Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
August 13, 2015
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Wealth tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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TDS u/s 192 - the voluntary foregoing of the income in favour of the religious congregation of which they were members, was an instance of application of income and not a diversion of income by overriding title - TDS requires to be deducted - HC
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Method of accounting - according to the Revenue, in respect of all the activities of the assessee, the accounting of income and expenditure should be under the same system, i.e. the assessee having adopted mercantile system of accounting, it cannot adopt accounting on cash basis in respect of sales of newspaper and advertisement revenue alone - contention of revenue is not correct - HC
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Disallowance made under Section 32AB - Investment deposit account - ITAT deleted disallowance - HThe Assessing Officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Section 32AB(3). - HC
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Royalty payment to a related person - it is wrong to conclude that that Tarun Mohan being a Director of the respondent was not entitled to enter into an agreement for the transfer of his assets to the company - This ignores the fundamental concept that the assessee being a company incorporated under the Companies Act, 1956 is a separate legal juristic entity - HC
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Claim of terminal depreciation - assessee had in fact claimed depreciation as contemplated under section 32 merely because it was termed as "terminal depreciation" was no reason to disallow the claim - HC
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Unaccounted gifts - All the donors were the Income-tax assessees. When it is so then the creditworthiness is proved. The amount was reflected in the books of account. - No addition - HC
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Penalty u/s. 271(1)(c) - interest income does not form part of the assessee’s business, the same could not in any case be said to be derived there-from, a condition precedent for the income of the assessee’s export business from being eligible for deduction u/s. 10B. Penalty u/s. 271(1)(c) confirmed - AT
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Validity of assessment - CIT(A) had a mistaken belief that issuance of notice u/s 143(2) is an empty formality inspite of the legal position on this statutory mandate - it throws a very public glare on the “serious malaise” which the tax administration can be said to be infected with - AT
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Liability to deduct tax at source u/s 194A on interest paid to NOIDA - payment of interest by banks to the State Industrial Development Authorities does not require any deduction of tax at source in terms of section 194A(3)(iii)(f) - AT
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Withholding of tax - The software has been purchased from Microsoft, the cost of which has been distributed amongst all the group entities. It is pure case of reimbursement of cost and admittedly, there is no mark-up - No TDS u/s 195 - AT
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Disallowance of deduction u/s.10B - 100% export oriented unit (EOU) - deduction u/s. 10B cannot be denied to assessee especially when in the last year, same was allowed after examining the facts in detail and there was no change in the facts during the year - AT
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Sale consideration from transfer of property of the Company - whether taxable in the hands of the appellant? - Officers of the Revenue should not try to later advantage of the ignorance of the Assessee. - AT
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Eligibility to claim exemption u/s 11 - contribution to chit funds - it is wrong to conclude that assessee has with an intention to earn profit or income made a contribution to the chit fund - not in the nature of investment - exemption allowed - AT
Customs
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Import of baggages – Non declaration of contents and value – opting green channel - demand of duty with levy of penalty confirmed - HC
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Criminal misconduct by public officer – Forged shipping bills – High Court was not justified in stating that Section 15 of Prevention of Corruption Act, 1988 could not be invoked - SC
Corporate Law
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Jurisdiction of Official liquidator - its specific purpose being to protect the pari passu charge of the workmen’s dues. After ensuring that this purpose is achieved or ensured, the State Financial Corporations can continue to enjoy their statutory rights as secured creditors. They will not be reduced to the status of unsecured creditors and equally will not be required to prove their debts nor will be required to stand in line with other unsecured creditors - SC
Wealth-tax
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Determination of net wealth of assessee - Renting of property - once the rental income from the property is treated as “business income” and the character of the asset remains as commercial establishment or commercial complex as envisaged in sub-section 5 of clause (i) of section 2(ea) of the Wealth Tax Act, the same cannot be brought into the ambit of Wealth - AT
Service Tax
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The question of rendering any service in respect of goods by way of cargo handling or otherwise can take place only after the customs transaction is completed. Therefore, the question of levying to service tax the transportation by barges from the mother vessel to the jetty onshore, would not arise at all since the said activity is part of the import transaction leviable to import duty
Central Excise
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Denial of CENVAT Credit - the appellant received old and used machinery, apparently, which cannot be used in the final products. The appellant failed to produce any evidence of use of the items - credit denied - AT
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Interest on refund claim - duty was deposited under protest - Interest at the rate of 12% shall be paid to the respondents on the amount of duty and not on fine and penalty - SC
VAT
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Levy of sales tax / CST on printing of cine wall posters - It was only after 01.04.2005 that all kinds of works contracts were brought within ambit of works contracts as defined in Section 2(ja) of CST Act – Therefore no tax could have been levied on such works contracts under CST Act also - HC
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As appellants were not exigible to tax during relevant period, appellants cannot be permitted to retain amount collected by them from their customers as that would resulted in their unjust enrichment - HC
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Unfair trade practices - high discount on the sale price of the drugs -it is beyond the scope of Commissioner of Sales Tax, to probe - HC
Case Laws:
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Income Tax
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2015 (8) TMI 454
Addition made by following the valuation method u/s.50C - Assessing Officer applying Section 50C adopted the full value of consideration of assessee’s 1/18thshare as ₹ 24,91,704/- and worked out the long term capital gain at ₹ 9,89,396/- as against loss of ₹ 1,83,713/- worked out by assesse - Held that:- In view of the provisions of section 50C(2) of the Act, we are of the considered view that the AO was not justified in adopting the value of the property as adopted by the "stamp valuation authority" without referring to the DVO for ascertaining the fair market value of the property. Therefore, the orders of the authorities below on this issue are hereby set aside and the additional ground raised by the assessee is restored back to the file of AO to decide the same in accordance with law. - Decided in favour of assessee for statistical purpose.
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2015 (8) TMI 431
Requirement to deduct tax at source from payments by way of salary/pension made by the Government, to persons who are members of religious congregations - Held that:- while there may be instances where the receipt of fees or other earnings by members of religious congregations do get diverted by overriding title to the congregation, the proposition is by no means an absolute one that is applicable in all cases of earnings by a member of the religious congregation. The applicability of the concept would have to be tested on the facts of each case, by examining the nature of the receipt by the assessee. Viewed in that light, the impugned instructions of the Income-tax Officers, in these cases, to deduct tax at source from payments by way of salary and pension to members of the religious congregations, cannot be said to be contrary to the Circulars and Instructions issued by the Central Board of Direct Taxes. They are simply instructions issued in situations not covered by the Central Board of Direct Taxes Circular/Instructions. Further, the Central Board of Direct Taxes Circulars/Instructions cannot be treated as encompassing receipts by way of salary and pension, as that would render the said Circulars and Instructions contrary to the law declared by the courts on the concept of diversion of income by way of overriding title. For reasons that as already stated, the payments involved in the instant cases accrued to the members of the religious congregations as their income and the subsequent diversion of that income to the religious congregation concerned was only a case of application of that income. The impugned instructions of the Income-tax Officers that direct the persons responsible for paying salary and pension to the members of religious congregations, to deduct tax at source in accordance with section 192 of the Income-tax Act cannot be said to be illegal. The writ petitions, in their challenge against the said instructions, fail and are accordingly dismissed. The petitioners had, taking note of the instructions issued by the Income-tax Officers to deduct tax at source from salary payments, approached the Income-tax Officers under section 197 of the Income-tax Act for a certificate for non-deduction of tax at source. When the said application was rejected, the petitioners approached the Commissioner of Income-tax through a revision petition filed under section 264 of the Income-tax Act. The said revision applications were, however, rejected by holding that the salary of the teachers was received by them and formed part of their income for the purposes of the Income-tax Act. It was found that the voluntary foregoing of the income in favour of the religious congregation of which they were members, was an instance of application of income and not a diversion of income by overriding title. In the aforementioned writ petitions, the petitioners impugn the said orders passed by the authorities under the Income-tax Act. In the light of my findings on the issue, these writ petitions also fail, and are accordingly dismissed. All the writ petitions are dismissed and the stand of the Income-tax authorities that tax is required to be deducted at source from payments by way of salary/pension effected to persons who are members of religious congregations, is upheld. - Decide against assessee.
