Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
July 8, 2016
Case Laws in this Newsletter:
Income Tax
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
TMI SMS
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Reference to TPO - reasons to refer - it is not AO’s obligation to communicate to the assessee what makes AO to make necessary or expedient to refer the matter to TPO. - AT
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Addition on account of difference in valuation of securiti - Reduction in profit due to change in valuation method of stock cannot be a reason to reject the claim of assessee. Whenever, there is change in method of accounting, there would be aberrations in the financial results. - AT
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Revision u/s 263 - non deduction of tds - the assessment order passed by the A.O. is not erroneous, in so far as it is prejudicial to the interest of the revenue, as there is no loss of revenue on account of non compliance with TDS provisions as the expenditure is not disallowable u/s 40(a)(ia) - AT
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Disallowance toward provision for loss on contracts - reporting profit on the basis of proportionality as per AS-7 - The reliability of the estimate is indeed very relevant and crucial to the claim for loss, lest any amount could be claimed under the garb of the likely loss - AT
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Exemption u/s 11 - receipt of capitation fees - AO has brought out enormous evidence on record especially to establish that the assessee is not engaged in charitable activities and all these evidence was overlooked by the CIT(Appeals) in the AYs 2009-10 & 2010-11. - Exemption denied - AT
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Valuation u/s 50C is a deeming provision and it extends only to land or building or both. - Rights in the land cannot be equated to land or building or both and therefore section 50C is not applicable on transfer of such rights.
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Reimbursement of salary expenses of employees to the sister concern, who were deputed by the sister concern to the assessee does not require deduction of tax at source.
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Share application money cannot be equated with share capital and interest paid on share application money pending its allotment is allowable as revenue expenditure
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E-connectivity charges are revenue in nature as they do not result either in the acquisition of software by the assessee or in any enduring benefit to the assessee
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Not allowing the assessee set-off of the business losses against other eligible heads of income in accordance with the law is a mistake apparent from records u/s 154 - AO was directed to rectify its order.
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Assessee Company engaged in the business of manufacturing & selling of cement - Incurred expenditure on major repairs & maintenance amounting to ₹ 2.70 crores - As capacity of any of the plant/equipment by virtue of this repair and maintenance not increased - allowed as revenue expenditure
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Revenue has not disputed the fact that in the year under appeal there is increase in the sales and the margin as stated by the assessee is not rebutted by the revenue by bringing any material which suggest that the margin as claimed by the assessee is not correct. CIT(A) was justified in reducing the rate of Gross Profit increased by AO - Decided against revenue
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Salary receipt OR professional receipt - B.Tech professional provides coaching services to an Institute, which provides coaching for preparation of IIT entrance test. He was free to do work with other institutions also. - assessee’s receipts are professional receipts not salary. Expenses claimed by the assessee are to be considered by AO.
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Site Advances & Rent Deposits written off could not be allowed as a bad debt in the light of the provisions of section 36(2) but nevertheless the claim is justified as a business loss
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Assessee was engaged in the business of providing services like testing, analysis and inspection services relating to oil and gas to various companies like ONGC, Reliance, etc. and claimed depredation @ 60% on certain plant & machinery which is Allowed
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Pharmacy shop is an integral part of the hospital business and the same is not hit adversely by the condition of maintain separate books as specified in section 11(4A)
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Assessee was unable to submit complete details of the expenses. Held, AO should identify and disallow the specific expenses which are not substantiated, instead of resorting to ad-hoc disallowance.
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When ROC fees incurred for enhancement of authorized share capital has already been held to be capital expenditure by Apex Court in the case of Punjab State Industrial Development Corporation Ltd. [1996 (12) TMI 6 - SUPREME Court], claiming such expense as revenue expenses amounts to furnishing inaccurate particulars of income - penalty confirmed
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Penalty u/s 271(1)(c) on addition made u/s 68 - the assessee has given sufficient explanation though not found satisfactory by AO - No merit in levying penalty.
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Since the profit determined is profit from undisclosed sources/business, there should not be any separate additions made towards excess purchases and difference in sundry creditors balances as the same are to be construed only for the undisclosed businesses.
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Notice issued to assessee u/s 148 on the basis of information received from DIT(Investigation) on the basis of search & seizure operation conducted at the premises of another assessee is void-ab-initio. Provisions of 153C could be invoked and not 148/147.
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Software expenditure having enduring benefit of not more than a year is revenue expenditure
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Section 69 - Assessee explained that the source of cash deposit is sale of property by her husband and the fact that assessee's husband paid capital gain tax on full sale consideration is not in dispute. Taxing the said cash deposit in the hands of assessee as income from unexplained sources will tantamount to double taxation which is highly inappropriate and cannot be accepted. Addition deleted.
Indian Laws
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Right to recover demurrage charges - Indian Trident Maritime (P) Ltd. (ITM) was not liable for the port charges incurred for storing the cargo in question on port premises after the issuance of the delivery order or endorsing the bill of lading. - the remedy of KPT is against the consignee - HC
Service Tax
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Principle of mutuality does not apply for the services provided by the SEZ unit to the DTA unit of the same assessee since as per the scheme both the distinct and separate - However no service tax could be levied since the SEZ unit of respondent assessee had not charged for the services provided to its DTA unit - HC
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The Infrastructure Charges paid to TNEB and incurred by the appellant directly as well as reimbursed to it, is not in relation to any services provided by the appellant to its clients. Therefore, in the absence of any taxing entry to tax such receipts the appellant is not liable to service tax thereon. - AT
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Non payment of service tax at the time of filing of the ST-3 returns - The amount was paid subsequent to filing of service tax returns but before the issuance of the Show cause notice. - penalty waived - AT
Central Excise
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Clandestine removal of goods - Cum-duty benefit - Appellant resorted to clandestine removal and no records were maintained in respect of such clearance. Therefore the duty evaded transactions which have never seen the light of the day deserve no concession of cum duty benefit at all - AT
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Valuation - sale of medicines through their intermediaries - related parties - appellant/ manufacture were required to discharge the duty liability at the contracted price in respect of the goods supplied by them to the Government hospitals, either directly - demand confirmed - AT
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Manufacturing of go-kart and parts thereof - classifiable under chapter sub-heading number 8703.90 or not once Heading 95.08 is excluded the other one 87.03, will apply - Demand of duty confirmed - AT
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Clandestine removal of goods - manufacturing or automobile parts - In the absence of any concrete evidence, the duty cannot be demanded merely on the basis of turnover of their dealer. - AT
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As no positive evidence has been brought by the revenue to support its allegation that the goods cleared clandestinely without payment of duty is not sustainable - AT
VAT
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Input Tax Credit - Manufacturing activity or not - UP VAT -the new item is nothing but wood and bamboo which do not have an identity totally different from the original product nor does it result in emergence of a new commercial commodity. - credit was rightly denied - HC
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Sale of Wind Mill - slump sale - claim of exemption under TNVAT Act - Business Transfer Agreement read with Sale Deeds as well as other records would show that the entire establishment has been transferred as such. If that be the case, the petitioner's contention ought to have been accepted. - HC
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Classification - Rate of tax on paving bricks/blocks - 4% or 12.5% - distinction between bricks and paving bricks/ blocks - distinguishing between bricks and the floor bricks or pavers, decided in favor of revenue (KVAT) - HC
Case Laws:
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Income Tax
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2016 (7) TMI 276
Addition on account of difference in valuation of securities - change in valuation method of stock - Held that:- In the present case, the Revenue has not pointed out any infirmity in the method adopted by the assessee for valuation of stock. The appeal pertains to the assessment year 2010-11, the ld. AR has stated at the Bar that the assessee is following the changed method of valuation of stock even today. The ld. DR has not controverted the statement made by the ld. AR. Since, the method of valuation of stock has been regularly adopted by the assessee this shows the bonafide of assessee in changing the valuation method. Reduction in profit due to change in valuation method of stock cannot be a reason to reject the claim of assessee. Whenever, there is change in method of accounting, there would be aberrations in the financial results. We do not find infirmity in the well reasoned and detailed findings given by the Commissioner of Income Tax (Appeals). It is not the case of the Revenue that the method of valuation of stock adopted by assessee is inconsistent with the accounting principles. - Decided in favour of assessee Disallowance of claim of bonus - Held that:- As per final accounts, bonus a/c and Profit and Loss a/c, find there was a liability of Bonus payable only which was paid by appellant before the due date for furnishing the return of income on the previous year. The Auditors have given the necessary comments in this regard in the Audit Report. Under the circumstances and on the facts, AO is not justified in disallowing the bonus paid before the due date of filing the return and hence, addition cannot be sustained. - Decided in favour of assessee
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2016 (7) TMI 275
Deemed income u/s. 50C - Held that:- From the reading of Section 50C, it is evident that Section 50C is a deeming provision and it extends only to land or building or both. Section 50C can come into play only in a situation where the consideration received or accruing as a result of the transfer by an appellant of a capital asset, being land or building or both is less than the value adopted or assessed or assessable for the purpose of payment of stamp duty in respect of such transfer. It is settled legal proposition that deeming provision can be applied only in respect of the situation specifically given and, hence, cannot go beyond the explicit mandate of the section. Clearly, therefore, it is essential for application of Section 50C that the transfer must be of a capital asset, being land or building or both. If the capital asset under transfer cannot be described as ‘land or building or both’, then Section 50C will cease to apply. From the facts of the case, it is seen that the assessee has transferred only rights in the impugned land which cannot be equated to land or building or both. Therefore, in our understanding of the fact qua the provisions of Section 50C, the action of the revenue authorities is erroneous. We, therefore, set aside the findings of the ld. CIT(A) and direct the A.O to delete the addition as deemed income u/s. 50C of the Act - Decided in favour of assessee.
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2016 (7) TMI 274
Disallowance of claim for the expenditure on account of major repairs & maintenance - Assessee Company engaged in the business of manufacturing & selling of cement - Held that:- As major repair expenses were regarded as revenue in nature in the earlier years. Therefore relying on the same as stated in the aforesaid decision of this Hon’ble Tribunal in assessee’s own case, we find no reason to interfere in the order of learned CIT(A) directing the AO to allow the expenditure incurred on account of major repairs and maintenance - Decided in favour of assessee
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2016 (7) TMI 273
Reopening of assessment - non grant of opportunity to the assessee to meet the case against him - Held that:- the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT (A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal on this very issue. - Decided in favour of assessee Relied on Delhi High Court ruling in the case of CIT v. Ashwani Gupta 2010 (2) TMI 42 (Del) wherein it was held that When seized material was not provided to an assessee nor was he permitted to cross examine a person on whose statement AO relied, it would amount to deficiency, amounting to a denial of opportunity and therefore violation of principles of natural justice.
