the items at their premises. Assessee might have chosen to withdraw the depreciation based on subsequent developments - mere withdrawal of depreciation by the assessee at the assessment stage itself does not amount to be a valid reason for treating the transaction as non-genuine and for coming to a conclusion that it had concealed income or furnished inaccurate particulars of such income. Incorrect claim by itself will not tantamount to furnishing of inaccurate particulars - thus, levy of penalty u/s 271 (1)(c) was not warranted - decided in favour of assessee.
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2012 (7) TMI 96
Challenge the reopening of the assessment by assessee - assessee contested that the change of opinion would not constitute valid information for assumption of jurisdiction u/s 147 - Held that:- Commissioner of Income Tax(Appeals) was not justified in holding that issuance of notice in the instant case was on the basis of change of opinion when it is an admitted fact that no assessment under Section 143(3) was made in the instant case, on the date of issue of notice under Section 148. Keeping in view the facts of the case that Form 10CCB filed during the year, the assessee has installed a wind mill costing Rs.3.02 crores on which depreciation at Rs.1.21 crores was claimed, but as per Schedule E, income from windmill was admitted at Rs. 6,31,000/- which in toto was claimed as deduction under Section 80-IA without taking into account the above depreciation of Rs. 1.21 crores. thus, the issue of notice under Section 148 cannot be held as invalid or on the basis of change of opinion - as decided in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt Ltd [2007 (5) TMI 197 (SC)] - in favour of revenue. Eligibility for deduction on under Section 80-IA - Held that:- The profit derived from eligible unit is to be computed as if such eligible unit were the only source of income of the assessee during the relevant year,the assessee and CIT(A) has taken only a part of the revenue of the eligible undertaking whereas AO has taken as part of the revenue of the eligible undertaking and entire depreciation and interest ignoring the other expenses of the undertaking, for computing the profit derived from the eligible undertaking - as everybody ignored the value of power generated by the eligible undertaking used by the assessee in its other undertaking where activity of publishing of books were carried out as well as ignoring other expenses incurred for the eligible business except depreciation and interest,it shall be fair and in the interest of justice that the issue should be restored back to the file of the Assessing Officer for proper computation of profit derived from the eligible business.
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2012 (7) TMI 95
Disallowance made u/s 14A r.w.r.8D - assessee submitted that investments were made out of own funds and no borrowed funds have been utilized and no other expenses were incurred - Held that:- The A.O. has not given any clear finding of incurring of expenses, and has not established nexus of expenses incurred with the earning of exempt income - The satisfaction of the A.O. as to the incorrect claim made by the assessee is a pre-condition and a necessity for invoking the applicability of Rule 8D whereas in this case A.O. has directly invoked provision of Rule 8D without rendering any opinion on the correctness or otherwise of the assessee’s claim - in favour of assessee. 1/4th ad-hoc disallowance of various expenses holding it to be of personal nature - Held that:- The assessee has incurred various expenses as listed in his paper book and suo-moto disallowed expenses from them. The A.O. has in addition to the disallowance made by assessee further disallowed the expenses. The disallowance of expenses by A.O. was adhoc in nature as he has not pointed out the expenses which are of non business in nature - as in the assessee’s own case in earlier years ITAT had restricted the disallowance pertaining to motor car and telephone expenses and the assessee has on the same basis suo-moto disallowed the expenses no point of any further disallowance - in favour of assessee.
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2012 (7) TMI 94
Valuation of Closing stock - method of weighted average rate adopted by assessee - Revenue contended undervaluation of stock - Held that:- It is an undisputed fact that the assessee has valued the stock at weighted average cost in the current year and the same method was followed by assessee in earlier years and it was accepted by the Department while finalizing the assessment u/s. 143(3). The assessee has also adopted the same method for arriving at the “cost of goods sold”. The method of valuation is also in consonance with the I.T. Act and the Accounting Standards prescribed by ICAI. Similar valuation method of stock has been accepted by the Department in case of its sister concern. The amount of sales tax and VAT embedded in the value of purchase and sale has also been reflected in the weighted average cost. No material has been brought on record by Revenue before us to controvert the aforesaid facts. A.O. without giving any observation /calculation has finalized the valuation on an add-hoc basis. Said approach of assessment of the A.O cannot be approved. Hence, CIT (A) has rightly deleted the addition - Decided in favor of assessee.