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2015 (8) TMI 430
Adoption of mercantile system of accounting - according to the Revenue, in respect of all the activities of the assessee, the accounting of income and expenditure should be under the same system, i.e. the assessee having adopted mercantile system of accounting, it cannot adopt accounting on cash basis in respect of sales of newspaper and advertisement revenue alone - Held that:- Having regard to the provisions of section 145 of the IT Act, the Apex Court in United Commercial Bank v. Commissioner of Income Tax [1999 (9) TMI 4 - SUPREME Court], Geo Tech Construction Corporation case [1996 (2) TMI 81 - KERALA High Court] and Ganga Charity Trust Fund [1985 (10) TMI 67 - GUJARAT High Court ] have approved the liberty available to the assessee to follow either of the two systems of accounting or the hybrid system. As reiterated by the Apex Court in Taparia Tools Ltd. v. Commissioner of Income Tax [2015 (3) TMI 853 - SUPREME COURT] the entries in the books of accounts are not determinative or conclusive and any matter relevant are to be examined on the touchstone of provisions contained in the Act. Apart from arguing that for the sales of newspaper and advertisement charges, it was not permissible to adopt accounting on cash basis, it was not even contended by the Revenue that the taxable income could not be deduced from the accounts of the assessee. In the light of the principles of law deducible from the statutory provisions and the judgments that we have referred to, we are of the view that no illegality can be attributed to the decision of the Tribunal. In such circumstances, answering the question of law in favour of the assessee and against the Revenue
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2015 (8) TMI 429
Determination of Arm’s Length Price - Transfer pricing adjustment - ITAT directing exclusion of the expenses in the nature of Subsidy from the ambit of the AMP expenditure - Held that:- Unable to accept the Revenue’s contention that the unutilised subsidy is required to be recognised as income of the Assessee in the year of its receipt. This would be contrary to the matching concept, which is the substratal principle for computing income during a relevant period. It is necessary that income be recognised along with the corresponding expenditure incurred for earning the income. Thus, where an Assessee follows the Accrual/Mercantile system of Accounting – as in this case – income can be recognised only when the matching expenditure is also accounted for irrespective of the cash outflows/inflows during the year. It would thus, not be correct to recognise the subsidies received for incurring specific expenditure as income without accounting for the corresponding expenditure. In the circumstances, we find no infirmity with the Tribunal’s view on this issue. Decided in favour of the Assessee and against the Revenue. Whether subsidy received by the Assessee has to be excluded from AMP expenditure at the threshold before making any TP adjustments - Held that:- The said question would be inextricably linked with the manner in which ALP of the relevant international transaction is determined. This court has remanded the issue as to the determination of ALP to the Tribunal in terms of the decision of this Court in Sony Ericsson Mobile Communications India Pvt. Ltd. (2015 (3) TMI 580 - DELHI HIGH COURT). In our view, it would be premature to consider this issue in isolation and without reference to the determinative exercise to be conducted by the Tribunal or the concerned Income Tax Authority. The question whether subsidy has to be reduced from the AMP expenditure incurred by the Assessee at the threshold or by way of a later adjustment would depend on various factors including the comparables selected for the purposes of determining the ALP as also the methodology adopted. Needless to mention, it would be open for the Revenue as well as the Assessee to take all available contentions with respect to this aspect before the concerned authority.
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2015 (8) TMI 428
Disallowance made under Section 32AB - Investment deposit account - ITAT deleted disallowance - Held that:- No perversity with regard to findings of both the Courts below with regard to conclusion arrived at that the income was earned during the course of business activity. The term "profits of business or profession" is defined under sub-section (3) of Section 32AB. As per that subsection the profit shall be an amount of profit as computed in accordance with the requirements of Part II and III of the Companies Act and increased or reduced by specific inclusion or exclusion provided in 32AB(3) only. The Assessing Officer had no authority to reopen accounts of company which were certified by auditors of company as having been maintained in accordance with the provisions of the Companies Act. The Assessing Officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Section 32AB(3). Thus, there is no doubt that the business of the assessee company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under Section 32AB. - Decided in favour of assessee.
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2015 (8) TMI 427
Penalty u/s 271(1)(c) - assessee has debited this income of ₹ 26,63,283 out of total pre- operative expenses of ₹ 7,57,43,555 as he claimed net pre-operative expenses as ₹ 7,30,84,272 which was not correct and the amount of ₹ 26,63,283 ought to have been treated as income, earned during April 1, 1999, to May 31, 1999, for the purpose of assessment - Held that:- From the record we find that there was no inaccuracy in particulars of income furnished by the assessee. Out of various receipts, the assessee wrongly deducted aforesaid amount from his total pre-operative expenses while making computation of income. Wrong deduction of an amount for computation of income in the return submitted by the assessee is different. It cannot be equated with concealment. In our view it would not amount to furnishing of inaccurate particulars of income or concealment of income so as to attract penalty under section 271(1)(c) of the Act, 1961.The Commissioner of Income-tax (Appeals) and Tribunal both have recorded concurrent finding holding that there was no concealment of particulars of income by the assessee. Therefore, penalty under section 271(1)(c) of the Act, 1961, was not attracted - Decided in favour of assessee. Decision in CIT v. Prithpal Singh and Co. (2000 (7) TMI 75 - SUPREME Court) would have no application to the case in hand.
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2015 (8) TMI 426
Royalty payment to a related person - whether would be allowable for business expenditure u/s 37(1) whereas the same has not been exclusively and wholly incurred for business purposes? - whether ITAT erred holding that royalty payment would be allowable business expenditure u/s 37(1) when the same has not been paid to the owner/holder of the patent, design, copyright and technical know how or to an inventor and where there is no transfer/acquisition of any assets? - Held that:- Tarun Mohan retained the brand name phoneytunes.com. He merely permitted the assessee to use the intellectual property right acquired by him, namely, the brand name/trade-mark phoneytunes.com. He had not assigned the same to the assessee, but only licensed the same to the assessee. Assessing Officer and the CIT (Appeals) wrongly came to the conclusion that Tarun Mohan being a Director of the respondent was not entitled to enter into an agreement for the transfer of his assets to the company. They held that the same person cannot enter into an agreement with himself. This ignores the fundamental concept that the assessee being a company incorporated under the Companies Act, 1956 is a separate legal juristic entity. The Tribunal, therefore, rightly disagreed with this finding. The Tribunal also rightly observed that Tarun Mohan had in any event paid the entire taxes in respect of the royalty received by him. That, however, would not make a difference for if the deduction sought by the assessee is wrongful, the Assessing Officer is bound to disallow the same. The CIT (Appeals) observed that there was no evidence to prove that Tarun Mohan had developed any product for which he had any copyright or trade mark. Firstly, as we noted earlier, he had obtained the copyright in respect of the artistic work comprised in the name phoneytunes.com. Registration of the copyright is, however, not compulsory. In any event, phoneytunes.com was a part of his trading style and constitutes a trade mark. This is not a ground for challenging his entitlement to the trade mark. The assesee was entitled, therefore, to use the trade mark as a licensee thereof. The payment of royalty for the same is nothing unusual or out of place. In these circumstances, the deletion by the Tribunal of the addition of royalty by the Assessing Officer and confirmed by the CIT (Appeals) was rightly set aside by the Tribunal. - Decided against revenue.
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2015 (8) TMI 425
Reopening of assessment - whether allowance of 'terminal' depreciation, which allowance is not allowable under any provision of the Act tantamounts to change of opinion ? - Held that:- The term "depreciation", as ordinarily understood in the context of the Income-tax Act, 1961, has been considered in the case of I. C. D. S. Ltd. v. CIT [2013 (1) TMI 344 - SUPREME COURT ] which was concerned with the interpretation of section 32 of the Income-tax Act, 1961 that Depreciation is the monetary equivalent of the wear and tear suffered by a capital asset that is set aside to facilitate its replacement when the asset becomes dysfunctional. Applying the above interpretation of section 32 of the Act in the instant case we have no manner of doubt that the assessee had in fact claimed depreciation as contemplated under section 32 merely because it was termed as "terminal depreciation" was no reason to disallow the claim. The Tribunal has relied, and, in our view correctly, upon the decision of the hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. reported in [2010 (1) TMI 11 - SUPREME COURT OF INDIA] which held that the concept of change of opinion should be used as a test to check any abuse of power by the Assessing Officer. In our view, the test is correctly applied in the present case and there was no occasion for the Assessing Officer to reopen the assessment without any tangible material which formed a live link to the formation of reason to believe escapement of income. There is nothing to show that he had reason to believe that income had escaped assessment. Mere description of the depreciation claimed as "terminal depreciation" could not have justified the conclusion reached by the Assessing Officer. - Decided against revenue.