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2016 (7) TMI 272
Benefit of exemption u/s. 11 - whether the assessee has received the capitation fees from the students for which the benefit of exemption u/s. 11 of the Act can be denied? - Held that:- Where the definition of “capitation fee” has been given in the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, no other definition of “capitation fee” can be adopted, as the word “capitation fee” has not been defined in the Income- tax Act. The Revenue has also established that donation/voluntary contribution was collected from the parents of the students admitted during the year and more so the parents were not financially sound to part with substantial amount of donation in Lakhs to the educational institution. Therefore, we are of the view that the receipts of the assessee from the parents of students is nothing but capitation fees and once capitation fee is charged for admission of the students by the educational institution, the educational institution can be held that it is not engaged in charitable activities, but selling the education in the light of the judgment in the case of Ms. Mohini Jain v. State of Karnataka & Ors. (1992 (7) TMI 330 - SUPREME COURT) wherein held that capitation fees was nothing but price of selling education and such “teaching shops” were contrary to the Constitutional scheme and abhorrent to our Indian culture. We have also carefully examined the judgments referred to by the parties and in the case of P.S. Govindaswamy Naidu & Sons v. ACIT, (2007 (10) TMI 382 - MADRAS HIGH COURT) has held that where it was found that amount paid by parents of students admitted to assessee’s educational institution was not corpus donation amount, but it was collected only by way of capitation fees, such capitation fees was not exempt in the hands of assessee institution. Grant of registration u/s. 12AA by the Tribunal is concerned, we are of the view that the scope of grant of registration u/s. 12AA is entirely different than the scope of grant of exemption u/s. 11 of the Act. While granting registration u/s. 12AA of the Act, the authority was required to examine the objects of the society if the object of the society is of charitable nature, but no other contrary material is placed, the registration u/s. 12AA is to be granted. But while granting exemption u/s. 11 of the Act, the AO is required to examine the nature of activities of the assessee and if he noticed that the assessee is not engaged in charitable activities and is engaged in commercial activities, the benefit of exemption u/s. 11 can be denied. In the instant case, the AO has brought out enormous evidence on record especially to establish that the assessee is not engaged in charitable activities and all these evidence was overlooked by the CIT(Appeals) in the AYs 2009-10 & 2010-11. Therefore, we find no error in the order of the AO by denying the benefit of exemption u/s. 11 to the assessee. - Decided against assessee
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2016 (7) TMI 271
Revision u/s 263 - non deduction of tds towards rent and hire a charge - A.R.submitted that the assessee has incurred the expenditure towards rent and hire a charge which was paid before the end of the financial year - Held that:- We find force in the arguments of the assessee for the reason that in view of the special Bench decision of ITAT, Visakhapatnam in the case of Merilyn Shipping & Transporters(2012 (4) TMI 290 - ITAT VISAKHAPATNAM ) no disallowance can be made u/s 40(a)(ia) of the Act, once particular expenditure has been paid during the same financial year. In the present case on hand, the assessee has filed a paper book containing financial statements for the relevant financial year. On perusal of the financial statements, we noticed that the assessee has incurred expenditure under the head rent and hire charges and the same have been completely paid during the same financial year. Even for a moment, assumed that the assessment order is erroneous, it is not prejudicial to the interest of revenue, as the issue raised by the CIT towards disallowance u/s 40(a)(ia) of the Act is not disallowable, because the assessee has proved that the impugned expenditure is paid during the same financial year. Therefore, we are of the view that the assessment order passed by the A.O. is not erroneous, in so far as it is prejudicial to the interest of the revenue, as there is no loss of revenue on account of non compliance with TDS provisions as the expenditure is not disallowable under sec. 40(a)(ia) of the Act in view of ITAT, Special Bench decision. The CIT without appreciating the facts revised the assessment order. Hence, we set aside the order passed by the CIT u/s 263 of the Act and restore the order passed by the A.O. u/s 143(3) of the Act. - Decided in favour of assessee
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2016 (7) TMI 270
Disallowance toward provision for loss on contracts - reporting profit on the basis of proportionality as per AS-7 - Held that:- It is the profit (or loss) for the relevant year that is to be assessed and brought to tax for that year – each year being an independent unit of assessment. The decline in the market price, even where relevant and material, i.e., with reference to the price obtaining as at the year-end, would therefore fall to be considered as and form part of the profit (or loss) of the subsequent year. This also explains the standard prescription for valuing raw material at historical cost (refer AS-2 issued by ICAI). The project/s in the instant case, on the other hand, spread over 2-3 years, and it is on account of this that the loss thereon, the enterprise following percentage completion method (for recognizing income), the profit (or loss) on the entire project, estimating the costs yet to be incurred, is required to be reckoned, booking the same proportionately. AS-7, on the other hand, clearly provide for reporting profit on the basis of proportionality when the project is likely to yield a profit, while booking the loss where not so, and which in the present case, as we understand, has been provided for on a proportionate basis. The reliability of the estimate is indeed very relevant and crucial to the claim for loss, lest any amount could be claimed under the garb of the likely loss, and which brings us to the next aspect of the matter. We uphold the assessee’s claim in principle, i.e., qua the provision for loss on contracts likely to arise on its ongoing projects, which though would have to be substantiated. Further, the fact that the assessee did not contest the claim for loss, similarly made, while computing its’ book profit, though surprising, cannot by itself prevail so as to be regarded as conclusive of the matter, and can at best provide a clue to the Revenue that the assessee’s claim with regard to cost escalation/s may require a closer examination, which the AO is even other obliged to, even as to be fair to the assessee the loss stands provided for in the audited accounts, so that it has been subject to both internal as well as external scrutiny. The same though cannot bind the A.O. We decide accordingly. The appeal is accordingly disposed on the above said terms. - Decided in favour of assessee for statistical purposes.
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2016 (7) TMI 269
Undisclosed business - entitlement to telescoping benefit - Held that:- We find lot of force in the arguments of the Learned AR that the profit determined is nothing but the income earned by the assessee from his undisclosed business. This receipt is outside the books of the assessee. Correspondingly, any payments / investments made outside the books of the assessee would be entitled for telescoping and hence we direct the AO to delete the additions made towards investment in security deposit with M/s Ultratech Cement Ltd and difference in bank balance. Similarly we hold that since the profit determined at ₹ 5,81,730/- would be profit from undisclosed sources, there should not be any separate additions made towards excess purchases and difference in sundry creditors balances as the same are to be construed only for the undisclosed businesses. The Learned DR was not able to bring any contrary evidence to this effect before us. Hence we direct the AO to delete the additions made towards undisclosed purchases and towards difference in sundry creditors balances. Addition towards cash deposits made by the assessee in the Savings Bank Account - Held that:- . We find that both the parties have agreed for setting aside of this issue to the file of the Learned AO. We accordingly direct the Learned AO to compare the turnover disclosed by the assessee in its regular books and in the returns and compare the same with the cash deposits made in the bank account with Axis Bank. If the turnover disclosed is more than the cash deposits with Axis Bank, then no addition need to be made. If the turnover disclosed is less than the cash deposits, then the profit percentage on the difference amount is to be estimated and taxed accordingly. Hence the grounds raised by the assessee are allowed for statistical purposes.
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2016 (7) TMI 268
Penalty u/s 271(1)(c) - inaccurate particulars of income by debiting the expenses towards ROC fees to the P&L A/c - revenue or capital nature - Held that:- Assessee has not explained as to why it made the claim for the expenditure in the return of income when the Hon’ble Apex Court laid down the law in the case of Punjab State Industrial Development Corporation Ltd. (1996 (12) TMI 6 - SUPREME Court ) wherein the nature of expenditure claimed by the assessee was held to be capital. We fail to understand why the assessee chose to claim this expenditure as revenue, even though, the accounts were audited by the well known accountants. The law was laid down much before the return of income was filed. Hence, in our opinion, the assessee now cannot absolve itself from levy of penalty u/s 271(1)(c) in view of explanation 1 to section 271(1)(c) by giving an explanation during the assessment proceedings that it disclosed all particulars before the AO or that the claim made by the assessee was due to bonafide error. Now, assessee cannot argue before us that the Apex Court decision itself can be distinguishable simply because the different High Courts had expressed different opinion. Once, the Hon’ble Apex Court laid down decision, it becomes the ‘law of the land’. Hence, the assessee comes within the purview of the explanation 1 of section 271(1)(c) of the Act for levy of penalty for furnishing of inaccurate particulars. Claim made by the assessee to be not due to a bonafide error because ex facie the claim made by the assessee was bogus. - Decided against assessee
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2016 (7) TMI 267
Penalty u/s 271(1)(c) on addition made u/s 68 - Assessee contended that she has neither concealed the income nor furnished inaccurate particular of income. All the relevant particular e.g. bank account, contract notes, share certificates, demat statements, copy of account with broker through whom the share were purchased and sold were submitted. However, the reply of assessee was not considered sufficient and satisfactory - Held that:- The assessee submitted her reply in response to the notice for penalty vide her reply dated 17 November 2007, wherein it was contended that sale consideration was paid through banking channel and she has no reason to believe that that the documents were not genuine or bogus as indicated to her by AO. The sale price of shares was received by assessee through her DMAT account out of which, 10,000 shares of were sold on 2nd June 2004 and remaining 16400 shares were sold on 15 June 2004 through DMAT account. Moreover, the claim LT CG was considered as income under section 68 of the Act, Thus it was a sufficient reply as per explanation 1 of Section 271(1) (c) of the Act. Thus the assessee sufficiently explained in the reply to the notice u/s 274 r.w.s. 271(1)(c) of the Act. And as such no inaccurate particular was filed by the assessee and the levy of the penalty was wrongly inflicted upon the assessee, hence there is no merit in the order of penalty and the same is deleted - Decided in favour of assessee
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2016 (7) TMI 266
Salary receipt OR professional receipt - Held that:- We have gone through the terms and conditions of the agreement, which has been reproduced in the preceding paras of this order. The assessee is a B.Tech from IIT, Guwahati, who has expertise in math and as per agreement, he had provided professional service for the student of Resonance Institute, who provides coaching for preparation of IIT entrance test. The assessee is provided lump sum receipts on the basis of contract for providing the services to the institution. The TDS deducted by the Resonance by treating these payments as professional and given TDS certificate in form No. 16A. The assessee is free to do work with other institutions also. He had employed various staffs for preparing the material for the students on computer and also had staff for other purposes and incurred expenditure on them. No PF, ESI and also no leave encashment during the year under consideration was deducted. The assessee’s receipts are professional and expenses claimed by the assessee are to be considered by the Assessing Officer. Therefore, for the limited purpose, we set aside this issue to the Assessing Officer to verify the expenses and take decision as per law.
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2016 (7) TMI 265
Depreciation on Plant & machinery - @60% OR 15% - Assessee was engaged in the business of providing services like testing, analysis and inspection services relating to oil and gas to various companies like ONGC, Reliance, British Gas, etc. - For providing above services, the assessee company purchased specialized plant & machinery used specifically for oil & gas industry - AO observed that assessee is not eligible for claiming depredation @ 60%, as the assessee was engaged into providing services in relation to oil & gas and not involved into direct business. Held that:- Impugned issue squarely covered in favour of assessee by Delhi High Court ruling in the case of HLS India Limited [2011 (5) TMI 322 - DELHI HIGH COURT] allowing depreciation @ 60% in such cases - Decided in favour of assessee Disallowance being Site Advances and Rent Deposits written off and claimed as business loss - Held that:- Instead of giving a finding on assessee’s claim, CIT(A) was simply carried away by the observations made by AO in the light of the provisions of section 36(2) of the Act. There is no dispute that the claim of the assessee could not be allowed as a bad debt in the light of the provisions of section 36(2) of the Act but nevertheless the claim is justified as a business loss. Since both these amounts are directly related to the business of the assessee, therefore, the claim of business loss cannot be brushed aside lightly. We accordingly set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition - Decided in favour of assessee
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2016 (7) TMI 264
Disallowance of expenditure u/s 37 - AO can disallow only unsubstantiated expenses instead of ad-hoc disallowance Assessee was unable to submit complete details of the expenses including invoices - AO made ad-hoc disallowances - Held that:- AO should identify and disallow the specific expenses which are not proved and substantiated by the assessee to have been incurred wholly and exclusively for the purposes of business, instead of resorting to ad-hoc disallowances. Matter set aside and restored to the file of AO for de-novo determination.