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2012 (7) TMI 93
Validity of second reopening of assessment - capital gain on sale of two plots of land - assessment reopened firstly on 27.9.2002 on the ground that the assessee has made certain deposits which comes from sale proceeds of plots, but while completing the reassessment, no addition is made either under the head capital gain or u/s 68 - Held that:- In present case, after almost 1˝ years, AO intended to reopen the assessment again for the same transaction after having recorded reasons that the assessee has earned capital gain on transfer of two plots of land. When the Assessing Officer has already applied his mind while framing the reassessment consequent to the first reopening and did not make addition under the relevant head. Therefore, he cannot reopen the assessment again for the same reason by simply making changes in the format of the reasons recorded without looking to the fact that the transaction for which he wants to form a belief is the same. Therefore, second reopening was done only on account of change of opinion which is not permissible under the law. Accordingly, the reassessment orders framed consequent to issuance of notice u/s 148 are hereby annulled and additions made therein are also deleted - Decided in favor of assessee
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2012 (7) TMI 92
Rule 46A - Admission of additional evidences By Commissioner(Appeals) - Revenue contended violation of Rule 46A since on opportunity of rebutting the evidences has been given to Assessing officer - Held that:- CIT (A) while admitting additional evidences had not given any findings under which exception of Rule 46A these evidences were admitted. Additional evidence can be produced at the first appellate stage only when conditions stipulated in the rule 46A are satisfied and a finding is recorded. The conditions prescribed in rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the rule has to be strictly complied with so that the rule is meaningfully exercised and not exercised in a routine or cursory manner. Sub-rule (3) of Rule 46A, interdicts the Commissioner (Appeals) from taking into account any evidence produced for the first time before him unless the AO has had a reasonable opportunity of examining the evidence and rebut the same. Therefore, we set aside the issue to the file of the Assessing Officer to be decided de novo - Decided in favor of Revenue for statistical purposes.
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2012 (7) TMI 91
Whether the Tribunal was correct in holding that the Assessing Officer had failed to prove that the residential flats exceeded built-up area of 1500 sq. feet each and penthouse flats – Held that:- All the 84 or 83 flats constructed are less than the 1,500 sq. ft., the assessee cannot be denied the benefit and taxed on the ground that it exceeds 1,500 sq. ft. Hence this question of law is answered in favour of the assessee and against the revenue. Whether the definition of "built-up area" as inserted by Finance (No.2) Act of 2004 with effect from 01.04.2005 is prospective or retrospective in nature – Held that:- Object behind enacting this provision, namely to bring in investments and to encourage the infrastructure development of middle income housing projects - Courts have to harmonize these provisions and interpret the same in a manner to achieve the object of the legislature than to distress the said object - definition of built-up area as inserted in sub-Section 14(a) of Section 80-IB by Finance No.2 Act of 2004, which came into effect from 01.04.2005 cannot be held to be retrospective; it applies only to such housing projects, which are approved subsequent to 01.04.2005 - Assessee, in the instant case, is entitled to the benefit of the aforesaid provision and hence the said substantial question of law is answered in favour of the assessee and against the revenue. Whether a housing project includes a commercial complex - if in the housing projects approved by the local authority, a commercial complex is also constructed, does it cease to be a housing project so as to disentitle the assessee from the benefit of Section 80-IB (10) of the Act - by way of amendment, introduction of clause 'd' of sub-Section 10 of Section 80-IB, it is clear that the housing project contemplated under sub-section 10 of Section 80IB includes commercial establishments or shops also – Held that:- By way of an amendment, an attempt is made to retract the size of the shops or commercial establishments - Therefore, necessarily the said provision also has to be read prospectively and not retrospectively. As is clear from the amendment, this provision came into effect only from the day the provision was substituted. Therefore, it cannot be retrospective - In favour of the assessee
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2012 (7) TMI 90
Denial of benefit u/s 80-IB - project was not completed within four years,deviations in the sanctioned plan and flats are used as service apartments, the housing project is only in an area of 38 guntas and some of the flats exceed 1,500 sq. ft - Held that:- Though the assessee owned only 38 guntas of land when he started the construction, he acquired an extent of 1,440 sq. ft. of land adjoining the said land, thus making the total land in which the project was put up to 44,470 sq.ft. more than 43,480 sq.ft. which is prescribed under the law. The modified housing project was approved in the year 2001 after the aforesaid provision was inserted On 20.5.2003 occupancy certificate is issued, therefore, the construction is within the 4 years period stipulated. The assessee has sold these apartments to various purchasers who in turn are using it as service apartments for which the assessee cannot be held liable in any way and on that ground he cannot be denied the benefit. Out of 63 flats as it is stated 8 flats exceed the built-up area in excess of 1,500 sq. ft the authorities have taken into consideration the balcony area and the common area whereas prior to 1.4.2005 as law stood then balconies and common areas have to be excluded for the purpose of calculating the built-up area - deleting these two areas admittedly the apartments measure less than 1,500 sq. ft - no ground of denying the exemption to the assessee - against revenue.