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2015 (8) TMI 424
Non production of books of accounts - gross profit rate on estimate basis of information available on record and while making best judgement - AO only on the ground that the books had not been produced adopted a rate of 20% - Held that:- The CIT (Appeals) and the Tribunal rightly observed that there was no incriminating evidence against the respondent and no comparable cases had been cited for arriving at the GP rate of 20% to 22%. A judgement of the Privy Council in CIT Vs Laxmi Narain Badridas, [1937 (2) TMI 1 - PRIVY COUNCIL] was relied upon by the Tribunal, where it was held that the Asssessing Officer cannot act capriciously and on the basis of his personal knowledge of previous returns and local knowledge. In the present case, in any case, the same was not even put to the assessee. The orders of the CIT (Appeals) and the Tribunal cannot be said to be perverse holding that gross profit rate declared by the assessee should be accepted - Decided against revenue.
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2015 (8) TMI 423
Reopening of assessment - installation of the Rotary Printing Press was not completed in the assessment year 1982-1983 and that therefore, the investment allowance and depreciation granted in the assessment order was irregular - Held that:- Facts are evident from the orders passed by the Commissioner and the Tribunal, which show that on import of the machinery, using local labour, the assessee had installed it. To prove that the Press was installed and commissioned, the assessee had produced before the Assessing Officer a bill issued it for undertaking printing work. However, the Assessing Officer declined to act upon that bill stating that it lacked any evidentiary value. The reason for such conclusion was that it was issued to a related company. On this aspect, the Tribunal has rightly held that in the absence of any other justifiable vitiating circumstances, the Assessing Officer was wrong in declining to accept the bill produced by the assessee. We fully agree with the Tribunal on this finding. This therefore, shows that the fundamental basis on which the assessment was re- opened itself was untenable. If that be so, the Tribunal was justified in upholding the order of the Commissioner setting aside Annexure - A, the re-opened assessment order issued for the assessment year 1982-1983. Such being the case, we do not see any question of law arising in this appeal. - Decided in favour of assessee.
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2015 (8) TMI 422
Weighted deduction under section 35(2AB) - expenditure incurred in respect of research and development - Held that:- The assessee has to develop facility by incurring expenditure for scientific research and he will have to file application before the prescribed authority, who after following the proper procedure, will allow the application or otherwise and the assessee would be entitled for weighted deduction in respect of all expenditure so incurred. The provision nowhere suggests or implies that machinery is required to be installed and commissioned before the expiry of the relevant previous year. The provision postulates approval of research and development facility, which implies that a development facility shall be in existence, which in turn, presupposes that the assessee must have incurred expenditure in this behalf. The Appellate Tribunal has rightly concluded that in case if the interpretation of the Assessing Officer is accepted, it creates absurdity in the provision inasmuch as the words which are not provided in the statute are to be read into, which is against the settled proposition of law with regard to plain and simple meaning of the provision. The plain and homogenous reading of the provisions would suggest that the entire expenditure incurred in respect of research and development has to be allowed for weighted deduction under section 35(2AB) of the Act. Even on facts, it has been found by the Assessing Officer that an installation certificate had been issued on March 31, 2004, by one Mr. Virupaksha (concerned officer) evidencing that three scientific machines were installed. Hence, we do not find any ground to interfere with the orders passed by the Income-tax Appellate Tribunal to held that the Assessing Officer is not justified in not allowing the weighted deduction under section 35(2AB) of the Act - Decided against revenue.
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2015 (8) TMI 421
Scope of revision u/s 263 - as per CIT(A) AO omitted to look into the correctness or otherwise of the apportionment of common expenses to agricultural and non-agricultural segments - Held that:- The facts show that the proportion of agricultural and non-agricultural income/ receipts has been used even while working out the apportionment of expenditure under that head. The previous history not in dispute shows that since 1996-97, the said method is being adopted. It is not in dispute that in the return filed by the assessee (State Government Corporation), the receipts were, accordingly, mentioned and the expenditure for those receipts was, accordingly, apportioned and appropriated. This return has been accepted. As such, it cannot be said that the assessment order does not show any application of mind. The perusal of judgment in the case of CIT v. Rajasthan Financial Corporation (No. 1) [1996 (5) TMI 18 - RAJASTHAN High Court] shows the limited scope available to the Commissioner of Income-tax while exercising the jurisdiction under section 263 of the Income-tax Act, 1961. Here, a long settled practice has been lost sight of and without observing anything in concrete about irrelevance of the method or apportionment being followed, the matter has been sent back. Had the Commissioner of Income-tax noted some facts which necessitated departure from this method, its intervention could have been understood. However, that is not the position here.There was no scope for intervention under section 263 of the Act - Decided in favour of assessee.
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2015 (8) TMI 420
Unaccounted gifts - Held that:- After hearing the rival submissions and on perusal of material available on record, it appears that all the donors are in relation of the assessee and the gifts were made out of love and affection. The details of each donor's return was produced before the Assessing Officer, as all the donors were the Income-tax assessees. When it is so then the creditworthiness is proved. The amount was reflected in the books of account. Thus, in the instant case, the identity of the donors has been proved. The transfer of the amount was voluntarily and the amount was transferred by way of entries, so the genuineness of the transaction has been proved. Hence, in the peculiar facts and circumstances of the case, the gifts appears genuine. Also by looking to the amount involved, we accept the gift as genuine. All the ingredients of valid gifts have been proved in the instant case. - Decided in favour of assessee.
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2015 (8) TMI 419
Addition u/s.68 - Held that:- As perused the letter of confirmation dated 26/03/2003 purportedly issued by Narendra Holding Pvt.Ltd. However, the said letter describes the payment through banking channel but has not mentioned the names of the 3rd parties in whose account such amount has been credited. Moreover, the assessee has also not placed any material on record suggesting that those payments were made to 3rd parties on account of calls in arrears and share premium as there is no mention of the names, addresses, etc. of the parties to whom the assessee was liable to pay calls in arrears and share premium. In the absence of such material evidences which were required to be placed on record by the assessee in support of its claim of expenditure, we do not see any reason to interfere with the orders of the authorities below, the same are hereby confirmed. Decided against assessee. Disallowance u/s 40A(2)(b) - Held that:- It is settled position of law that the provisions of section 40A(2)(b) of the Act can be invoked in the event where assessee incurs any expenditure in respect of which payment has been paid or is to be made to any person referred to in clause (b) of section 40A(2) and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. Therefore, the AO has first to determine the reasonableness or excessiveness having regard to the fair market value of the services rendered. In the case in hand, the AO has made disallowance on the basis that no verifiable record was placed before the AO which could indicate the fact that Director, namely Shri Mehool N.Bhuva imparted any technical services to the assessee-company. The AO was of the opinion that mere holding of qualification does not lead to inference that he has indeed rendered any services. There is no dispute with regard to the fact that the issue in question is identical as was raised in the AY 1997-98.Therefore, taking a consistent view, we hereby direct the AO to delete the disallowance - Decided in favour of assessee. Validity of the reopening of the assessment u/s.147 - Held that:- There is no illegality in the reopening of the assessment since the AO in original assessment proceedings has not examined this issue and no enquiry was made. Therefore, we see no reason to interfere on this issue and assessee’s this ground of appeal is rejected. - Decided against assessee. Disallowance of employees’ contribution towards PF/ESIC - Held that:- There is no dispute with regard to the fact that the Hon’ble Jurisdictional High Court in the case of CIT vs. Gujarat State Road Transport Corporation reported at (2014 (1) TMI 502 - GUJARAT HIGH COURT ) has decided this issue in favour of the Revenue. Disallowance of employer’s contribution towards PF/ESIC - Held that:- . We find that the disallowance is made on the basis that the PF/ESIC contribution was not deposited even before the due date of payment but contention of the assessee is that the same was deposited before due date of filing of return. This fact is not controverted by the ld.DR and, therefore this ground of appeal is allowed. - Decided in favour of the assessee. Disallowance of sundry balances - Held that:- As decided in TRF Ltd. vs. CIT reported at (2010 (2) TMI 211 - SUPREME COURT ) after 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the AO has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the AO. Hence, the matter is remitted to the AO for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off. - Decided in favour of assessee.