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2016 (7) TMI 263
AO rejected the books of accounts of the assessee and applied GP @ 2.39% taking average of 2 earlier years on gross turnover - CIT(A) reduced GP rate reduced from 2.39% to 1.50% - Held that:- Finding of fact is not controverted by the revenue by placing any contrary material on record. The revenue has not disputed the fact that in the year under appeal there is increase in the sales and the margin as stated by the assessee is not rebutted by the revenue by bringing any material which suggest that the margin as claimed by the assessee is not correct. In the absence of such finding, we are unable to accept the contention of the ld. D/R that the ld. CIT (A) was not justified in reducing the rate of Gross Profit. - Decided against revenue Addition on account of unexplained cash credits - CIT (A) deleted the addition by observing that when profit has been estimated by applying a particular GP rate, no further addition can be made by placing reliance on the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. G.K. Contractor [2009 (1) TMI 840 - RAJASTHAN HIGH COURT ] - Held that:- The judgment as relied on by the ld. CIT (A) pertains to the business outstandings. From the paper book as filed, in Annexure-B to Form No. 3 CD, it is stated that the loan from M/s. B.K. Industries is of ₹ 2,50,000/-. However, in respect of M/s. Pooja Steels, ₹ 1,00,000/- also treated as loan. There is no material available on record suggesting that these amounts were treated as advances and related to any sales or purchases. The onus is on the assessee to demonstrate that such loans/credits were related to business/trade of the assessee. In the absence of such material, treating the same as trade advance would not be correct. Hence the ratio as laid by the Hon’ble Jurisdictional High Court would not help the assessee. Accordingly this ground of revenue’s appeal is allowed and the impugned order on this issue is set aside. The addition made the AO on this issue is sustained - Decided against assessee
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2016 (7) TMI 262
Set off of business loss not allowed as per law - Mistake apparent from records Held that:- The assessee is entitled to be allowed set off of business loss as determined by the AO in the order of assessment for A.Y. 2009-10 dated 02.12.2011, against his other eligible heads of income in accordance with law. In our view, failure on the part of the AO to apply these provisions of the Act in respect of set off of determined business losses, while passing the order of assessment, constitutes a mistake apparent from the record u/s 154. We, accordingly, direct the AO to rectify the order of assessment for A.Y. 2009-10 dated 02.12.2011 by allowing the assessee set off of the business losses against other eligible heads of income in accordance with the law. - Decided in favour of assessee
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2016 (7) TMI 261
Disallowance of e-connectivity charges - Held that:- Respectfully following the decisions of the Coordinate Bench in the Assessee’s own case for A.Y. 2004-05 and for A.Y. 2009-10 we hold that the e-connectivity charges incurred by the assessee are revenue in nature as they do not result either in the acquisition of software by the assessee or in any enduring benefit to the assessee - Decided in favour of assessee
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2016 (7) TMI 260
Denial of exemption u/s 11 - Violation of provisions of section 11(4A) - non maintaining separate books of account for pharmacy, which is part of hospital run by the assessee trust - Held that:- The running of a pharmacy is a necessary requirement for running of a hospital. It is impossibility from medical point of view that the hospital can run without “pharmacy shop” in the premises of the hospital. Considering the same, the Hon’ble High Court has held that maintenance of a pharmacy shop is ancillary to the dominant object of running of a hospital and thus, it is an integral part of the hospital. We noticed, actually the pharmacy shop is being maintained by the hospital itself and not by any private contractor. Drawing the medicine from such pharmacy shop by the Doctors in respect of the patients is also evident from the records, commonly maintained in their medical reports. It is not the case of the revenue that the profits earned on pharmacy was not spent for the objects of trust. Therefore, we find that the conditions of maintenance of books of account in respect of the business activity of trading of medicines, which is an integral part of the hospital activities, is not the requirement of the law on the facts of this case. Thus, we affirm the assessee’s contention that the pharmacy shop is an integral part of the hospital business and the same is not hit adversely by the conditions specified in the provisions of section 11(4A) of the Act. Therefore, so long as the transactions of such pharmacy which ancillary/ incidental for the business of a hospital and objects of the trust, the conditions relating to maintenance of separate books of accounts are met within the menaing of section 11(4A) of the Act. - Decided in favour of assessee
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2016 (7) TMI 259
Disallowance u/s 40(a)(ia) - reimbursement of expenses - Held that:- As per the agreement, the marketing companies are required sufficient number of employees for effectively marketing the products. As per the agreement, the salary expenses, travelling and conveyance expenses, etc., incurred by the marketing companies are required to be reimbursed by the assessee-company. Thus, the reason as to why the expenses were reimbursed by the assessee-company to the marketing companies are sufficiently explained. CIT(A) given a finding that the marketing companies have deducted tax at source from the salary payments. Thus, the expenses which have been reimbursed by the assessee have already suffered tax deduction at source at the end of the marketing companies. Hence, we are of the view that though the character of marketing expenses are in the nature of reimbursement of expenses yet the same has already suffered tax at source, i.e., the marketing companies have deducted tax at source from the said payments. Accordingly, we are of the view that there is no requirement of invoking the provisions of section 40(a)(ia) of the Act in the hands of the assessee. Various case law relied upon by the assessee has taken the view that the reimbursement of expenses does not require tax deduction at source. - Decided against revenue Bombay High Court in the case of CIT v. OCB Engineers relied upon wherein it was held that Reimbursement of salary expenses of employees to the sister concern, who were deputed by the sister concern to the assessee does not require deduction of tax at source.
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2016 (7) TMI 258
Validity of reopening of the assessment - Held that:- It is an admitted fact, as also evident from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the Assessing Officer on the basis of information received from the Directorate of Income-tax (Inv.) on the basis of search & seizure operation conducted at the premises of Rock Land Group of Cases and the documents related to the assessee found during the course of search were made available to the Assessing Officer of the present assessee. We thus respectfully following the decision of ACIT vs. Arun Kapur (2012 (6) TMI 403 - ITAT AMRITSAR) hold that provisions of sec. 153C of the Act were applicable in the present case for framing the assessment, if any, which excludes the application of sec. 147 of the Act, hence, notice issued under sec. 148 of the Act and assessment framed in furtherance thereto under sec. 147 read with section 143(3) of the Act are void ab initio. The reassessment in question is accordingly quashed. - Decided in favour of assessee
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2016 (7) TMI 257
Allowability of interest on share application money - interest expenditure incurred on share application money received from shareholders - Held that:- We are of the view that the share application money per se cannot be characterized and equated with share capital. The obligation to return the money is always implicit in the event of non-allotment of shares in lieu of the share application money received. Allotment of share are subject to certain regulations and restrictions as provided under the Companies Act. Therefore, receipt by way of share application money is not receipt held towards share capital before its conversion. Therefore, payment of interest of share application money cannot be treated differently in the Income-tax Act. Once the contention of the assessee that the money has been utilized for the purpose of business remains un-disputed, there is no justification to hold the issue against the assessee. Accordingly, the claim of interest expenditure on share application money as revenue expenditure deserves to be allowed. AO is directed to delete the addition on merits. See Rohit Exhaust Systems Pvt. Ltd. [2012 (10) TMI 1101 - ITAT PUNE] - Decided in favour of assessee
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2016 (7) TMI 256
Software expenditure - revenue or capital - Held that:- It is mentioned in the bill itself that the business software customised expenditure is charged for providing services from April 1, 2007, to March 31, 2008. This bill itself clarifies that this expenditure is incurred for only the financial year 2007-08 and no defect has been pointed out in this bill by the Revenue and, we are, therefore, inclined to believe that the software expenditure is having enduring benefit of not more than a year and therefore has been rightly booked as revenue expenditure. Repair expenses of rotary machine - Held that:- From going through the records, we observe that factory expenditure account which totals to ₹ 4,51,408, a cash payment of ₹ 25,000 has been shown to be paid vide voucher No. 537 and in the details of entry itself there is mention that this amount of ₹ 25,000 is the balance amount of rotary machine which valued at ₹ 12,75,000 and after paying of ₹ 12,50,000 the balance amount has been paid in cash. In our view this entry makes the fact very clear that ₹ 25,000 was part of the total value of the rotary machine at ₹ 12,75,000 and further no supporting evidence was placed on record by the assessee to prove that there were two separate bills one for the cost of the machine of ₹ 12,50,000 and the other for expenditure incurred for rotary machine for ₹ 25,000 relating to repair, etc., and, therefore, in these circumstances, we are unable to accept the contention of the learned authorised representative and inclined to believe that ₹ 25,000 was part of capital expenditure of ₹ 12,75,000 incurred for purchase of rotary machine and the learned Assessing Officer has rightly disallowed the same and allowed depreciation on ₹ 25,000. - Decided against assessee
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2016 (7) TMI 255
Unexplained investments - Assessee was asked to explain the cash deposit of ₹ 91,50,000 - assessee explained that out of ₹ 91,50,000, source of ₹ 71,00,000 is Proceeds from sale of property by her husband - AO examined it and found sale deed is only for ₹ 21,20,000 - assessee explained balance sum of ₹ 49,80,000 received in cash - purchaser of the property denied any such payment - AO made addition as unexplained investment u/s 69 Held that:- Assessee's husband was maintaining only a NRE account in India where it is not possible to give credit for Indian rupees as per RBI/FEMA Rules. The fact that the assessee's husband had declared total sale consideration of ₹ 71,00,000 and had paid the capital gain tax is not in dispute. Therefore, taxing the same amount in the hands of assessee will tantamount to double taxation which is highly inappropriate, harsh and bad in law and not permitted. No material has been brought on record by any of the authorities below. The assessee had no other source of income from which cash could have been deposited by her in her bank account. Therefore, making the assumption that such a large sum has been deposited from the unexplained sources cannot be accepted whereas the assessee has submitted proper and reasoned explanation. In the circumstances and facts of the case, the Ld. CIT(A) is not justified in confirming the substantial part of deposit as income from unexplained investments in the hands of the assessee which is directed to be deleted - Decided in favour of assessee.
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2016 (7) TMI 254
Reference to TPO - reasons to refer - Held that:- There is no requirement for furnishing the reasons to the assessee for referring the matter to the TPO. However, as per Section 92CA(2) of the Act the TPO has served the notice to the assessee before making any adjustment in the ALP. The fact for giving the opportunity of being heard is very much recorded in the order of the TPO. From a plain reading of the Section, we find that the AO for referring the matter to TPO should consider whether it is necessary or expedient so to do and after approval from the competent authority. But it is not AO’s obligation to communicate to the assessee what makes AO to make necessary or expedient to refer the matter to TPO. As such we find that there is no requirement for furnishing the reasons to the assessee for referring the matter to the TPO. In this background of the case, we uphold the order of Ld. CIT(A). Hence, this ground of appeal of the assessee is dismissed.- Decided in favour of revenue Working of the assessee for the determination of ALP with its AE in relation to the export of goods disregarded - Held that:- Transfer Pricing Officer has taken sufficient time while preparing arms length price in respect of the enterprise transaction. Since the main contention of the assessee is that the Transfer Pricing Officer has not given sufficient opportunity we are of the considered view that the matter may be set aside to the file of the AO with the direction to obtain fresh report from the TPO and the TPO is directed to re-compute the transfer price after giving reasonable opportunity of being heard to the assessee. Benefit of +/-5 % for the computation of ALP disallowed - Held that:- Similar issue was also raised by the assessee in its own appeal in previous ay wherein held that when only one price has been determined under (most appropriate method) for evaluating arms length price, the question of applicability of proviso 2 of section 92C(2) does not arise. Therefore assessee, was not entitled to the concession of plus or minus 5% as prescribed in the said provision - Decided in favour of revenue Addition u/s 41 - CIT(A) confirming the order of the AO by treating the payment of deferral sales tax loan at its Net Present Value (for short NPV) as remission of trading liability and treated the same as income under Section 41(1) - Held that:- The provisions of Section 41(1) of the Act does not attract to the assessee. In the instant case, as per the scheme he was allowed to retain the sales tax as determined by the competent authority and pay the same 15 years thereafter. The tax collected was deemed to have been paid and, therefore, the tax so collected cannot be construed as income in the hands of the assessee. The tax so retained by the s is in the nature of a loan given by the Government as an incentive for setting up the industrial unit in a rural area. The said loan had to be repaid after 15 years. Again it is an incentive. However, by a subsequent scheme, a provision was made for premature payment. When the assessee had the benefit of making the payment after 15 years, if he is making a premature payment, the said amount equal to the NPV of the deferred tax was determined at ₹ 4,25,79,684/- and on such payment the entire liability to pay tax/loan stood discharged. Again it is not a benefit conferred on an assessee. Therefore, Section 41(1) of the Act is not attracted to the facts of the present case. - Decided against revenue Addition on account of treating the lease rental as capital in nature - Held that:- Similar issue for the AY 2003-04 was allowed in favour of revenue by this Hon’ble Bench of Kolkata in assessee’s own case - Decided in favour of revenue Addition on account of bad debts written off in the books - Held that:- AO disallowed the bad debts on the ground that the assessee failed to provide the details when such bad debts were taken in the income of the assessee. But the Ld. CIT(A) has given the relief to the assessee on the basis of first appellate order of the immediately preceding assessment year i.e. 2003-04. However the same order was challenged and restored to AO for fresh adjudication.The decision of the AO as discussed aforesaid for restoring the matter has not been brought to our notice. Besides for the year under consideration, the assessee has submitted several details for writing off the bad debts are given on pages 200 to 231. However we find in many cases the details for treating the bad debts as income in the earlier years were not given. Therefore in view of above we are inclined to restore the matter to the file AO for fresh adjudication as per law and assessee is also at liberty to file the additional evidences in support of its submissions accordingly.- Decided in favour of revenue for statistical purpose.