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2012 (7) TMI 89
Whether assessee is entitled for reduction under Section 80-IB(10) of the Act - flats were exceeding 1500 sq. ft. of built up area contrary to Section 10-IB(10) of the Act – Held that:- Residential units and the built up area of the residential units, even in the case of disputed flats do not exceed 1500 sq. ft. - appeal by revenue stands dismissed.
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2012 (7) TMI 88
Denial of grant of benefit of Section 80IB(10) as the assessee has not built the housing project - joint development agreement - assessee firm is engaged in the business of development and construction of residential flats - Held that:- Considering the procedure adopted is that assessee in turn entered into a joint development agreement with the builder and the owner of the land was made a party to the said proceedings, thus the assessee contributed to the land, undertook the aforesaid developmental activities in the said land and thus, complied with all other conditions, which have to be fulfilled before claiming benefit under Section 80IB(10) - as the builder has invested the money in the construction, it is after completion of the building in terms of the agreement, the assessee was given 22% share of the building area. It is after sale of the built area, in terms of Section 80IB (10), the assessee is claiming deduction - it is clear from the joint development agreement, the undertaking of developing and building housing project was jointly undertaken by the assessee and the builder the persons who undertook this undertaking are entitled to the benefit of Section 80IB(10) in proportion to the share to which they are entitled to in the built up area - against revenue.
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2012 (7) TMI 87
Denial of claim of deduction under Section 80-IB (10) - flats whose built-up area was more than 1500 sq. ft - Held that:- In calculating the built-up area it is only the inner measurements of the residential unit on the floor level, which has to be taken into consideration and if there are any projections and balconies which exclusively belongs to the residential units, then, that also has to be taken into consideration for deciding the built-up area.If that area does not exclusively belong to the owner of residential unit and if he has to share that common area with the owner of another residential unit, then that common area has to be excluded from the built-up area. In respect of 16 flats whose built-up area was considered more than 1500 sq. ft, the common area is shared by these 16 owners of residential units as this common area is not the subject matter of sale as is clear from the recitals in the sale deed, the owners of the residential units do not have exclusive right to use these balconies as they have to share it with others, that area cannot be taken into consideration to decide the built-up area, thus it is clear that if this balcony space is excluded all the 160 units are less than 1500 sq.ft and therefore the assessee was entitled to 100% tax exemption on this project - decided in favour of assessee.
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Customs
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2012 (7) TMI 115
Denial of claim of concessional duty under Notification No.02/95-CE dated 4.1.95 for not achieving NFEP as has been undertaken by assessee - Held that:- Considering EXIM Policy 1997-2002 about calculation of NFEP annually and cumulatively for a period of five years from the commencement of commercial production based upon the formula whereas the case in hand, it is undisputed that five years have not been completed after the start of commercial production by the appellant. Even in the event of failure to make or continue exports, the Development Commissioner's recommendation is required before duty demands can be confirmed by the Customs authorities. In this case, there is no definite conclusion arrived at by the concerned authority namely the Development Commissioner. On the other hand, the Development Commissioner has vide its letter dated 22-12-1998 extended the period of validity for a further period upto 31-3-1999 and the importers have further requested for further extension. Therefore, in the present case, the duty demand is premature and we see no option but to set aside the impugned order - in favour of assessee.