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2015 (8) TMI 418
Transfer Pricing adjustments - assessee had raised specific ground before the DRP argued that the TPO had included the comparables that were not relevant for determining the ALP or had excluded the comparables that were relevant,that the TPO had adopted incorrect operating margins for certain companies,that he had not considered entity level revenue,that he did not allow the assessee the benefit of risk adjustment - Held that:- Directions of the DRP are silent over all the issues raised by the assessee against the order of the TPO.In our opinion,the order of the DRP falls under the category of non speaking order devoid of reasons.While deciding the ground with regard to comparables,that the TPO had done a systematic search and identified comparables from the accept reject method of the taxpayer’s search itself,that the TPO had applied proper filters and obtained segmental accounts. In our opinion,these observations are very general and do not deal with the specific objections raised by the assessee.The DRP is supposed to support or distinguish the comparables,when the assessee files objection citing the decided judgments.In the case before us,the DRP has not discussed merits of any of the comparables objected to by the assessee.Similarly,the final decision of the DRP about FAR analysis is very general. Thus the order passed by the DRP is vague and unclear. So,in the interest of justice,matter is being restored back to the file of the DRP for fresh adjudication, who would afford a reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes. Non exclusion of expenses incurred in foreign currency for travelling and communication charges from the total turnover - Held that:- The aforesaid question stands answered against the revenue in view of the decision of this Court in the case of CIT V/s. Gem Plus Jewellery India Ltd. Reported in [2010 (6) TMI 65 - BOMBAY HIGH COURT ] wherein held exemption u/s. 10A to be granted on foreign exchange gain earned (due to fluctuation of foreign exchange) on realization of export receipts in the year of export - Decided in favour of assessee
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2015 (8) TMI 417
Penalty u/s. 271(1)(c) - interest receipt consequent to the denial of deduction u/s. 10B claimed by the assessee - Held that:- In the facts of the present case, the interest income stands earned on deposits placed with the bank/s for fixed term/s (FDRs) and inter-corporate deposits (ICDs). The A.O. has further given a categorical finding of the interest income, which is even otherwise apparent, i.e., from the manner in which it is being derived, as having no direct relationship with the assessee’s business activity. AR on this being pointed out during hearing, i.e., that the interest income stands specifically assessed u/s.56, i.e., as income from other sources, for A.Y. 1997-98, would submit that it stands assessed as business income for the subsequent two years. Further, the tribunal vide its order for A.Y. 2000-01 held that in light of the fact that the assessee is entitled to relief u/s.10B of the Act on its receipt, it becomes naturally entitled to deduction there-under on the interest income. We find little merit in the assessee’s said contention in view of the undisputed facts of the case, i.e., of the interest income in the undisputed facts of the case arising out of bank FDRs and ICDs. In fact, the A.O.’s finding that the same has no nexus with the assessee’s business, remains unchallenged. Rather, the assessee’s plea in the appellate proceedings was for the netting of the interest income in-as-much as the assessee had also paid interest. While the interest income stands specifically assessed as income from other sources for A.Y. 1997-98, there is no head-wise classification of the income for A.Y. 1998-99, which though cannot be read to imply or mean that the said income stands assessed as business income, particularly considering the clear finding/s in the matter and the undisputed facts of the case. For A.Y. 1999-2000, again, there is a clear reference by the A.O. to the reasons mentioned by him in the assessment order for A.Y. 1998-99, the immediately preceding year. In fact, the A.O., and only rightly, has gone further to state that the interest income could not be regarded as derived from the assessee’s business That is to say, that the interest income does not form part of the assessee’s business, the same could not in any case be said to be derived there-from, a condition precedent for the income of the assessee’s export business from being eligible for deduction u/s. 10B. Penalty u/s. 271(1)(c) confirmed - Decided against assessee.
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2015 (8) TMI 416
Validity of assessment - non serving with mandatory notice u/s 143(2) - CIT(A) held that as considering the difficulties of tax administration by the department and distribution of jurisdiction of the cases to salaries ITO, it is not possible to monitor service of notice 142(1)/143(2) on each case exclusively, thus non service of notice 143(2) is dismissed - Held that:- If what is concluded by the Ld. CIT(A) is correct then there is no legal mandate for the Revenue to vary the returned income, re-open the concluded assessments etc. It would lay the Revenue open to the unfounded criticism of the tax payers that the fate of the tax payer is open to the arbitrary exercise of power by the tax Department to the detriment of the rights and safety of the tax payer in the face of the perceived authority of the tax department to selectively and mischievously abuse the power under the shelter of the argument that sheer numbers defeat the mandatory exercise. Even if the view expressed is only an opinion based on the personal misreading of the procedure by the Ld. CIT(A) under a mistaken belief that issuance of notice u/s 143(2) is an empty formality inspite of the legal position on this statutory mandate, then it throws a very public glare on the “serious malaise” which the tax administration can be said to be infected with and in such a situation also we are confident that the Competent Authority in the Department would be equally concerned to address the situation and send out correct signals at the earliest point of time. Having expressed our anguished dissatisfaction with the reasoning arrived at in the impugned order, the impugned order is set aside and the issue is restored back to the file of the CIT(A) with the direction to decide the same after giving the assessee a reasonable opportunity of being heard by way of a speaking order in accordance with law. The finding on merits is also set aside as first as per settled legal principles the CIT(A) shall decide the Jurisdictional issue and then proceed to decide the appeal on merits if so warranted on facts. - Decided in favour of assessee for statistical purposes.
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2015 (8) TMI 415
Liability to deduct tax at source u/s 194A on interest paid to NOIDA - lack of jurisdiction of the ld. CIT(A), Noida for passing order against the order of Addl.CIT(TDS), Ghaziabad - Held that:- The Principal CCIT, Kanpur issued order on 15.11.2014 reverting jurisdiction to the CIT(A), Noida over the orders passed by Addl.CIT(TDS), Ghaziabad and the other authorities working under CIT (TDS), Kanpur. This shows that between 5.6.2014 and 15.11.2014, the jurisdiction of the first appellate authority to pass the orders against the orders passed by the Addl.CIT, Ghaziabad rested with the CIT(A), Ghaziabad and for the periods prior to 5.6.2014 and after 15.11.2014, it vested in CIT(A), Noida. Since the impugned order was passed on 2.12.2013, it becomes palpable that it was only the CIT(A), Noida who had rightful jurisdiction over the appeal emanating from the order passed by the Addl. CIT(TDS), Ghaziabad. Ex consequenti, the contention raised by the ld. DR about the lack of jurisdiction of the ld. CIT(A), Noida for passing order against the order of Addl.CIT(TDS), Ghaziabad, is unfounded and is hereby rejected. Identical issue involving payment of interest by some banks to Ghaziabad Development Authority without tax withholding came up for consideration before the Delhi Bench of the Tribunal in the case of Chief/Senior Manager, Oriental Bank of Commerce vs. ITO. [2013 (2) TMI 204 - ITAT NEW DELHI] wherein held that the payment of interest by Oriental Bank of Commerce to Ghaziabad Development Authority is covered within the provisions of section 194A(3)(iii)(f) and, hence, there is no obligation for deduction of tax at source. Consequently, the order passed u/s 201(1) was set aside. Similar view has been taken in the case of ITO (TDS) vs. Branch Manager Jammu & Kashmir Bank Ltd. [2012 (4) TMI 573 - ITAT AMRITSAR] as held that payment of interest by the bank to Jammu Development Authority (Jammu) is exempt u/s 194A(3)(iii)(f) and, hence, there can be no liability u/s 201(1) and 201(1A) on the bank and resultantly, the bank cannot be treated as an assessee in default u/s 201(1) and 201(1A). Likewise view has been taken by the Amritsar Bench of the Tribunal in ITO vs. the Branch Manager, Jammu, Jammu & Kashmir Bank Ltd., [2012 (12) TMI 727 - ITAT AMRITSAR ]. All these precedents support the proposition that the payment of interest by banks to the State Industrial Development Authorities does not require any deduction of tax at source in terms of section 194A(3)(iii)(f) and, hence, the failure to deduct tax at source on such interest cannot lead to the banks being treated as assessee in default. No material has been placed on record to demonstrate that all/any of the above orders have either been reversed or modified in any manner by the Hon’ble High Courts. CIT(A) was justified in reversing the order passed by the Addl. CIT (TDS), Ghaziabad declaring the assessee liable u/s 201(1) and 201(1A) of the Act. We, therefore, uphold the impugned order. - Decided against revenue.