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2016 (7) TMI 253
Deduction under S.80IA in respect of its windmill units denied - initial assessment year - Held that:- From a reading of the circular dated 15.2.2016, it is clear that the assessee who is eligible to claim deduction under S.80IA has been given an option to choose initial/first year from which it may desire to claim the deduction for ten consecutive years out of the slab of 15 or 20 years as prescribed under the above sub-section. The term ‘initial assessment year’ has been held to mean the first year opted to by the assessee for claiming deduction under S.80IA of the Act. Thus, it is clear that the initial assessment year is not the year of operation or commencement of business, as interpreted by the Assessing Officer, but it is the first year in which the assessee has opted to claim the deduction under S.80IA. In view of this clarification of the Board, which clinches the issue in favour of the assessee, and is binding on the Revenue authorities, we accept the contentions of the assessee in this behalf, and direct the Assessing Officer to allow the claim of the assessee, after verifying the records as to the initial assessment year in which the assessee for the first time has claimed the deduction under S.80IA of the Act, and consider the income of the assessee from the eligible unit from that year alone on a stand alone basis.
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2016 (7) TMI 252
Addition of unclaimed dividend - Held that:- The lower authorities have mis-directed themselves in taxing the unclaimed dividend as income. Ostensibly, dividend distribution by the assessee bank is an apportioned from its tax paid profits and does not charge against the profits for the purposes of computing taxable income. Once dividend declared by the assessee bank is not a charge against the profits in order to compute taxable income, any unclaimed dividend thereof, cannot be charged as an income under the Act. Therefore, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the impugned addition. - Decided in favour of assessee
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2016 (7) TMI 251
Transfer of shares - CIT(A) directed AO to treat the gain on transfer of shares which was held by the assessee for less than 1 month as business income - business income v/s capital gain - Held that:- In view of the consistent stand of the Tribunal in the Asstt.Years 2005- 06 and 2006-07 and 2008-09, we are of the view that the assessee has to be treated as an investor. The ld.CIT(A) has considered the circumstances in an elaborate manner in order to bring the point at home that the assessee was an investor. The ld.DR has pointed out that the assessee has taken loan of ₹ 84.50 lakhs which might have been used for the purpose of investment in shares. He read over statement of facts filed along with appeal. We find that the ld.CIT(A) has considered this aspect in the finding extracted (supra). According to the finding of the ld.CIT(A), the loan taken by the assessee was not specifically used for the purpose of making investment. The loan was taken in the month of March, 2007 by way of overdraft against FDRs. It was for a very short period of time. Hence, this circumstance cannot be used against the assessee to record a finding that the assessee was a trader. Neither in the Act nor in the Income Tax Rules any classification has been called for that if shares are held less than 30 days, then, the profit on sale of such shares would be treated as business income. On the strength of the circumstantial evidences, a composite opinion has to be formed by the adjudicator exhibiting the fact whether the assessee is an investor or trader. Therefore, there cannot be any further classification. The ld.CIT(A) has erred in carving out an artificial classification on the basis of holding period of certain shares. In the result, we allow the CO filed by the assessee and direct the AO to treat profit on sale of shares as long term capital gain or short term capital gain in accordance with the holding period of the shares - Decided against revenue In view of
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2016 (7) TMI 250
Disallowance of 14A - Held that:- The provisions of Rule 8D is mandatory for computing the disallowance during the year under consideration. Therefore, the working made by the assessee has also to be taken into consideration by the Assessing Officer. Since the CIT(A) directed the Assessing Officer to verify the working made by the assessee, this Tribunal do not find any reason to interfere with the order of the lower authority. However, it is made clear that the Assessing Officer shall verify the working made by the assessee and if the working is made as per Rule 8D, the Assessing Officer may follow the same. If for any reason, the Assessing Officer came to know that the working made by the assessee is not in accordance with Rule 8D, then it is open to the Assessing Officer to recompute the disallowance/expenditure and add the same to the total income of the assessee. With the above observation, the order of the CIT(A) is confirmed. Addition on account of unexpired value of AMC - Held that:- This Tribunal in assessee’s own case for assessment year 2005-06 found that the contention of the assessee that it could not recognize revenue for the unexpired period of AMC is on strong footing. This Tribunal further found that the unexpired period AMC could be considered only in the subsequent year and not in the relevant previous year. Accordingly, an identical order of the CIT(A) was confirmed by this Tribunal. As rightly submitted by the ld. Counsel for the assessee, the CIT(A) has reproduced the observation made by this Tribunal and allowed the claim of the assessee. Since the CIT(A) followed the order of this Tribunal, we find no reason to interfere with the order of the CIT(A). As rightly submitted by the ld. Counsel for the assessee a mere pendency of appeal before the High Court against the order of this Tribunal cannot be a reason to take a different view. It is nobody’s case that the order of this Tribunal is stayed by the High Court. In those circumstances, this Tribunal do not find any reason to interfere with the order of this CIT(A) and accordingly the same is confirmed. Entitlement to additional depreciation - AO allowed 10% additional depreciation in the earlier assessment year in respect of the machinery installed and used for less than 180 days - assessee claimed the balance 10% additional depreciation during the year under consideration - Held that:- We find that the Karnataka High Court in the case of M/s Rittal India Pvt. Ltd (2015 (1) TMI 1248 - KARNATAKA HIGH COURT) found that the assessee is entitled for the balance 10% additional depreciation in the subsequent year. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the remaining 10% additional depreciation during the year under consideration. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the remaining 10% additional depreciation during the year under consideration.
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2016 (7) TMI 249
Addition by recomputing the arm’s length price of the international transactions under sec. 92 - selection of MAM - CUP or TNMM - Comparable Companies selected by the TPO in the application of TNMM to determine the arm’s length price - international transaction pertaining to “purchase of DAP” - Held that:- We fully concur with the contention of the assessee that Rule of Consistency needs to be respected in the approach of the Revenue in the application of CUP method as the most appropriate method particularly when there is no change in either the profile of the assessee or in the nature of the transaction. We also agree with the submission of the assessee that TNMM method is not an appropriate method since the sale price in the present case is regulated by the government and the margin of net profit is not under the control of the tax payers. It is not appropriate to apply TNMM method also for the reason that merely 40% to 45% of the receipts are by way of subsidy from the government and not from sale of the product. The submission of the assessee that the relevant data for the application of CUP method is available in public domain has not been disputed by the Revenue. It is an undisputed position as well that crucial factor for determining the appropriateness of the method to be applied are the availability and reliability of the data. In view of these material facts, we come to the conclusion that CUP is the most appropriate method in order to benchmark the transaction pertaining to purchase of DAP Fertilizers and direct the learned TPO to apply the same for the benchmarking the transaction in question. In view of the above findings, the alternative plea of the Learned AR that the comparable chosen by the learned TPO are not at all the right comparable as these entities are engaged in manufacturing and sale of the product and not in the trading of the product as the assessee is, does not need consideration
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2016 (7) TMI 248
Transfer pricing adjustment - rejecting the comparable uncontrolled price (CUP) method as the most appropriate method applied by the appellant for benchmarking the international transactions entered with its AE - Held that:- The CUP is the most appropriate method to be applied for the international transactions of import and export of traded goods of the assessee. The assessee is required to support the international transaction by authentic documents which may also include quoted prices. The assessee may support its international transactions benchmarking analysis by the other method u/s 92C(1)(f) of the act which is held to be retrospective by the decision of the coordinate bench. In the event assessee fails to adduce and support its transactions under CUP method or under the sixth method then ld TPO and AO are entitled to resort to other method of benchmarking and comparability analysis after granting assessee a proper opportunity of hearing. In view of this, we set aside ground of the appeal of the assessee holding that ld AO and TPO are directed to first benchmark the international transaction of the assessee by applying the CUP method. In the event the assessee is unable to support its international transactions by that method then the international transactions of the assessee may be benchmarked by adopting other methods including the sixth method after granting assessee adequate opportunity of hearing.
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2016 (7) TMI 247
Interest on advances to subsidiaries - whether advance made was out of the EEFC account which carries no interest? - Held that:- AO is directed to verify the interest rate and recompute the adjustment on account of interest by applying the rate of interest of the relevant currency in the AY 2009-10 & 2010-11. Accordingly this ground of the assessee is partly allowed for AY 2009-10 & 2010-11. As regards the addition on this account in assessment year 2011-12, the advance given to its subsidiary companies stand converted into share application money. Once the loan has been converted into share application money, for the issue of the share capital, then such amount cannot be considered as loan. The TPO is not permitted under the law to re-characterize the transaction and accordingly we are of the view that no interest on such share application money can be charged. The above view is supported by the judgment of the Coordinate Bench of the ITAT in the case of Bharti Airtel Ltd. vs. ACIT [2014 (3) TMI 495 - ITAT DELHI ]. Thus the AO is directed to verify the date of conversion of loan to share application money and not to make any adjustment on account of interest post conversion of loan to share application money and accordingly this ground of the assessee is allowed for statistical purpose. Disallowance under section 14A - Held that:- As regards first contention that no satisfaction has been recorded we note from the assessment order that the AO has considered the explanation of the assessee and after taking into consideration the explanation he has invoked Rule 8D. Having done so, it cannot be said that the AO has not taken into consideration the explanation of the assessee. However, as regards the second contention of the learned AR that the disallowance cannot exceed the exempt income, we are in agreement with this contention. This view is supported by the judgment of the Hon’ble jurisdictional Delhi High Court in the case of Joint Investments Pvt. Ltd. versus Commissioner of Income Tax [2015 (3) TMI 155 - DELHI HIGH COURT ]. Accordingly we direct the AO to restrict the addition to the exempt income.- Decided partly in favour of the assessee.