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2012 (7) TMI 86
Import of Crude Palm Sterin - Classification - Chapter Heading 15.11 or 38.23. - benefit of Notification No.21/2002-Cus, dt.1.3.2002. - differential duty - Board s circular dt.26.7.2011 - held that:- pre deposit ordered - matter remanded back to decide afresh in view of the Board's circular dt.26.7.2011 and Hon'ble Supreme Court's judgment in the case of Jocil Ltd (2010 (12) TMI 24 (SC))
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Corporate Laws
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2012 (7) TMI 105
Recovery of loan - mortgaged goods subject to hire-purchase agreements - cheques issued by the Respondent towards payment of the hire-charges were dishonoured on presentation vehicles recovered by use of force from the loanees Held that:- recovery process has to be in accordance with law and the recovery process referred to in the Agreements also contemplates such recovery to be effected in due process of law and not by use of force - As the ownership is not transferred to the purchaser, the hirer normally continues to be the owner of the goods, but that does not entitle him on the strength of the agreement to take back possession of the vehicle by use of force. By its order, the District Forum, directed the Appellant to pay a sum of Rs. 1,50,000/-, along with interest at the rate of 9% per annum, from the date of filing of the complaint till the date of payment, together with a further sum of Rs. 5,000/- towards harassment and cost of litigation. Aggrieved by the said order, the Appellant preferred Appeal before the State Commission, Delhi. By its order, the State Commission, Delhi, affirmed the order of the District Forum and directed payment of a further sum of Rs. 50,000/- on account of punitive damages. In the instant case, the situation is a little different, since after the vehicle had been seized, the same was also sold and third party rights have accrued over the vehicle. It is possibly on such account that the Appellant Bank chose to comply with the directions of the District Forum notwithstanding the pendency of this case. Since the Appellant Bank has already accepted the decision of the District Forum and has paid the amounts as directed, no relief can be granted to the Appellant.
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2012 (7) TMI 85
Oppression and mismanagement - respondent forged Memorandum of Understanding - permission of the CLB, under Section 235(b) of the Act, to investigate the affairs of respondent no.1 Company – CLB dismissed the application – petitioner again filed petition – Held that:- Pending disposal of said application before CLB, High Court allowed appellant's pending appeal filed earlier and after setting aside order of CLB remanded matter to CLB for fresh decision - Thereafter CLB dismissed pending petition/application - Appellant filed appeal against this order of CLB – since all allegations made by appellant were to be decided afresh by CLB and appellant would have all opportunity of substantiating same before CLB, it could not have any grievance against impugned order - Court does not consider it to be appropriate to make any observations about any of the allegations made by VLS in the pending C.P.No.45/98 in which VLS is fighting its independent battle - No occasion for this Court in this appeal to undertake the exercise which CLB is expected to do
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Service Tax
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2012 (7) TMI 138
Waiver of pre-deposit - Supply of relevant documents to the assessee - Appellant’s claim before the adjudicating authority as well as the first appellate authority that they have not signed the power of attorney in the name of Shri Chudasma who had been interacting with the recipient of service and the service recipients were making payment for the services rendered, to such a person – Held that:- Documents may be needed by the assessee-appellant for defending his case of non-liability of Service Tax, as their claim is that some one has impersonated them. Non-supply of these documents and an order passed is in violation of principles of natural justice and both the lower authorities have passed the orders in violation of principles of natural justice and are liable to be set aside - appeal is allowed by way of remand
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2012 (7) TMI 137
Stay Petition - waiver of pre-deposit - service rendered by the appellant is towards the construction of the roads which was sought to be brought under the category of management, maintenance or repair of the roads for the period 16.06.2005 to 27.07.2009 – Held that:- Issue is covered by Section 97 of Finance Act, 2012 - Finance Act has clearly stated that no Service Tax can be levied on the services which are under the category of Management, Maintenance or Repair of the roads for the period – In favor of assessee
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2012 (7) TMI 136
Refund - inputs as well as input services utilised/ used in the manufacture of goods, which are exported under Notification No. 41/2007-ST – refund granted - revisionary authority not given any reasoning for refund – Held that:- Revisionary authority has not given any reasons to uphold the order of the adjudicating authority, hence, is, as such a non-speaking order - order set aside and matter remanded back to the revisionary authority
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2012 (7) TMI 135