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2015 (8) TMI 414
Reopening of the assessment u/ s 147 - amount wrongly claimed by the assessee being the amount written off which pertains to the development of software and forfeiture of registration charges of industrial land - CIT(A) quashed reopening - Held that:- The present case is pertaining to AY 2003-04 wherein the AO issued notice u/s 148 of the Act on 4.9.2009 which is beyond four years as the AO could have started proceedings u/s 147 of the Act after the end of four years from the end of 2003-04 i.e. proceedings of reopening of assessment could have been initiated by way of issuing notice u/s 148 of the Act by 31.3.2008. Admittedly and undisputedly, the AO had issued notice on 4.9.2009 perhaps by invoking and applying first proviso to section 147 of the Act wherein the assessment can be reopened and notice u/s 147 of the Act can be issued only by reason of the failure on the part of assessee to disclose fully and truly all material facts pertaining to the issue which has been picked up by the AO for recording reasons for issuance of notice u/s 148 of the Act. In the present case, the AO has picked up the issue of written off amount of ₹ 23,43,179 pertaining to amount advanced to M/s Shonkh Technologies International Ltd. and the amount forfeited by Greater Noida Industrial Authority towards aborted project. As we have noted above, the assessee furnished entire details on this issue vide its submissions dated 26.2.2006 during the original assessment proceedings which have been placed by the assessee in its paper book pages 83 to 90. In this situation, the AO was not correct and justified in holding that the assessee did not truly and fully disclose all material facts relevant to the impugned issue of written off amount of ₹ 23,43,179/- during original assessment proceedings. Therefore, the case of the AO goes out of the ambit of first proviso to section 147 of the Act. CIT(A) was quite justified and correct in granting relief for the assessee by allowing legal contention and ground of the assessee against issuance of notice u/s 148 of the Act beyond the prescribed period of four years specifically when there was no failure on the part of assessee to disclose fully and truly material facts relevant to the issue of written off debts - Decided in favour of assessee.
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2015 (8) TMI 413
Withholding of tax - payment as reimbursement of cost for purchase of standard off the shelf software, a copyrighted article, by the Appellant to its group company, Lionbridge Technologies Inc. USA - whether is not in nature of royalty in the hands of recipient under Income Tax Act read with the Double Taxation Avoidance Agreement between India and USA and therefore the question of withholding doesn’t arise? - assessee in default under section 201/201(1A) - Held that:- Lionbridge USA has entered into an agreement with vendors like Microsoft inc. for the purchase of Standard off Shelves Software to be used by Lionbridge group entities across the globe. The cost of the purchase of the softwares has been allocated amongst various group entities based on allocation key of number of desktop in each office. The said allocation was made at cost and no mark-up was charged. Accordingly, all the group entities had reimbursed their share of cost to the Lionbridge USA. In support, the copy of the agreement along with invoices by the Vendors and allocation key has been placed in the paper book. It has not been disputed that the cost of reimbursement paid to Lionbridge USA is not chargeable to tax in India. If that is so, then assessee was not required to withhold the tax u/s 195 and this proposition is well supported by a decision of Hon’ble Supreme Court in the case of G E India Technology Centre P Ltd (2010 (9) TMI 7 - SUPREME COURT OF INDIA). Secondly, here in this case, it is not a question where Lionbridge US has developed software which has been given for use to the assessee. The software has been purchased from Microsoft, the cost of which has been distributed amongst all the group entities. It is pure case of reimbursement of cost and admittedly, there is no mark-up. Accordingly, there was no liability to deduct TDS on such reimbursement of cost. - Decided in favour of assessee.
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2015 (8) TMI 412
Disallowance of deduction u/s.10B - assessee is a partnership firm carrying on business as 100% export oriented unit - CIT(A) deleted the addition - whether CIT(A) has erred in holding that the assessee firm cannot be said to have came into existence by way of splitting up or reconstruction of old business? - Held that:- The list of customers of Metal Recycling industries and assessee has been submitted and it was found that there is not a single customer of assessee who was purchasing material from M/s metal Recycling Industries. There are separate licenses/registration and permissions governed both the units under various statutory laws. This establishes that assessee’s undertaking is separate; Investments of the funds, separate production facilities, separate goods produced with different installed capacities and separate customers of the unit. Therefore under the facts and circumstances of the case, CIT(A) was justified in holding that unit is not setup by splitting up or reconstruction of the existing business. Mere fact that while setting up factory a small amount of plant and machinery was transferred from previous business cannot be basis to come conclusion that it is a reconstruction. Moreover, there is no commonality in the business of undertaking of the M/s. Metal Recycling Industry and the undertaking of assessee except that three partners were also the partners of assessee’s undertaking. This cannot be basis to hold that undertaking setup by assessee has arisen because of splitting up or reconstruction of existing business of assessee. Thus CIT(A) justified in holding that new unit set up by assessee is not formed by splitting up or reconstruction of existing business and therefore deduction u/s. 10B cannot be denied to assessee especially when in the last year, same was allowed after examining the facts in detail and there was no change in the facts during the year. - Decided in favor of assessee.
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2015 (8) TMI 411
Validity of reopening of assessment - Held that:- Assessing Officer had issued notice after a period of four years, that in the reasons recorded by him he has not directly or indirectly mentioned that there was failure on the part of the assessee, that proviso to section 147 of the Act specifically mandates that issue of notice after a period of four years should be based on the failure of the assessee. As there was no failure by the assessee to disclose material facts truly and fully, therefore, the notice issued by the Assessing Officer under section 148 of the Act was not valid. See Commissioner of Income-tax, Guwahati - 1 Versus Sonitpur Solves Ltd. [2013 (4) TMI 422 - GAUHATI HIGH COURT ] - Decided in favour of assessee.
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2015 (8) TMI 410
Levy of penalty u/s.271(1)(c) - discrepancies, interpolation and over-writings done by the assessee after the assessment was completed so as to avoid the penalties - Held that: - As assessee did produce the Books of Accounts, bills and vouchers as maintained by him. Admittedly Assessing Officer found that there are certain additional amounts which are debited in some months and the difference on that was arrived an amount of ₹ 88,000/-. Further, he also found out that assessee did not furnish the vouchers nor provided evidence, for the payments made in the month of January to March, 2005 totalling to ₹ 1,37,800/-. Nowhere there is an allegation in the assessment order that assessee has manipulated or tampered with the records. We are unable to understand the need for assessee to tamper the registers after addition has been made in the assessment. The so called discrepancies that were noticed by the Assessing Officer in the penalty order were not figuring in the assessment order at all. Since there is no need for the assessee to make any changes in the registers, we are unable to understand how, even if subsequently tampered with the registers, would attract penalty on an amount made as agreed addition in the assessment order We are of the opinion that just because certain expenditure claimed is not supported in the course of assessment proceedings, it will not lead automatically to concealment of income. Considering the order of the Assessing Officer, we are of the opinion that some disallowances made out of the claims made by the assessee, without proving them to be non-genuine, penalty u/s.271(1)(c) cannot be levied - Decided in favour of assessee.
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2015 (8) TMI 409
Disallowance on account of interest u/s 40(a)(ia) - non-deduction/late deposit of TDS - Held that:- We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case it is noticed that the assessee deposited the TDS on the remittance of ₹ 8,60,713/- on 29.04.2004 in the next Financial Year but before filing the return of income u/s 139(1) of the Act. Since the assessee has deposited the TDS on 29.04.2004 before filing the return of income u/s 139(1) of the Act, therefore, by keeping in view the ratio laid down in the case of CIT Vs Rajinder Kumar [2013 (7) TMI 454 - DELHI HIGH COURT] we delete the addition sustained by the ld. CIT(A). Decided in favour of assessee.
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2015 (8) TMI 408
Profit earned on redemption of mutual funds - Long Term Capital Gains(LTCG) OR business income - Held that:- CIT(A) after detailed discussion of the matter has observed that the assessee company had earned long term capital gains on redemption of mutual funds held for more than 1 year. It had been consistently showing the same as investments and assessed as such for the last couple of years. There was nothing on the record that the assessee had traded in the said mutual units. Following the principle of consistency and in the absence of any evidence that the assessee had acted as a trader in the redemption of mutual funds, he held the assessee as investor and directed the Assessing Officer to treat the same as LTCG. We are unable to agree with the contention of the revenue that since the assessee is primarily an investment company, so the income earned should be treated as business income. Law has been now settled on the point through various judicial decisions that even a company having business in trading in shares or securities can also maintain a separate investment portfolio. We therefore do not find any reason to interfere with the well reason order of the CIT(A) on this issue. - Decided against revenue. Loss in sale and purchase transaction of shares - business loss OR Short Term Capital loss - Held that:- The assessee did not carry out any other share transaction during the year. This was the single transaction done by the assessee during the year. The shares of other companies purchased were held as investment. In view of the above explanation given by the assessee, in our view, the action of the lower authorities in treating the said loss resulting from single transaction of sale of shares for which the assessee has given the plausible explanation, cannot be held to be justified. This issue is accordingly decided in favour of the assessee and it is directed that the said loss to be treated as short term capital loss.- Decided against revenue. Disallowance u/s. 14A - Held that:- we restore this issue back to the file of the AO with a direction that the AO will give opportunity to the assessee to place on record all the relevant facts including its accounts and then examine the computation/ calculation made in this regard by the assessee having regard to the accounts of the assessee. The AO will be at liberty to call for any record/evidences or statement etc. from the assessee as may be required by him for deciding the issue under consideration. After going through the details provided by the assessee, if the AO will be satisfied with the claim/calculation made by the assessee, then he will assess the income accordingly. However, if the AO does not agree with the computation made by the assessee and in that event, he will have to record his dissatisfaction with reasoning for the same by way of a speaking order, then he will be at liberty to resort to the provisions of Rule 8D - Decided in favour of assessee for statistical purposes.