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2016 (7) TMI 246
Deduction under section 11(5) r.w.s. 13(1)(d) - investment made by charitable institution in the shares of Bharati Sahakari Bank Ltd. - Held that:- The assessee had made investments in shares of Bharati Sahakari Bank Ltd. in earlier years which are being held by the assessee in the years under consideration also. The said investment was made by the assessee for availing the loan from said bank. However, since the loan was repaid by the assessee, but was still continues to hold the shares in Bharati Sahakari Bank Ltd., the Assessing Officer was of the view that the assessee had violated the provisions of section 13(1)(d) r.w.s. 11(5) of the Act. Further, the Tribunal noted the contention of assessee relating to assessment year 2006-07 and allowed the claim of assessee after considering the issue at length, since the assessee was still enjoying the overdraft facilities from the bank. The learned Authorized Representative for the assessee pointed out that for the year under consideration also, the assessee was availing overdraft facilities from the bank. In view thereof and following the order of Tribunal in assessment year 2006-07, we uphold the order of CIT(A) in allowing the claim of assessee and holding that there is no violation of provisions of section 11(5) r.w.s. 13(1)(d) of the Act on account of holding shares of cooperative bank, from which the assessee had raised overdraft facilities. - Decided against revenue
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2016 (7) TMI 245
Determination payment of royalty - whether the issue as to the payment on account of other group charges made by the assessee to its associated enterprise for services rendered was to be determined by the Transfer Pricing Officer/Dispute Resolution Panel or it was to be determined by the Assessing Officer under section 37(1) of the Act ? - Held that:- The instant case is squarely covered by the judgment in CIT v. Cushman and Wakefield (India) Pvt. Ltd. [2014 (5) TMI 897 - DELHI HIGH COURT] because in the instant case the Transfer Pricing Officer has exceeded his power by determining that the assessee has not received services from its associated enterprise, thus failed the benefit test and further held that the assessee had not furnished any evidence to any visit of the employee of its associated enterprise in connection with the services rendered entailing payment of group charges by the assessee. We are of the considered view that since the payment made by the assessee to its associated enterprise for services rendered was basically an expenditure incurred for the purposes of business, the same are to be determined under section 37(1) of the Act, if allowable or not and this issue is in the exclusive domain of the Assessing Officer to be determined. Now, adverting to the assessment order passed by the Assessing Officer which is in consonance with the direction issued by the Transfer Pricing Officer/Dispute Resolution Panel, vide which group charges to the tune of ₹ 1,89,53,444 have been treated as adjustment in the arm's length price. The Assessing Officer has neither examined nor returned any findings whatsoever if the payment to the tune of ₹ 1,89,53,444 made to the associated enterprise for availing of services from its associated enterprise is an expenditure incurred for the purposes of business under section 37(1) of the Act rather passed the assessment order in a mechanical manner in consonance with the directions issued by the Transfer Pricing Officer/ Dispute Resolution Panel. Moreover, when the Transfer Pricing Officer has not disputed that the services were availed of by the assessee from its associated enterprise, the question of determining the arm's length price of group charges to the tune of ₹ 1,89,53,444 does not arise because it was to be done by the Assessing Officer only.
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2016 (7) TMI 244
Penalty u/s 271(1)(c) - inaccurate particulars of income by claiming expenses of inadmissible in nature and not showing income under proper head of income - Held that:- In assessment year 2002-03, we find that the assessee has claimed in the return of income that he has inherited this capital from his mother Smt. Sajjanbai. The assessee has added this amount in his capital account. The AO and the ld. CIT(A) has confirmed the same, but the I.T.A.T. has restricted this addition and this capital was inherited from his mother. We find that the assessee has disclosed the entire facts before the authorities and the assessee has made the claim in his return of income and it was his bona fide claim. The Tribunal has accepted the claim that the assessee has claimed ₹ 5,49,542/-, but the Tribunal has restricted the above addition to ₹ 2,99,542/-. Therefore, we are of the view that the assessee could not prove the claim that he has carried forward the amount and he has inherited this capital from his mother. The assessee could not prove that he has inherited ₹ 5,49,542/-, but the Tribunal has accepted the fact that the assessee has inherited the capital from his mother. Therefore, we are of the view that the assessee has made his claim in his return of income and explained the facts. The same were not accepted by the authority, but the assessee’s claim was bona fide. Therefore, the claim has been accepted partly. Therefore, we are of the view that no penalty can be levied on this account. Therefore, we delete the penalty. Interest expenses claim in return of income - Held that:- In assessment years 2003-04 and 2004-05 we find that the assessee during the course of assessment proceedings has conceded that it was his mistake that he has claimed certain expenses which are inadmissible in nature and he agreed to include such expenses in its total income. We find that the AO and CIT(A) is justified in imposing the penalty, because the assessee had agreed to this addition and surrender was made. When the assessee has surrendered this income, penalty has to be levied as per the decision of Hon'ble Supreme Court in the case of Mak Data Private Limited [2013 (11) TMI 14 - SUPREME COURT ]. Therefore, if the assessee agreed to surrender the income for mental peace, the penalty has to be imposed. Therefore, we confirm the order of the penalty on account of bogus expenses against interest income from M/s.Tirupati Starch & Chemicals Limited. Receipt of gift from Shri Nitish Patni and Shri Vinod Bangar - Held that:- As during the course of assessment proceedings, it is established that the assessee has received the gifts from two persons, but the gift was not genuine and it was proved beyond doubt that the gifts were bogus. Therefore, when the claim of the assessee is bogus, the assessee is liable for the penalty. Therefore, we confirm the penalty in respect of gifts.
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2016 (7) TMI 243
Transfer pricing adjustment - Notional interest on sundry debtors - whether the amount advanced is for the purpose of equity or the amounts advanced originally as loans and later converted to equity? - Held that:- AO has to ascertain the nature of advances given to assessee whether it is loan or equity and how they are reflected in the respective accounts in the respective years. If assessee has invested them as investment in subsidiary they would be done under the head ‘investment’ otherwise, the same would figure under the head ‘loans and advances’. Likewise, if the amount is advanced as the share capital, the same would also be shown as share application money in the subsidiary hands. These require factual verification. It is also required to verify whether the funds provider or from Zero coupon bonds subscribed abroad or funds from India and necessary approvals from RBI, SEBI, Company Law Board and other statutory authorities governing these funds and finances. Consequently, AO is directed to examine assessee’s statements of accounts and also the necessary resolutions passed and information furnished to authorities to establish the nature of amounts advanced. If the amount is advanced towards loans, then, the transaction would be an international transaction and whether interest can be levied or not has to be examined in the light of the various decisions relied upon. What we also notice is that many of the decisions are not in the context of TP provisions but in the context of general income tax computation. Therefore, the issue is to be re-examined viz-a-viz case law relied upon and the applicable provisions of the Act. Then, the rate of interest would be an issue. In case interest is levyable, then, LIBOR+2% is generally accepted as the rate of interest to be levied on international transactions by various decisions of the Co-ordinate Benches. Therefore, without adjudicating the issue on this, we set aside the matter to the file of AO/TPO to re-examine the facts afresh and then decide the issue accordingly, keeping in mind the provisions and the case law relied upon. Assessee should be given an opportunity to substantiate the contentions. - Decided in favour of assessee for statistical purposes. Eligibility of claim of deduction u/s 10A - Held that:- As can be seen from the order of the DRP also, it has more or less accepted assessee’s contentions. But while implementing the orders of the DRP, AO did not examine the issues at all. Consequently, we are of the opinion that these issues require examination by the AO in detail and then assessee claim u/s. 10A should be allowed. May be because of lack of time, AO did not implement the directions. Be that as it may, we are convinced that assessee is entitled for various deductions on the basis of the provisions of the Act case law relied and therefore, AO is directed to verify the contentions and allow the same, keeping in mind the provisions of the Act and relevant case law relied upon. AO is directed to examine all the above issues afresh after giving due opportunity to assessee. - Decided in favour of assessee for statistical purposes. Interest charged on receivables - Held that:- As seen from assessee’s contentions, assessee is neither charging interest on any of the receivables outstanding. There is also no basis for adopting only two months as credit period. RBI itself allows an year for the amounts to be realised, if they are in foreign exchange. Whether it is AE or non-AE, it is in the interest of business that assessee receives the foreign exchange early so that it can claim deduction u/s. 10A. Therefore, in our view, putting a limit of two months of credit period itself is arbitrary. Moreover, as seen from the calculation provided in page 7 of the assessment order, the date of realization was shown as 02-02-2011 and interest was levied from 01-04-2010 to 02-02-2011 which is not pertaining to the year under consideration. As far as this year is concerned, the invoices raised on 31-12-2009 were outstanding only for a period of three months by the end of the accounting year. We are of the opinion that this period is reasonable and so no interest can be levied, just because amounts are shown as ‘outstanding’. Accordingly, we cancel the interest levied and allow assessee’s contentions.
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2016 (7) TMI 242
Transfer pricing adjustments - Grant of adjustment on account of under capacity utilization - Held that:- A perusal of order dated 28-10-2011 passed by TPO u/s.92CA(3) of the Act shows that the TPO has not touched upon the issue of capacity under utilization adjustment claimed by the assessee. The Commissioner of Income Tax (Appeals) in the impugned order for assessment year 2008-09 in para 2.2.4 to 2.2.5 has directed the Assessing Officer/TPO to grant the adjustment on account of the capacity under utilization on the basis of the order of TPO passed in the subsequent assessment year i.e. assessment year 2009-10. It is an undisputed fact that the benefit of ‘under capacity utilization’ has been granted by the Tribunal in various cases wherever the assessee deserves or where the facts and circumstances of the case warrants so. In the present case, it is not clearly emerging from the records as to on what basis under capacity utilization adjustment is to be granted to the assessee. Therefore, we deem it appropriate to remit the file back to TPO for deciding the issue afresh by passing speaking order. The TPO shall decide the issue after considering the facts of the case, documents on record and in the light of decisions of Tribunal. The appeal of the Department for the assessment year 2008-09 is accordingly allowed for statistical purpose.
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2016 (7) TMI 241
Addition being the difference in the FD amount as unexplained income from other sources - CIT(A) deleted the addition calling for information u/s 133(6) of the Act from the bank and found that the difference worked out by the Assessing Officer in the FD was reconciled - when the CIT(A) called for information by himself from State Bank of India, whether such information has to be treated as additional evidence filed by the assessee? - Held that:- This Tribunal is of the considered opinion that the powers of the CIT(A) are coterminous with that of the Assessing Officer, therefore, the CIT(A) can himself call for the material and examine the same without any assistance from the Assessing Officer. Since the CIT(A) himself called for the records and examined the same, this Tribunal is of the considered opinion that there is no violation of Rule 46A as alleged by the ld. DR. Accordingly, this Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed. - Decided against revenue Disallowance of travelling expenses - AO disallowed a sum of 1 lakh on the ground that the expenditure incurred by the assessee towards foreign travel cannot be for earning the professional income admitted by the assessee due to his old age - Held that:- The fact that the assessee is a neuro-physician is not in dispute. Being a practicing neuro-physician, the assessee has to update his knowledge in the field in which he is practicing. Therefore, age of the assessee is not a criteria for updating the knowledge. The fact that the assessee travelled out of the country is not in dispute. The Assessing Officer himself allowed a part of the expenditure, therefore, it is not known why the remaining part of 1 lakh cannot be treated as expenditure for earning the professional income This Tribunal is of the considered opinion that a practicing professional has to update his knowledge irrespective of his age, therefore, the expenditure towards foreign travel has to be allowed in toto. The age of the assessee cannot be a determinative factor for restricting the foreign travel expenses. Therefore, we are unable to uphold the orders of the lower authorities. Accordingly, the addition made by the Assessing Officer to the extent of 1 lakh is deleted.- Decided against revenue Disallowance of depreciation on motor car - Held that:- It is not in dispute that the assessee himself added back 25% of the expenditure as personal in nature. When the assessee himself claimed the expenditure to the extent of 25% as personal in nature, this Tribunal is of the considered opinion that depreciation on motor car to the extent of 25% is also only for personal purpose. Therefore, it cannot be allowed while computing the professional income. In view of the above, this Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed.- Decided against revenue
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2016 (7) TMI 240
Addition u/s 68 - Held that:- AO had even treated the debit balances of sundry creditors as unexplained cash credit u/s 68 of the Act by treating them as bogus liabilities. We find that there is an arithmetical error committed by the Learned AO thereby making excess addition of ₹ 3 crores towards storage charges payable (FSWAI). We also find from the details in the paper book and the arguments of the Learned AR that the assessee had heavily transacted with a Public Sector Undertaking, a Government of India Enterprises, M/s PEC Ltd. There are certain details such as Suspense Accounts, which assessee himself had admitted in the narration that details of credits are not available and hence credited to suspense accounts. Hence the Learned AO is justified in invoking the provisions of section 68 of the Act in respect of such transactions. However, from the totality of the facts and circumstances of the case, and in view of the voluminous details filed in the paper book by the assessee, we hold that it would be fit and appropriate , in the interest of justice and fair play, to set aside all the issues raised in the grounds of appeal to the file of the Learned AO, with the following directions :- (i) No addition need to be made on the opening balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; (ii) No addition need to be made on the debit balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; (iii) The Learned AO to make extensive verification of current liabilities and provisions , in accordance with law, in respect of accounts where there were transactions during the year ; (iv) The Learned AO is directed to allow set off of debit balances with credit balances in respect of the same parties while deciding the issue; (v) The assessee is directed to co-operate with the Learned AO and furnish necessary evidences and documents in support of its contentions in the form of reconciliation statements, confirmation of balances etc. (vi) The assessee is also directed to adduce evidences before the Learned AO in respect of rectifications stated to have been carried out in subsequent years for the wrong credit entries made in the earlier years and also produce evidences for payments / settlements made to various creditors in subsequent years. - Decided in favour of revenue for statistical purposes.