Extended period - authorised service station for Maruti - appellants had received incentive for vehicle loans given to the customers who purchased Maruti vehicles – Appellants paid service tax even though it was their claim that Maruti Udyog Limited has paid the service tax on the full amount of incentive/ commission - Held that:- Service tax cannot be collected twice on the same service and this is the basic principle of law and therefore, once a claim is made that service has already suffered tax, it should have been verified. Further, if the appellant was aware that service tax was being paid by Maruti Udyog Limited, invocation of extended period also may not be fair since there cannot be any suppression of facts or mis-declaration in such a situation. Regarding trading activity - amendment to Cenvat Credit Rules and various decisions on the issues have not been taken into account, nor the same have been brought up before the lower authorities – Held that:- matter is remanded to the original adjudicating authority
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2012 (7) TMI 134
Cenvat credit and trading of goods - applicants are manufacturing as well as trading in respect of motor vehicles – assessee availed credit in respect of the service tax paid on common services which are in relation to the manufacturing activity as well as trading activity - contention of the applicants is that as per Rule 6 of the Cenvat Credit Rules, the trading activity cannot be considered as an exempted services therefore the demand is not sustainable – Held that:- trading activity is not an exempted service and credit is not admissible on the input services in respect of the trading activity. applicants are directed to deposit an amount of Rs.50 lakhs. - Pre-deposit of the remaining amount of duty, interest and penalty is waived.
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2012 (7) TMI 110
Violation of principle of Natural justice - demand confirmed by Commissioner as a revisionary authority, on revision of the order in original which was in favour of the assessee without waiting for reply of assessee and consideration of his defense - Held that:- This is a serious violation of principles of natural justice. Suffice it to say that the reviewing authority should have given sufficient opportunity to the appellant to file the reply and then considered the issue in a proper perspective. Impugned order set aside and assessee is directed to file reply to the show cause notice within stipulated time - Decided in favor of assessee.
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2012 (7) TMI 109
Renting out of immovable property - demand - assessee contended correct payment of service tax on ground of retrospective amendment to Section 65 of Finance Act, 2012 and extension of benefit of Notification No. 24/2007-ST in respect of property tax paid - Held that:- Issue needs to be considered by the adjudicating authority from the point of view of retrospective amendment and also for the extension of benefit of Notification No. 24/2007-ST, as regards the calculation of the gross value excluding the property tax paid by the appellant. Appeal is allowed by way of remand to the adjudicating authority.
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2012 (7) TMI 108
GTA - receiver of goods transport services - 75% abatement for the purpose of payment of service tax on Goods Transport Agency service paid by the receiver - Notification No. 32/2004-ST - department has taken a view that abatement cannot be allowed after the issue of Circular by the Board, if the service provider did not make declaration in the consignment note itself, even if he made a separate declaration and the same is available with the service receiver – Held that:- instructions issued in the Circular by the Board cannot be a mandatory condition when the notification does not have such conditions and such Circular cannot used to deny substantive rights which arise from the notification.
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2012 (7) TMI 107
Cenvat Credit - denial of credit – Held that:- If invoice is addressed to the head office of a company cannot be a reason enough to deny cenvat credit if it is otherwise available to assessee. In favor of assessee.
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2012 (7) TMI 106
Demand of service tax - advertisement agency service - activity for arranging the celebrities for promotion – Held that:- Applicants does not cover under definition of advertising agency service and from 1.7.2003 they are paying service tax under the category of business auxiliary service as the service has been brought under the service tax with effect from 1.7.2003. In favor of assessee.
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Central Excise
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2012 (7) TMI 114
Suppression of fact - cenvat credit on ineligible inputs, Light Diesel Oil - Held that:- Appellant has clearly suppressed the fact that they were availing cenvat credit on an input which was specifically named in the definition of inputs and excluded from the list of inputs on which credit can be taken. When there is a specific exclusion on availment of input credit, the submission that there was no suppression of this fact just because there was no column in ER-1 or no specific requirement of intimating the department or submitting invoice, is not acceptable - Appellant cannot take shelter behind technicalities having availed the totally inadmissible and irregular credit knowing fully that credit was not available - suppression of fact has been correctly invoked and demand has been correctly confirmed and penalties have been correctly imposed - appeal is rejected
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2012 (7) TMI 113
Valuation - job work - inclusion of job work charges in the value – Held that:- in case value of comparable goods is known, the same can be adopted for goods manufactured by the job worker. - goods were cleared on the price of M/s Reliance Industries Ltd., so the price of comparable goods are known and when value of polyester textured yarn of M/s Reliance Industries Ltd. was known the alternative of cost construction is barred and cannot be resorted to - duty has correctly been paid as determined on the basis of the value of comparable goods. - amount towards job work charges not required to be included - decided in favor of assessee.