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2015 (8) TMI 407
Disallowance of balance 50% additional depreciation u/s. 32(1)(ii)(a) - new plant and machinery purchased and put to use for less than 180 days in the immediately preceding year - Held that:- The assessee is entitled for additional depreciation u/s. 32(1)(iia) of the Act in this assessment year as relying on case of Birla Corporation Limited Vs. DCIT [2014 (12) TMI 436 - ITAT KOLKATA] wherein held he assessee is eligible for additional depreciation in case the new machinery and plant was acquired and installed after 31-03-2005 - benefits conferred on the assessee by way of incentive provision cannot be taken away by adopting an implied meaning to second proviso to section 32(1)(ii) - since the second proviso to section 32(1)(ii) does not expressly prohibit the allowance of the balance 50% depreciation in the subsequent year, second proviso to section 32(1)(ii) shall not be interpreted to mean that it impliedly restrict the additional depreciation to be allowed in the subsequent AY - the assessee is entitled for 50% additional depreciation, because in the year in which the machinery was first put to use the assessee claimed only 50% of additional depreciation for the reason that the same was put to use for less than 180 days, in this assessment year for the balance of depreciation - Decided in favour of assessee. Disallowing 1% of dividend income in a mechanical manner u/s 14A - Held that:- The Hon’ble ITAT ‘C’ Bench, Kolkata in the case of assessee for assessment year 2006-07 [2011 (4) TMI 1283 - ITAT KOLKATA] in view of facts of this case and the principle laid down by Hon’ble Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT), that Rule 8D is applicable for and from assessment year 2008-09 and prior to that the Assessing Officer can make estimate in the given facts and circumstances. Hence, we restrict the disallowance to 1% of dividend income and direct the Assessing Officer to calculate the expenditure on that basis. - Decided partly in favour of assessee.
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2015 (8) TMI 406
Sale consideration from transfer of property of the Company - whether taxable in the hands of the appellant? - Held that:- It is settled law that company is an artificial juridical person which has its own identity and it is taxable as such. Hence, for its property sold it is the company which is taxable and not the assessee who received the money on behalf of the company. Now the Ld. Counsel for the assessee’s plea is also cogent that the receipt of sum of money from the company could be taxable in the hands of the assessee who is shareholder and director only under u/s 2(22)(e) of the Act. In this regard, Ld. Counsel for the assessee has stated at bar that assessee is not holding more 9% share in the said company. Hence, provisions of section 2(22)(e) of the Act is not also applicable. In any case, it is not at all the case of Revenue that sum involved is taxable in the hands of the assessee as deemed dividend. Accordingly, we find that just because out of ignorance the assessee has invested sale proceed in regard on behalf of company capital gain bond to save its perceived capital gain liability, the sum involved cannot become taxable income of the assessee. The Central Board of Direct Tax in its Circular has also reiterated that Officers of the Revenue should not try to later advantage of the ignorance of the Assessee. It is also settled law that an income should be taxed in the hands of the appropriate assessee to whom the income belongs. Since the income by way of sale proceed of the property did not belong to the assessee, the assessee is not taxable for the said amount. As held in the case of Income Tax Officer v. Ch. Atchaiah (1995 (12) TMI 1 - SUPREME Court) it is the duty of the Assessing Officer to assess the right person only. Furthermore, as held in the case of Commissioner of Income-Tax, West Bengal I v. India Discount Co. Ltd. (1969 (8) TMI 2 - SUPREME Court) a receipt which in law cannot be regarded as income cannot become so merely because of assessee’s book entry. - Decided in favour of assessee.
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2015 (8) TMI 405
Eligibility to claim exemption u/s 11 - whether contribution to chit funds is violative of the provisions of section 11(5) and therefore the exemption u/s 11 of the Act cannot be granted? - Held that:- The requirement of investing or depositing, u/s 11(5) of the Act is confined to money in hand or cash. When the entire income of the year has already been spent towards the objects of the society, there cannot be said to be any funds remaining out of the funds received by way of income. A person can invest only the money which is in his hands. If the entire money in hand is already spent for a particular purpose then the question of spending the same amount for another purpose as well does not arise. Thus the interpretation of the term “any funds” by the Hon’ble Delhi High Court in the case of CIT Vs. Sri Sriram Foundation [2001 (2) TMI 71 - DELHI High Court] though made in the context of section 13(2)(h), is on all fours applicable, while interpreting section 13(1)(d) of the Act. Even the CBDT Circular No.335 dt.13.4.1982 explains the same position. The example given therein clearly explains that in a case where the trust derives income of ₹ 40,000 in a year, as per S.11(1)(a) it has to spend at least ₹ 30,000 on charitable purpose and the balance of ₹ 10,000 will have to be invested in the forms or modes prescribed u/s 13(5)(now S.11(5)). Therefore, in a case where the entire income of ₹ 40,000 is spent for charitable purposes exemption u/s 11(1)(a) has to be granted and there is no need to further examine whether any investments were made in violation of S.11(5) of the Act in as much as the trust is left with no more funds out of the income of ₹ 40,000 received. In the case of both the assessees, as per the charts submitted by the assessees it is evident that they have incurred deficit in every year and thus entire income of each assessment year was fully spent towards the charitable objects. In this case, contribution to the chit fund was made to enable the assessee society to raise funds for expansion. This is clear from funds flow statement and the projected investment required by the assessee. When the assessee is paying huge amount of interest to various banks, it is wrong to conclude that assessee has with an intention to earn profit or income made a contribution to the chit fund. As we have held that contribution to chit fund in this case, is not an investment, and much less an investment with someone else, and further that the provisions of S.11(1)(a) have been complied by investing the entire income of the year towards charitable purposes, we conclude that there is no violation of section 13(1)(d) r.w.s. 11(5) of the Act. - Decided in favour of assessee. Ropening of assessment - Held that:- It is an undisputed fact that at the time the assessment was originally completed u/s 143(3) the assessing officer was aware of the contribution made by the assessee to chit funds. However, the assessing officer was of the view that in such circumstances the denial of exemption u/s 11 would be restricted to the amount invested in violation of S.11(5). As rightly argued by the learned counsel for the assessee, this view taken by the assessing officer is supported by a few decisions. We do not wish to express any views on the correctness of these decisions. Suffice to say that on these facts and circumstances of the case, the view taken by the assessing officer cannot be termed as patently erroneous. It is the consistent view of various high courts that in the absence of any fresh material an assessment concluded u/s 143(3) cannot be reopened on mere change of opinion. In the decisions cited by the counsel for assessee this was the view taken by the hon’ble Delhi High Court and Gujarat High Court. Respectfully following these decisions, we hold that the CIT(A) was justified in quashing the assessment for A.Y.2005-06 on the ground that the reopening of the assessment was invalid. - Decided against revenue.
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Customs
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2015 (8) TMI 455
SEZ Units - powers of the customs authorities in valuing and seizing the goods imported by a unit situated in Special Economic Zone – Liability to pay custom duty – Valuation of goods – Goods were meant for SEZ and on going to SEZ, they ought not to be liable for Customs duty - Therefore value of goods meant for SEZ could need not be determined under provisions of Section 14 of Customs Act, 1962 and could not have been confiscated – Held that:- Observation of the Tribunal in the paragraph 11, 12 and 13 of its order [2013 (9) TMI 424 - CESTAT AHMEDABAD] stayted It is, however, clarified that there is no stay against the final direction of the Tribunal reversing the judgment of the Commissioner of Customs, Kandla. Resultantly, the respondent would get the benefit of release of goods as per the final order of the Tribunal. Nevertheless, the declaration of legal position propounded by the Tribunal in the impugned order and noted above shall stand stayed. - Decided partly in favour of Revenue.
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2015 (8) TMI 438
Import of baggages – Non declaration of contents and value – opting green channel - Petitioner-passenger arrived at Airport and handed over her passport and disembarkation slip to officials of company – They were orally directed to complete Customs formalities, both officers opted for Green Channel where they were diverted by Customs officers for screening of baggage and further examination which resulted in confiscation of said baggages – Held that:- channel was opted by officers knowing fully well that petitioner had arrived from abroad, that petitioner alone would be able to make appropriate declaration and that contents of baggage were known to her and none else – There was no declaration of value of goods carried by passenger – Petitioner herself accepted all mistakes, including of non-filling up relevant column in slips or declaration – Passenger did not in her documents declare value of goods imported by her – Company officials also could not declare same to Customs and in terms of Section 77 of Customs act, 1962 – Thus, impugned order does not suffer from any error of law – Petition being devoid of merits, hereby dismissed – Decided against assesse.