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2016 (7) TMI 239
Rectification of mistake - determination of taxable income - Held that:- A perusal of the order dated 11.9.2014, it reveals that the AO has observed that income of the assessee was wrongly recomputed at ₹ 21,091/-. In his understanding it was an apparent error. But what is the basis to arrive at this belief is not discernible from the impugned order. When the ITAT has set aside the issue for fresh adjudication, the AO was supposed to pass an assessment order. The order dated 28.3.2013 can be equated to an order by virtue of that taxes could be recovered from the assessee on determination of taxable income at ₹ 21,0921/-. How the AO has arrived at a revised income of ₹ 4,64,792/- by recording that an apparent mistake had occurred in the order dated 28.3.2013 is not discernible. We could appreciate the case of the AO, had he framed an assessment order and determined the taxable income at ₹ 4,64,792/-, but at the end of the order, in the computation, he committed a mistake by taking income at ₹ 21,091/-. But that is not the case. We have extracted complete orders passed by the AO in pursuance of ITAT’s order. We have extracted the finding of the Tribunal while setting aside the original assessment order. Therefore, there cannot be any rectification order under section 154 passed on 11.9.2014. - Decided in favour of assessee
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2016 (7) TMI 238
Computation of adjustment in respect of provision of services to AEs at entity level - Held that:- Addition is to be confined to the component of international transactions with the AEs alone and not to the entire segmental results. The adjustment arising as a result of TP analysis is to be confined to the international transactions undertaken with the AEs alone and not in relation to non AE transactions. Sundry credit balances written back - Held that:- It is not in dispute that no details were filed either before the AO or before the DRP. However, since it involves computation of operating profit of the assessee and since the assessee has filed certain details which were not before the TPO or the DRP, therefore, we, in the interest of justice, restore this issue to the file of the AO/TPO with a direction to give an opportunity to the assessee to justify and explain to the satisfaction of the AO/TPO that the sundry credit balances written back amounting to ₹ 29,33,688/- is part of the operating income of the assessee. The AO shall decide the issue in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. This ground by the assessee is accordingly allowed for statistical purposes. Computing the deduction u/s.10A - Held that:- We restore this issue to the file of the AO with a direction to compute the deduction u/s.10A as per law after giving due opportunity of being heard to the assessee.
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Corporate Laws
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2016 (7) TMI 279
Scheme of Arrangement in the nature of amalgamation sanctioned - There does not appear to be any impediment to the grant of sanction to the Scheme of Amalgamation, inasmuch as from the material on record and on a perusal of the Scheme, the Scheme appears to be fair and reasonable and is not violative of any provisions of law, nor is it contrary to public policy. As noticed earlier, none has come forward to oppose the Scheme. All requisite statutory compliances have also been substantially fulfilled.
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2016 (7) TMI 278
Demerger and Transfer of Demerged Undertaking - seeking dispensation and directions for convening meeting - Held that:- As ordered a meeting of the Unsecured Creditors of the Applicant Company shall be convened and held at the registered office of the Applicant Company for the purpose of considering and if thought fit, approving with or without modifications, the Composite Scheme of Arrangement in the nature of demerger and transfer of Trading Undertaking of Priyal International Private Limited to Shroff Wholesome Living Farms Private Limited as well as the Restructure of Capital of in form of Utilization of Security Premium Account of Priyal International Private Limited, the Applicant Demerged Company, as proposed between the company and its creditors. At least 21 clear days before the meeting to be held as aforesaid, Notice convening the said meeting, indicating the day, the date, the place and the time as aforesaid, together with a copy of the Scheme of Arrangement, copy of the Explanatory Statement required to be sent under Section 393 of the Companies Act, 1956 and the prescribed Form of Proxy shall be sent to each of the Unsecured Creditors of the Applicant Company, at their last known address. Also the rules for appointment of chairman, quorum of meeting, voting by proxy and other relevant provision of Companies act should be strictly adhered to.
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Service Tax
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2016 (7) TMI 307
Taxability of services provided by the SEZ unit to the DTA unit of the same assessee - principle of mutuality - Maintainability of appeal before the High Court - whether the appeal would lie before the Honble Supreme Court as provided under section 35(L) of the Act? - Demand of service tax with interest and penalty - The assessee opposed such proposal mainly on the ground that one unit of a company cannot provide service to another unit since for providing taxable service, it is necessary that there should be two separate entities. Held that:- the Special Economic Zones Act was enacted to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto. - All the statutory provisions indicate separate and artificially created independent existence of a SEZ unit of a company whether it has another unit situated in Domestic Tariff Area or not. In particular, Rule 19(7) of the Special Economic Zones Rules, 2006 while recognising that the same legal entity may have two units, one in SEZ and another in DTA, mandates that the two would have distinct identities with separate books of accounts. For various purposes, thus a SEZ unit of an enterprise which also has an additional unit in Domestic Tariff Area, therefore, has a distinct identity. Its accounts are separate, its accounting would be separate. This artificial creation of separate accounting of a unit or an industry of a common enterprise or a company, is not a new or unknown phenomena. In number of cases, where Income Tax Act provides profit linked incentives such as deductions under sections 80HHC, 80I, 80IA, 80IB, etc., the industry or unit engaged in such eligible business is treated separate and distinct for the purpose of accounting so that deductions of the assessee out of its eligible business can be separately worked out. Under the circumstances, in view of statutory scheme noticed in the Finance Act, 1994 and Special Economic Zones Act, 2005, the contention of the respondent company that on the principle of mutuality, the services rendered by its SEZ unit to a Domestic Tariff Area unit, would not be chargeable to service tax, cannot be accepted. Valuation - free services - Held that:- When the service is provided but no value thereof is charged, there would be no question of collecting service tax. No provision has been brought to our notice in the Finance Act, 1994 under which though the service provider has not charged any value for service, service tax thereon still can be levied on its deemed value, be it market value or fair value. - if the department proceeds on the premise that a certain service though otherwise a taxable service, the service provider did not collect any charge for the same from the service recipient, in our opinion, it would simply not be possible for the authority to collect any service tax on such service. For such reasons, while therefore, dismissing the Revenue's appeal against the judgement of the Tribunal, on the grounds different from which appealed to the Tribunal, we answer the question clarifying that in the present case, no service tax was leviable since the SEZ unit of respondent assessee had not charged for the services provided to its DTA unit. - Decided against the revenue.
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2016 (7) TMI 306
Challenge to the order passed by the Settlement Commission - The only issue which was not decided in favour of the petitioner is with regard to income from SEZ. However, on a perusal of Paragraph 6.10 of the impugned order, it is seen that the claim for exemption for the income of ₹ 81,10,41,888/- from the SEZ units for the year 2011-12 and 2012-13, the Commissioner has referred to a report submitted on 06.04.2016 and came to a conclusion that petitioner has not furnished the exclusive income at the time of investigation and pointed out that it is not possible to furnish the quantum of taxable income received from SEZ units. - The petitioner's case is that they were never put to notice about such a report and had they been informed about the same, they would have definitely conceded to the claim and also paid tax . Held that:- On a reading of the impugned order passed by the Settlement Commission, it is evidently clear that this vital opportunity was not granted to the petitioner before the case came to be referred back to the jurisdictional Commissioner for adjudication. The respondents are not in a position to justify the impugned order as procedural error looms large on the face of the impugned proceedings. Therefore, the impugned order to that extent, namely with regard to the income from SEZ, calls for interference. The learned senior counsel appearing for the petitioner informed the Court that after the impugned order was passed and before filing the writ petition, the petitioner has further admitted the liability and paid a sum of ₹ 2,31,12,732/- apart from the payment already made i.e., ₹ 6,10,21,642/-. This aspect of the matter shall also be considered by the Settlement Commission while taking up the case for settlement of issue, viz., Income from SEZ, which has been remanded for consideration. The writ petition is partly allowed and the impugned order is set aside, to insofar as the findings rendered by the Commissioner under the head Income from SEZ and the matter is remanded to the Settlement Commissioner for fresh consideration.
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2016 (7) TMI 305
Challenge to the show cause notice - Maintainability of writ petition - learned Single Judge dismissed the petition [2015 (4) TMI 1128 - KARNATAKA HIGH COURT] - appellant submitted that the show cause notice issued by first respondent is one without jurisdiction and same cannot be sustained in the eye of law. - Held that:- On perusal of the order passed by the learned Single Judge, we do not find any illegality or material irregularity nor any good ground as such made out by the appellants to consider the reliefs sought in the appeals for the reason that the Writ Petitions filed by the petitioner are dismissed reserving liberty to the petitioner/appellant to file reply or objections to show cause notice within two weeks from the date of receipt of copy of the said order. Further, it emerges that they have filed a reply to the show cause notice before the first respondent. Therefore, we do not find any justification or good ground, as such made out by the appellant to consider the relief sought for by the appellant nor the appellant has made out any good ground to entertain the relief sought in Writ Appeal. - Petition dismissed. - Decided against the assessee.
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2016 (7) TMI 304
Demand of service on Civil Work, Infrastructure Charges paid to TNEB - Denial of cenvat credit - erection and installation of the work of electricity generation system which is a composite contract involving the installation of generator as well as execution of Civil Work carried out by the appellant. - Held that:- Erection service provided was purely a Works Contract Service since that involved Civil Works as well as Electrical Works. Such works carried out before 01.06.2007 shall not be taxable . So far as Erection Charges is concerned, pertaining to the period 01.04.2008 to 33.03.2009, it may be stated that, that shall be liable to tax and what that is done by the learned adjudicating authority is proper. The Infrastructure Charges paid to TNEB and incurred by the appellant directly as well as reimbursed to it, is not in relation to any services provided by the appellant to its clients. Therefore, in the absence of any taxing entry to tax such receipts the appellant is not liable to service tax thereon. The Cenvat credit denied pertains to the input credit taken by the appellant for use thereof in manufacture of the generators. The generator not being liable to duty by virtue of exemption, appellant is liable to pay back entire credit taken to the State with interest. It is made clear that utilisation of the credit shall be calculated from the date of utilisation thereof and interest, if any, payable shall be calculated from that date till the period that was paid back to State. Accordingly appellant is liable to penalty. However considering the facts and circumstances of the case, to reduce the dispute, it would be proper to direct the appellant to deposit 25% of the demand of duty on this count of ineligible credit issue pertaining to the period 01.10.2006 to 31.03.2008. Decided partly in favor of assessee.
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2016 (7) TMI 303
Levy of penalty - Non payment of service tax at the time of filing of the ST-3 returns - The amount was paid subsequent to filing of service tax returns but before the issuance of the Show cause notice. - Held that:- the entire service tax and interest has been discharged by the appellant assesse before issuance of Show cause notice. - Levy of penalty waived invoking the provisions of Section 80 - Decided in favor of assessee.
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Central Excise
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2016 (7) TMI 302
Rejection of rebate claim - export of goods - conditions stipulated in Notification No. 19/2004 CE(NT) dated 06.09.2004 read with Rule 18 of the Central Excise Rules, 2002 were not fulfilled. - Held that:- Government notes that as regard to discrepancies mentioned at Sr. No. (i), (ii), (iii), (iv) and (vii), the appellate authority has given detailed findings. Government notes that with regard to deficiency shown at Sr. No. (V) regarding valuation aspect, the applicant contended before appellate authority that the assessable value was more than FOB value due to currency fluctuation, but the applicant did not furnish any explanation as to how the variation in exchange rates has resulted in difference between assessable value and FOB value. Government observes that in their grounds of Revision Application also the applicant could not substantiate their claim of variation in exchange rate. Rather, they have take a new ground that rebate sanctioning authority cannot examine corrections of assessment and full rebate is eligible if central excise duty in paid on CIF value also. Claim of rebate was rightly rejected - Decided against the applicant.