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2012 (7) TMI 112
Dismissal of appeals - non-compliance with the Order of the redeposit - appeal to Tribunal - Held that:- As decided in CCE, Chandigarh vs. Smithkline Beecham Co. Health C. Ltd [2003 (9) TMI 82 (SC)] that if the Commissioner (Appeals) merely dismisses any appeal for not making the predeposit, then the only question remains to be decided whether the appeal can be decided on its merits or not - the learned Commissioner (Appeals) has not decided the merits of the case, thus the matter is remanded back for reconsideration on merits without insisting for the redeposit.
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2012 (7) TMI 111
Marketability of goods - bus body parts manufactured and supplied to their divisional office – Held that:- The components of bus bodies are meant for specific use in buses made for repair and maintenance purposes cannot be used in other buses made by other bus body builders - no evidence from the Revenue to show that the components are bought and sold in the market as commodity – BOARD OF TRUSTEES Versus COLLECTOR OF CENTRAL EXCISE, A.P.[ 2007 (8) TMI 350 (SC)] - The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold as decided in UOI vs. Sonic Electrochem (P) Ltd 2002 (9) TMI 104 (SC) - The products, components of bus bodies made by the appellant are not available in market no point of levy of duty – in favour of assessee. Scrap generated during the course of manufacture of the parts – Held that:- once the department itself has held the goods as non-excisable and each sale of scrap was intimated to the department by the unit, allegation of suppression of fact against the appellant does not survive.
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2012 (7) TMI 84
Dismissal of appeal for non-compliance of the pre-deposit ordered - issue regarding reversal of proportionate amount of CENVAT Credit attributable towards inputs which were consumed in the manufacture of exempted goods - Held that:- Issue is covered by the retrospective amendment as well as various decisions, the first appellate authority should have considered the appeal itself and passed an order on merit instead of insisting on pre-deposit. Appeal allowed by way of remand.
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2012 (7) TMI 83
Penalty u/s 11AC - reduction of penalty at appellate stage - Revenue contesting the same on ground that such option can be given only at the adjudication stage - Held that:- Where the original adjudicating authority did not extend such option in writing, option can be given at the appellate stage. See Akash Fashion Prints Pvt. Limited (2009 (1) TMI 113 (HC)) - Decided against the Revenue.
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2012 (7) TMI 82
CENVAT Credit – alleged that M.S. Channels and M.S. Beams on which the credit was taken by the appellant are neither the capital goods or the components, spares, accessories of capital goods as defined under Rule 2(b) of CENVAT Credit Rules, 2004 – Held that:- Beams have been used to keep the electric motor in the elevated position and the motor is connected to the roller to facilitate the movement of the finished goods manufactured by the appellant. If the motor is required to be put in the elevated position for requirement of machinery, it cannot be said as a supporting structure, but treated as a structural part. As regards the M.S. channels, the ld.Consultant submitted that the same were used as rollers to move the finished goods, would show that they have not been used as supporting structure - appellant is eligible for the credit availed by them – In favor of assessee
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2012 (7) TMI 81
Cenvat Credit - Rule 6 - Non maintenance of Separate account – input used for manufacture of waste - appellant is engaged in the manufacture of sugar and during the course of manufacture of sugar, a product press-mud emerges which is actually a waste and by itself cannot be of much use, which is further processed and mixed with Spent Wash and Bio-compost emerges – Held that:- Press-mud and spent wash emerged during the course of sugar have been further processed which resulted in exempted product Bio-compost. Just because the press mud is processed further resulting in exempted product, it cannot be said that the appellant is required to maintain separate accounts - appellant was not required to reverse the 10% of the value of press mud under Rule 6 of CENVAT Credit Rules, 2004 - appeal is allowed with consequential relief to the appellant.
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