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2015 (8) TMI 437
Waiver of Pre-deposit duty – Appeal – By impugned order, Tribunal held that appellant failed to establish any merit in appeal filed for waiver of pre-deposit of custom duty demanded – Held that:- Settled position of law that application for waiver of pre-deposit, relevant considerations for Tribunal was whether appellant made out prima facie case and whether any financial hardship was established – So far as question of prima facie case was concerned, Director - STPI passed order against appellant which binds authorities under Customs Act and that in view of said order of Director, appellant could not make out prima facie case in their favour – Appellant failed to establish not only prima facie case but also financial hardship before Tribunal – In such circumstances Tribunal ordered deposit of duty demanded – Therefore, no merit in appeal found – Appeal dismissed – Decided against Assesse.
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2015 (8) TMI 436
Criminal misconduct by public officer – Forged shipping bills – Accused nos. 1-3 filed Shipping Bills and said documents were assessed by respondent No. 1 and after such assessment goods were examined by respondent No. 2 – Accused No. 1 produced different sets of forged shipping bills by adding digit before total quantity of shipment thereby inflating value of shipment and fraudulently claimed duty drawback – Said forged documents were endorsed by respondents – High Court vide impugned order held that no case made out against respondents – Held that:- documents placed on record which were part of charge sheet, certainly raise grave suspicion against respondents and Special Court was right in framing charges against respondents – High Court was not justified in stating that Section 15 of Prevention of Corruption Act, 1988 could not be invoked – Since duty drawback was not actually availed, prosecution had rightly alleged that there was attempt to commit offence under relevant clauses of Section 13(1) of POC Act –Therefore, order of high court set aside – Decided in favour of Appellant.
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2015 (8) TMI 435
Revocation of CHA license - Misuse of G-Cards - Delhi High Court vide impugned order reported in 2014 (3) TMI 562 - DELHI HIGH COURT reversed order of revocation of license of Respondent under Custom House Agents Licensing Regulations, 1984 upholding the minority Opinion of the CESTAT, delivered by the Judicial Member, correctly appreciates the balance of relevant factors - Supreme court dismissed the revenue appeal after condoning the delay.
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Corporate Laws
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2015 (8) TMI 434
Jurisdiction of Official liquidator - whether the Official Liquidator can claim any power or jurisdiction in itself to adjudicate and quantify the claim of statutory corporations such as respondents when the Company Judge has permitted them to stand outside the liquidation proceeding subject to certain conditions under which the respondent Corporations may pursue the powers available to them under Section 29 of the State Financial Corporations Act, 1959 - Held that:- Official Liquidator does not have jurisdiction to ascertain or adjudicate the claim of a secured creditor who has been permitted by the Company Judge to stand outside the liquidation proceeding with liberty to pursue its remedy as per statutory rights available under the SFC Act, subject only to the conditions imposed by the court - no doubt the changes brought about in the Companies Act through amendments of 1985 impede even the statutory powers available to a secured creditor like SFCs under Section 29 and the other relevant sections of the SFC Act but the impediment is indeed of a limited nature; its specific purpose being to protect the pari passu charge of the workmen’s dues. After ensuring that this purpose is achieved or ensured, the State Financial Corporations can continue to enjoy their statutory rights as secured creditors. They will not be reduced to the status of unsecured creditors and equally will not be required to prove their debts nor will be required to stand in line with other unsecured creditors. Rights of a financial corporation available under the provisions of the SFC Act have been compromised or impeded by the amendment of 1985 in the Companies Act, particularly the proviso added to Section 529(1) and Section 529A, only to a limited extent and for the limited purpose of securing the right of the workers for distribution of their wages as pari passu charge. But such limited impediment to their rights under the SFC Act will not alter the status of State financial corporations as secured creditors and they will not be required to prove their debt which they are entitled to realize under the provisions of the SFC Act subject to right of the workers to receive their wages also as secured creditors on pari passu basis. The control of the Company Judge and the Official Liquidator if authorized, can extend only to ensure that the aforesaid purpose of Section 529A is effectively achieved. - no error in the impugned order of the Division Bench - Decided against appellant.
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2015 (8) TMI 433
Scheme of Amalgamation – Dispensing convening of meetings of equity shareholders, secured and unsecured creditors to consider and approve, proposed Scheme of Amalgamation under Sections 391-394 of Companies Act, 1956 – Held that:- board of directors of transferor and transferee companies in their separate meetings unanimously approved proposed Scheme of Amalgamation – Equity shareholders and secured creditor of transferor and transferee companies have given their consents/no objections in writing to proposed Scheme of Amalgamation and were found in order – 43 out of 246 unsecured creditors valuing 86.24%, of transferor company-1 and 48 out of 552 unsecured creditors, valuing 76.45% of transferee company have given their consents/no objections in writing – Transferee company has liquidity comprising of cash and bank balances and liquid investments in mutual funds which are more than sufficient to meet and discharge entire liability towards all unsecured creditors of transferor company-1 and have undertaken to discharge their liabilities in normal course of their business – Application stands allowed – Decided in favour of applicants
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Service Tax
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2015 (8) TMI 453
Demand of service tax - Telecom services - Inordinate delay in submitting returns - Suppression of facts - Held that:- Adjudicating authority has analysed the facts of the case and arrived at the amount of short payment based on figures collected during audit of the appellant. It is also recorded that the figures were submitted after a considerable delay and after repeated reminders and the ST-3 returns for the period October, 2000 onwards were submitted only on 19.7.2002. Based on these facts, the lower adjudicating authorities have rightly held the appellant guilty of suppression of facts.The period involved is October 2000 to March 2002 and as per the records of service tax payable and the service tax deposited vide TR-6 challans as mentioned in the table given in the impugned primary order, short payment of service tax of ₹ 26,81,496/- is clearly evident.We find that even during the proceedings before the Commissioner (Appeals) in spite of several dates fixed for personal hearing, nobody appeared on behalf of the appellant. - No ground for appellate intervention in the impugned order - Decided against assessee.
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2015 (8) TMI 452
Demand of service tax - Imposition of penalty u/s 76, 77 & 78 - cable operator service - Held that:- In view of the provisions of Section 67, Explanation (2) cum-tax benefit is required extended to the appellant and as a consequence the amount of demand would be reduced to ₹ 3,69,019/- As regards setting aside penalty under Section 76 is concerned, as per the judgements of Punjab & Haryana High Court in the case of CCE Vs. Pannu Property Dealers [2010 (7) TMI 255 - PUNJAB AND HARYANA HIGH COURT] and CCE Vs. First Flight Courier Ltd. [2011 (1) TMI 52 - High Court of Punjab and Haryana] it has in effect been held that once penalty under Section 78 has been imposed penalty under Section 76 may not be justified and need not be imposed. Accordingly, the contention of the appellant with regard to setting aside the penalty under Section 76 is sustainable. It is also seen that in the case of Ratnamani Metals Vs. CCE - [2013 (12) TMI 1397 - GUJARAT HIGH COURT], Gujarat High Court held that if the option of reduced (25% of the demand) mandatory penalty has not been extended expressly at the lower levels, the CESTAT can award such an option. - demand is reduced to ₹ 3,69,019/-, penalty under Section 76 is set aside, penalty under Section 75A and 77 are upheld and penalty under Section 78 is reduced - Decided partly in favour of assessee.
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2015 (8) TMI 451
Demand of service tax - Reverse charge mechanism - Bar of limitation - Held that:- appellant filed appeal before Commissioner (Appeals) beyond 90 days and the period of delay is 172 days. Whereas, as per the proviso to sub-section (3A) of Section 85 of Finance Act, the Commissioner (Appeals) may allow further period of 30 days if the appeal is not filed within two months from the date of receipt of Order-in-Original. In this regard, the Hon’ble Supreme Court in the case of Singh Enterprises Vs. CCE, Jamshedpur - [2007 (12) TMI 11 - SUPREME COURT OF INDIA] has categorically held that Commissioner (Appeals) and the Tribunal has no power to condone the delay beyond the stipulated period - Decided against Assessee.
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2015 (8) TMI 450
Rent a cab service - Service tax registration not taken - Invocation of extended period of limitation - Held that:- Gujarat High Court [2015 (1) TMI 809 - GUJARAT HIGH COURT], on identical issue upheld the demand of service tax on merits and set-aside the demand on limitation - Decided in favour of assessee.