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2016 (7) TMI 301
Rebate claim of duty - export of goods under Rule 18 of Central Excise Rules, 2002 - claim rejected on the ground that the applicant have not submitted documentary evidence/records to establish the actual receipt of inputs and its utilization in the manufacture of the finish goods exported under A.R.E-2 - Held that:- On perusal of sample copies of documents submitted by the applicant, Government observes that invoices raised by M/S. Janta Glass Ltd, indicates name of M/S. Jai Glass works as dealer and M/S. Great India Industries and Pharmaceutical Ltd. (the applicant) as consignee. Further the invoice raised by M/S. Jai Glass works in the name of applicant also tallies with respect to quantity, no of packages, Truck No. L.R. No., Description etc. Under such circumstances, mere reliance on stock Register in isolation cannot be a basis of reaching to a conclusion that applicant failed to prove that duty paid inputs have been used in manufacture of final product. As such, the issue needs to be remined in light of all relevant documents to ascertain use of duty paid inputs in manufacturing of final exported products. The original authority is required to carry out the said verification on the basis of original documents and arrive at a decision as to whether the impugned inputs were received and utilized in the manufacture of the impugned export goods or not. Government sets aside impugned Order-in Original and remands the case back to original authority to decide the same afresh in view of above observation. Sufficient opportunity of hearing be afforded to concerned parties. - Decided in favor of applicant.
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2016 (7) TMI 300
Clandestine removal of goods - manufacturing of CTD bars - modus operandi of the racket and loss of public Revenue - Appellant neither led any cogent evidence to controvert allegations of clandestine clearance of 269.712 MTs of CTD bars valued at ₹ 34,22,342/- involving duty evasion of ₹ 5,13,351/- alleged in the para 34 of SCN in respect of the periods involved in 1995-96 and 1996-97 nor discarded the evidence gathered by investigation against it. Nothing could be demonstrated by the appellant company to establish that it had no unaccounted clearances. The only prayer of the appellant was to take a lenient view when the appellant disclosed unaccounted finished goods. Held that:- When investigation has discovered the truth and the bill traders as well as the purchasers of clandestinely removed goods demonstrated the questionable modus operandi of the appellant proving that goods of the appellant were dealt by them resulting in evasion of duty and their evidence remained uncontroverted, the appellant is answerable to law for the evasion of duty it has caused. Beginning from the show cause notice all the authorities have erroneously held that the appellant is entitled to cum-duty benefit. It is shocking to know that how such a concession can be given to an evader who did not maintain authentic record recognized by law to demonstrate cum duty clearness. Appellant resorted to clandestine removal and no records were maintained in respect of such clearance. Therefore the duty evaded transactions which have never seen the light of the day deserve no concession of cum duty benefit at all. The tainted deals should be banned by coercive measures of law to prevent recurrence thereof as were as to discourage evasion. - If such benefit is granted, that shall legalise illegalities. Demand of duty confirmed with penalty - Decided against the assessee
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2016 (7) TMI 299
Clandestine removal of goods - extended period of limitation - the appellants have submitted that there is not much evidence on record to reflect upon the clandestine activity. It is seen that they are not disputing the fact of receipt of tobacco as also the fact of receipt of huge number of packing material. - Held that:- Revenue have procured evidence of receipt of unaccounted tobacco, receipt of packing material as also sale of final product to the assessees dealers. The appellants have not been able to rebutt the above evidence with any counter evidence. On the contrary, they have accepted the receipt of said material. Infact, we find that the order passed by the original adjudicating authority is very justifiable order as it also extends benefit to the assessee in respect of tobacco traded by them as also takes into account the correct formula for use of the packing material. In such a scenario, it can be justifiably held that appellant during the relevant period were indulging in clandestine manufacture and clearance of their final product, though they were reflecting nil production in their RT 12 returns. - Demand confirmed - Matter remanded for computation of duty liability - Decided against the assessee.
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2016 (7) TMI 298
Valuation - sale of medicines through their intermediaries - related parties - The supplies made to the said intermediaries were at a lower price than agreed upon between the appellant manufacturer with the Government department in terms of the rate contract entered between the two. The said intermediaries further raised invoices to various Government hospitals and sold the goods at the agreed upon prices. - Held that:- The fact that the goods stands supplied directly by the manufacturer and it is only the invoices which are initially being raised by them in the name of M/s Anupam, who are further raising the invoices in the name of the Government hospital is indicative of the cleverly adopting the fictitious route by the manufacturer. Even if viewed from another angle, the part of the goods which stand directly supplied by the manufacturer to the Government hospital having been assessed at the contracted price, a part of the goods in respect of the same very contract cannot be allowed to be assessed on a different assessable value merely because the appellant have roped in an intermediary agency in between. The appellant were required to discharge the duty liability at the contracted price in respect of the goods supplied by them to the Government hospitals, either directly or through M/s Anupam. Demand of duty confirmed - Decided against the assessee.
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2016 (7) TMI 297
Demand of duty on loss of inputs on the ground that excessive loss of excisable goods arising in the course of repacking, warrants recovery the proportionate input credit and that is recoverable. - assessee purchased scouring power and detergent powder manufactured by its sister concern for repacking in different denomination packs as well as cleared. Held that:- Revenue’s primary allegation is that because there was an increased trend of losses of finished goods during repacking was shown by the appellant as tabulated aforesaid, the proportionate CENVAT credit has to be disallowed on input. But there is no evidence on record to show that the goods subjected to MRP has been cleared clandestinely. That rules out the allegation against the appellant and there shall be no presumption of any diversification of the output repacked in absence of any cogent evidence and the contrary. In absence of any credible evidence to show that the goods came from the sister concern of the appellant has gone elsewhere without suffering duty on MRP basis, the appellant should not suffer any arbitrary percentage of disallowance of CENVAT credit apparent from show cause notice Mere statistical figure shall not serve purpose by any scientific calculation. The calculation should demonstrate that there was breach of law supported by evidence. That is not the present case. Added to this, without any evidence on record to show that neither the input nor the repacking goods have gone elsewhere causing evasion of duty, the input credit denied is unsustainable. - Demand set aside - Decided in favor of asessee.
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2016 (7) TMI 296
Demand of duty u/s 3A under compounded levy scheme - production. Ingots and billets of non-alloy steel - whether the goods is classifiable under Heading No. 7206.90 or 7224.90 of the CETA. - Held that:- When the Chemical Examiner’s report on the various elements contained in the respondent's sample is compared with the specifications, for non-alloy steel as specified in Note 1 (f) of Chapter 72, the conclusion is that the respondent’s items would fall for classification under other alloy steel under 7206.90. Consequently, respondent stands covered by the Compounded Levy Scheme and is required to discharge duty as per this scheme, as alleged by the Revenue. It is fairly obvious that under this provision, the respondent is required to come out with a positive declaration if they were manufacturing the products covered by the scheme. It stands established by the report of the chemical examiner that what has been manufactured by the respondent is non-alloy steel products whereas what has been declared by them is otherwise. Under the circumstances, we are inclined to take the view that this is nothing but deliberate withholding of information which will make this a fit case to invoke extended time limit under the proviso to section 11A of the Act for demand of duty. Alowance of Modvat Credit - the allowability will need to be evaluated with reference to the Modvat Rules prevailing in at the relevant time. - For this limited purpose, the matter is remanded to the Original Adjudicating Authority. Demand of duty with penalty confirmed - Decided in favor of revenue.
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2016 (7) TMI 295
Demand of duty of manufacturing of go-kart and parts thereof - classifiable under chapter sub-heading number 8703.90 or not - respondent / manufacturer contended that the product would be under chapter sub-heading number 95.08 as Fairground amusements - Held that:- It is undisputed that the go-kart manufactured by the respondent assessee is used for racing in go-kart racing - The specific notes to the heading therefore do not justify its classification under Heading 95.08. Therefore, as between the alternative classifications, once Heading 95.08 is excluded the other one 87.03, will apply - Decision of larger bench in the case of Leisureland Pvt. Ltd [1994 (1) TMI 152 - CEGAT, NEW DELHI] followed. Demand of duty confirmed - However, since the issue is of interpretation and classification of the products, penalties imposed on the appellant waived - Decided in favor of revenue.
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2016 (7) TMI 294
Cenvat Credit - input services - upto the place of removal - service tax paid on transportation and freight charges in respect of transportation of finished goods from the factory up to the customers' premises as well as to the port in case of export of final products. - The contention of the appellant is that if opportunity is given to him he can produce the documents which will help the learned Commissioner (Appeals) to arrive at the correct finding. Held that:- The order set aside - matter remanded back to Commissioner (Appeals) with a direction to decide the appeal afresh after considering the evidence furnished by the appellant company. It is made clear that before deciding the case learned Commissioner (Appeals) is required to afford an opportunity of hearing to the appellant who will be free to submit all the documentary evidence in their possession in support of their case. - Decided in favor of assessee.
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2016 (7) TMI 293
Restoration of appeal - appeal was dismissed for non-compliance of pre-deposit order - appellant wants to start manufacturing plywoods in full scale but the respondent would not allow them as duty and penalty are due to them. - it also submitted that appellant has a very good case on merits and there is every chance of succeeding in the appeal. - fter considering the submissions of both the parties and after going through the judgments cited above and also keeping in view the peculiar facts and circumstances of the present case, we are of the considered opinion that in the interest of justice, this application needs to be allowed and we allow the application subject to the payment of cost of ₹ 25,000/- to the respondent and further we direct the appellant to comply with the direction of predeposit of ₹ 30,00,000/-within a period of four weeks from the date of receipt of certified copy of this order. - Appeal to be restored subject to above conditions.
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2016 (7) TMI 292
Clandestine removal of goods - demand of duty on the basis of turnover of their dealer - manufacturing or automobile parts - Commissioner (Appeals) oberved that clandestine removal of goods is on the basis of assumption and presumption, therefore, the demand of duty are not sustainable - Held that:- As it is clear from the facts of the case itself that M/s SVTC is not exclusively dealer of the appellant and exclusively selling goods manufactured by the respondent M/s JYL but purchasing of goods from local market and selling thereof and therefore, it cannot be said that all clearances made by M/s SVTC are of the goods manufactured by M/s JYL. There is no other evidence produced by Revenue to allege that M/s JYL is engaged in the activity of clearance of clandestine removal of goods by way of procuring excess input as consumption of electricity, transportation of goods etc. In the absence of any concrete evidence against M/s JYL, the duty cannot be demanded merely on the basis of turnover of their dealer. No demand can sustain - Decided against the revenue.
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2016 (7) TMI 291
Clandestine removal of goods - manufacture of zine ingots - It is the allegation that the entries made in the log sheet pertain to the manufacturing took place by the appellant and the same has not been entered in the RG-1 register. The appellant has explained that after manufacturing the goods, the goods are being tested and test reports are placed on records which show that after obtaining the test reports, the appellant is making the entries in the RG-1 register as the goods are ready for clearance. Held that:- The Revenue has not controverted this fact. In that circumstance, without any positive evidence to show that the appellants have cleared the goods without payment of duty, the allegation is merely on the basis of assumption and presumption. As no positive evidence has been brought by the revenue to support its allegation that the goods cleared clandestinely without payment of duty is not sustainable. - Demand and penalty set aside - Decided in favor of assessee.
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2016 (7) TMI 290
Claim of exemption of Notification No.108/95-CE dated 28.8.1995 as amended - goods supplied to the projects funded/financed by the United Nations or an international organisation and approved by Government of India. - Revenue’s main argument is that in the case of 196 Hydraulic Excavators, new condition that the goods required for the projects are not to be withdrawn after the execution of the project (as made applicable by the amendment Notification No.13/2008-CE dated 1.3.2008 to the original Notification No.108/95-CE has not been fulfilled. Held that:- Considering the findings that there has been no suppression on the part of the appellants and in view of the decisions of the judicial fora quoted above, we hold that amendment to the original Notification No.108/95-CE dated 28.8.1995 made by Notification No.13/2008-CE dated 1.3.2008 would have prospective operation and the demand against the appellants can be sustained only for one year period which is within the period of limitation and the penalty imposed by the impugned order deserves to be set aside. - Decided partly in favor of appellant.
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2016 (7) TMI 289
Cenvat Credit - Demand of reversal of credit on removal of waste - appellant was removing wastes of their cenvatable invoices like laminates, shipper carton, duplex, perform (water bottles) hydrogenated vegetable fats and wastes of their noodles without recording the same in the statutory records and on the strength of an invoice book and without discharging duty liability thereon. - Held that:- appellant is not required to reverse the credit taken on the inputs contained in waste and scrap during the impugned period - Decided in favor of assessee.
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CST, VAT & Sales Tax
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2016 (7) TMI 288
Levy of penalty consequent to iron and steel being used by it for manufacture of "two-way cages". - assessee held a recognition certificate under Section 4B of the 1948 Act for manufacture of "iron and steel". - Section 4-B (5) of the U.P. Trade Tax Act, 1948 - Held that:- Insofar as the question of manufacture of two-way cages and they being covered under the entry of "iron and steel" goes, the Court finds that Clause (iv) of Section 14 employs the words "that is, to say". Following the well settled principles and rules of statutory interpretation especially when the words "that is, to say" are employed by the legislative author, it is obvious that articles in order to fall under clause (iv) would have to stand encompassed under the various sub clauses which stand appended thereto. Admittedly, two-ways cages do not find mention in any of the sub clauses appended to Clause (iv). The use of the words "that is, to say" forbids and clearly restricts the Court from conferring an expansive meaning upon the phrase "iron and steel". This Court finds no merit in the challenge laid to the order imposing penalty under Section 4-B (5) of the 1948 Act. - Decided against the assessee.
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2016 (7) TMI 287
Input Tax Credit - Manufacturing activity or not - UP VAT - business of sale and purchase of Eucalyptus wood and bamboo - Tribunal observed that, the alleged process of debarking and cutting of wood and bamboo does not result in any new finished commercial item totally different in identity to wood and bamboo, therefore, the process does not involve any manufacture. Consequently the benefit of I.T.C. under Section 13 is not available to the revisionist. Held that:- it is evident that every type of operation of the goods or finishing of goods would not amount to manufacture unless it results in emergence of a new commercial commodity, therefore, the contention of the petitioner herein that debarking and cutting of wood, removing of roots involve processing of the original product wood and bamboo resulting in a new item, is unacceptable, as, the new item is nothing but wood and bamboo which do not have an identity totally different from the original product nor does it result in emergence of a new commercial commodity. For the reasons aforesaid the judgment of the Tribunal cannot be faulted and once it is held that no manufacture was involved in the alleged process, the benefit of Section 13(1)(a) read with Explanation 3 could not be extended to the revisionist. - Decided against the assessee.
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2016 (7) TMI 286
Refund due to opting composition scheme for works contract - department treated the same as Refund of input tax credit - business of civil construction work. - refund was not released on the premise that the same would be carried forward in the next year and would be adjusted towards the petitioner's tax liability. - Gujarat Value Added Tax Act - Held that:- These refunds were released by the Assessing Officer while passing order of assessment for the assessment year 2008-09. Simply because such assessment orders are computer generated and would have specific boxes containing specific details and which did not have any entry for refund for past assessment years, he was compelled to show the sum of ₹ 35,13,883/- against the entry of net tax credit. This method adopted by the Assessing Officer would not change the true character of the said sum payable to the petitioner. It was and remained a refund due and payable. The Deputy Commissioner of Commercial Tax committed a serious error in treating such refund as input tax credit claimed by the petitioner. It is true that the petitioner has opted for composition of tax and, in such situation, would not be entitled to claim any input tax credit. The Deputy Commissioner cannot disturb the refund payable to the petitioner on mere suspicion. - The authority shall hear the petitioner's appeal against short refund and short interest and dispose of the same in accordance with law. - Decided in favor of assessee.
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2016 (7) TMI 285
Sales tax exemption scheme - the case of the petitioner is that the total investment eligible for such sales tax incentive came to ₹ 94.49 crores (rounded off). As against this, the respondent authorities had granted eligibility certificate only to the extent of ₹ 28.73 crores against the claim of the petitioner of ₹ 47.25 crores for phse “I”. - Gujarat Sales Tax - Held that:- When High Court in a judgment delivered in January, 2012 had directed the State authorities to take certain actions, the respondents could not have delayed such proceedings for over four years. In the judgment, the Court had granted time for 12 weeks. Even after the inspection team cleared further investment of ₹ 3.58 crores of the petitioner for eligibility, the State Level Committee has yet to take a decision. This stand of the respondents also is not very clear. If the exemptions scheme as amended from time to time envisaged granting exemption in relation to investments made even after 31.12.2005, subject to fulfilment of conditions, it is difficult to understand how State Level Committee can take a different decision and distinguish the same only on the ground that they have been in implementing the same uniformly. Under such circumstances, this petition is disposed of directing the respondents to take a final decision on the petitioner's eligibility for additional sum of ₹ 3.58 crores and convey the same to the petitioner latest by 30th July, 2016 briefly stating the investments which qualify for such further eligibility. The respondents shall also convey brief reasons why the petitioner's investment in second phase would not qualify for such eligibility certificate. - Decided partly in favor of petitioner.
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2016 (7) TMI 284
Best judgment assessment for non-filing of Form-WW - TNVAT - Maintainability of writ petition - Held that:- It is not the case of violation of principles of natural justice but a case of deliberate non-availing of the opportunity granted to the petitioner. The petitioner had sufficient time to submit their objections to the pre-revision notice, dated 23.02.2015 and the impugned order was passed only after two months and the impugned order was challenged by the petitioner only in September 2015. In the light of the above, this Court is not inclined to exercise its jurisdiction, to interfere with the impugned order, at this juncture and the petitioner is relegated to avail the appeal remedy provided under the statute. Considering the fact that this writ petition was pending from September 2015 and an order of interim stay was initially granted for a period of two weeks and not subsequently extended, this Court is inclined to grant time to the petitioner to file the appeal, as against the impugned order. - Writ petition dismissed - Decided against the petitioner.
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2016 (7) TMI 283
Sale of Wind Mill - slump sale - claim of exemption under TNVAT Act - it was stated that the petitioner has sold the Wind Mill during the year 2013-14 and not disclosed sale of Wind Mill in the Returns and paid the tax and the sale value of the Wind Mill was assessed and tax was proposed to be assessed at 5% on the said sale value. - Held that:- Assessing Officer has misdirected himself in not properly appreciating the scope of the documents produced by the petitioner. The petitioner's case is that the sale of Wind Mill is a 'slump sale' based on the Business Transfer Agreement dated 24.3.2014. Therefore, the Assessing Officer has to consider the entire agreement which contains various Schedules and in Schedule No.4 of the agreement, the list of immovable properties have been shown. Similarly, in Schedule-5, the list of Wind Mills have been shown. This Business Transfer Agreement read with Sale Deeds as well as other records would show that the entire establishment has been transferred as such. If that be the case, the petitioner's contention ought to have been accepted. Order quashed - Matter remanded back to AO - Decided in favor of assessee.
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2016 (7) TMI 282
Recovery of tax - attachment of all bank accounts of the appellant - order u/s 45 of the KVAT Act - appellant submitted that, all bank accounts of the appellant are freezed and resultantly, all activities have come to a grinding halt, and hence, this Court may take up the matter - Held that:- Considering the facts and circumstances, it appears to us that the appeals are at large pending before the Tribunal and the appellant has deposited 30% of the amount and for the remaining 70% though the appellant was to furnish bank guarantee as per the interim order passed by the Tribunal and as the bank guarantee was not furnished, the powers were exercised under Section 45 of the KVAT Act. We find that freezing of the bank account or attachment of the bank account completely, would not serve any purpose, even if we consider the scope and ambit of Section 45 of the KVAT Act. - Order of attachment of bank accounts vacated subject to the conditions - Decided partly in favor of petitioner.
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2016 (7) TMI 281
Input tax credit - Penultimate sake in the course of export - It was observed by the appellate authority that, the sales effected by the petitioners are not zero rated sales falling under Section 18(1) of the TNVAT Act, 2006 and they are not eligible for ITC or refund of the tax paid on the purchase of goods including the capital goods. Further, it was pointed out that they have not produced form H to establish their case. Held that:- It is seen that while submitting the objections to the pre-assesment notice, the petitioner in their letter dated 17.03.2016 had requested for personal hearing in the subject column itself, though not in the body of the letter. Therefore, the respondent ought to have afforded an opportunity of personal hearing to the petitioner and thereafter, proceed to complete the assessment. - In the light of the above, the writ petition is allowed and the impugned order is set aside. - Matter remanded back. - Decided in favor of assessee.
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2016 (7) TMI 280
The Writ Petitions were preferred on the ground that Pre Assessment Notices were not issued before ascertaining the turnover and passing final orders of assessment. The said contention is refuted by the Assessing Authority on the ground that the Pre Assessment Notices were issued to the petitioners and the same were returned with endorsement “refused”. - Held that:- There are no extra-ordinary circumstances justifying the avoidance of appellate remedy. I am therefore of the view that the petitioner should approach the Appellate Authority. - Reasonable time given to file statutory appeals before the Jurisdictional Appellate Assessment Commissioner.
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Indian Laws
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2016 (7) TMI 277
To what extent the Kolkata Port Trust (in short ‘KPT’) is entitled to recover demurrage charges from the respondent no. 1/writ petitioner in respect of containers in which poppy seed was imported by the respondent company from Karachi to Kolkata on route to Nepal - Held that:- Indian Trident Maritime (P) Ltd. (ITM) was not liable for the port charges incurred for storing the cargo in question on port premises after the issuance of the delivery order or endorsing the bill of lading. Further, it would appear from the correspondence exchanged between the parties that ITM was running from pillar to post to persuade KPT to allow de-stuffing of the cargo from the containers on port premises. It was lack of diligence in the matter on the part of the KPT that forced ITM to approach this Court in its writ jurisdiction. The genesis of the litigation is clearly traceable and attributable to the indolence and inaction on the part of the KPT. The question then arises is what happens to the claim of KPT? In our considered opinion, KPT has to look towards the consignee of the cargo in question for recovering its dues. It is not disputed that under the Major Port Trusts Act, the port trust authorities are entitled to frame scale of rates regarding the port rent, harbour charges, wharfage etc. and the port authorities have a statutory right to recover the same from the person liable to pay the same. In the facts of this case, the person liable is the consignee. Hence, the remedy of KPT is against the consignee. What happens if the consignee disappears from the scene, abandons the consignment in question or evinces no intention to clear the goods after clearing the port charges? In such situations the Port Authority’s claim is protected and secured by Sections 59, 61 and 62 of the MPT Act. Section 59 recognizes a statutory lien of the KPT on any goods which may have been placed on any port premises for the amount of all rates leviable under the Act in respect of the goods and for the rent due to the port authorities. Such lien of the port authorities have priority over all other liens and claims except for general average and ship owner’s lien on the said goods for freight and other charges. Any debit entry made by KPT in ITM’s Marine A/c held with it on account of rent/demurrage charges for the period subsequent to endorsement of bill of lading and/or issuance of delivery order by ITM in favour of the consignee, is not sustainable in law and must be reversed. - ITM is liable for rent/demurrage charges only up to the date of endorsement of bill of lading and/or issuance of delivery order.
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