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2015 (8) TMI 449
Intellectual Property Services - According to the Revenue, the Intellectual Property Services was brought into the service tax net with effect from 07.9.2004 and the appellant is liable to pay service tax as recipient in India - Held that:- Issue is no more res-integra and settled by the decision in the case of Indian National Shipowners Association vs. UOI - [2008 (12) TMI 41 - BOMBAY HIGH COURT], which is upheld by the Hon'ble Supreme Court as reported in [2009 (12) TMI 850 - SUPREME COURT OF INDIA]. The learned advocate also relied upon the decision of the Hon'ble Gujarat High Court in the case of Commissioner of Service Tax vs. Quintiles Data Processing Centre (I) Pvt. Limited - [2011 (4) TMI 585 - GUJARAT HIGH COURT]. It has been held that charging Section i.e. Section 66A of Finance Act, 1994 is introduced with effect from 18.04.2006 in respect of the services received from the foreign. In the present case, the dispute relates to the period October 2004 to September 2005 - Decided in favour of assessee.
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2015 (8) TMI 448
Demand of service tax - Penalty u/s 76, 77 & 78 - Real estate service or service of construction of residential complexes - Held that:- While the Revenues contention that the respondent have not been able to show that the amount for which the said service tax demand was dropped by Commissioner (Appeals) related to construction of residential complex, the fact remains that the Revenue has not been able to show that the said amount pertained to provision of Real Estate Agent service. - Revenues appeal with regard to service tax demand of ₹ 92,998/- is not sustainable. As regards, setting aside of penalty under Sections 76 and 77 because the penalty under Section 78 was imposed, it is settled law that during the relevant period the penalty under Section 76 and 78 were not mutually exclusive. Primary adjudicating authority had not given the option of reduced mandatory penalty to the respondent and therefore as per the ratio of Gujarat High Court judgement in the case of Ratnamani Metals & Tubes Ltd. Vs. CCE [2013 (12) TMI 1397 - GUJARAT HIGH COURT]. the Commissioner (Appeals) was justified in granting that option but the Commissioner (Appeals) was required to put a condition that the said reduced penalty will have to be deposited within 30 days of the receipt of the order in appeal and by not putting that condition the Commissioner (Appeals) has certainly gone beyond the scope under Section 78 and therefore the reduction of mandatory penalty to 25% of demand without the condition of its deposit within 30 days is not sustainable. However as the option to pay reduced penalty in effect, has not been properly granted to the respondents following the ration of Gujarat High Court judgement in the case of Ratnamani Metals & Tubes (supra) it is to be granted by CESTAT. - Decided partly in favour of Revenue.
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2015 (8) TMI 440
Classification of services - cargo handling service for import of goods - transportation by barges from the mother vessel to the jetty onshore - Supreme Court after hearing the parties found no reason to interfere with the udgment and order passed by the Tribunal [2014 (12) TMI 502 - CESTAT MUMBAI], wherein, Tribunal held that when the goods are being transported by the barges from the mother vessel to the jetty onshore, that activity is part of the import transaction of bringing the goods into India from a place outside India. The question of rendering any service in respect of such goods by way of cargo handling or otherwise can take place only after the customs transaction is completed. Therefore, the question of levying to service tax the transportation by barges from the mother vessel to the jetty onshore, would not arise at all since the said activity is part of the import transaction leviable to import duty.
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Central Excise
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2015 (8) TMI 445
Denial of CENVAT Credit - adjudicating authority held that the machineries were very old i.e. purchased by M/s. Gokulanand Texturisers in the year 1998 and therefore, it is no longer remained in a position of being reused as fresh parts (inputs) for manufacture of new machines - Held that:- Appellant received the goods accompanied with the Central Excise invoices and availed CENVAT credit - It has been alleged in the show cause notice that the appellant failed to produce any job card or any other private record to establish the use of these items in the final products. Learned Advocate during the course of hearing drew the attention of the bench only RG-23 Part-I register that the appellant have used the goods in question in and waste and scraps. Admittedly, the appellant received old and used machinery, apparently, which cannot be used in the final products. The appellant failed to produce any evidence of use of the items - No reason to interfere with the order of Commissioner (Appeals) - Decided against assessee.
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2015 (8) TMI 444
Illicit clearance of goods - Penalty u/s 11AC - Confessional statement given by partner - Held that:- Ramkishor M. Bindal, Partner of Assessee admitted the processing of grey fabrics and clandestine removal of the finished goods without payment of duty. They have paid the duty at the very next date of the visit of the officers. After about more than four years he had retracted the statement only in reply to the show cause notice, which can not be accepted as retraction of statements - appellants (i.e. merchant manufacturers) also supplied the grey fabrics and received the processed grey fabrics with full knowledge that the goods are not duty paid and therefore, imposition of penalties on the other appellants are warranted. It is also noted that the Assessee had not disputed the payment of duty. On a query from the Bench, learned Consultant for the Assessee submits that the Appellant Assessee had not availed the option of payment of 25% of duty as penalty under Section 11AC of the Central Excise Act, 1944, as per the order of the Commissioner (Appeals). - Decided against Assessee.
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2015 (8) TMI 443
Denial of refund claim - Adjudicating Authority rejected the refund claim holding that the value of goods under Section 4(1) of Central Excise Act 1944 has to be arrived at the time of delivery from place of removal - Held that:- The goods were cleared on payment of duty at the price as per the said agreement. Subsequently, ex-factory price was decreased to ₹ 4,21,30,638/- as evident from the letter dtd 1.9.2007 of M/s TNEB. It is seen from the said letter that the appellants were requested to despatch the transformer to the sub-station site in co-ordination with the concerned Superintendent Engineer and carried out erection work. On perusal of the impugned order, I find that both the authorities below had not noticed that the price variation clause of the agreement. It is also clear from the letter dtd 1.9.2007 of M/s TNEB, where they requested the appellant to clear the transformer in the price of ₹ 4.21 crores and it would cover the earlier consignment against the same contract. Thus, there is no clarity in the facts of the case and both the authorities below failed to appreciate the facts in proper manner. It transpires from the record that there was an agreement between the parties before the clearance of the goods. But it is not clear from the records that the letter dtd 1.9.2007 of M/s TNEB of reduction of the price would be applicable for the present clearance of goods, I find force in the submission of the Learned Advocate that the findings of the Commissioner (Appeals) is beyond the scope of adjudication order. The Adjudicating Authority had rejected the refund claim on the ground that the appellant is not eligible the refund on merits. - impugned orders are set aside and remanded to the Adjudicating Authority to decide afresh after considering the above observations in accordance with the law - Decided in favour of assessee.
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2015 (8) TMI 442
Interest on refund claim - duty was deposited under protest - Held that:- Interest at the rate of 12% shall be paid to the respondents on the amount of duty and not on fine and penalty. - The said amount shall be paid to the respondents within two months. - Decided partly in favour of Revenue.
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2015 (8) TMI 441
Duty demand - Removal of goods at factory gate - Held that:- ownership for the goods was passed on to the buyer at the time of transfer of the goods at the factory gate. If the transportation work was taken by the assessee, thereafter, at the instance of the buyer and deliver the goods at the site, that cannot be a ground for loading the price with the transportation charges. - No reason to interfere with impugned order - Decided against Revenue.
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2015 (8) TMI 439
Validity of High Court's order - Penalty u/s 11AC - CIT confirmed duty - Tribunal deleted duty and penalty - Whether Customs Excise & Service Tax Appellate Tribunal committed an error in fact and in law in reversing the order of CIT(Appeals) confirming the demand for wrongfully availed Cenvat credit on the ground that the issue is revenue neutral - Held that:- High Court [2014 (7) TMI 780 - GUJARAT HIGH COURT] has accepted one substantial question of law out of two substantial questions of law as proposed by the revenue. - second substantial question of law, as proposed by the revenue, deserves to be framed and, accordingly, the finding recorded by the High Court is set aside and it is directed that the second question of law shall form a part of the order dated 1 st May, 2013, and be dealt with accordingly. - Decided in favour of Revenue.
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CST, VAT & Sales Tax
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2015 (8) TMI 447
Levy of sales tax / CST on manufacturing of cine wall posters - nature of activity - sale or works contract - printing the wall poster as per the requirement of the customer - Revision of order by the commissioner – Whether Commissioner could have revised order of ADC on ground that appeal should not have been entertained as it was filed belatedly – Held that:- Commissioner, in his earlier notice, did not propose to revise order of ADC on ground that he could not have entertained appeal after limitation prescribed for preferring appeal had expired – Matter was remanded to Commissioner to decide whether activity, undertaken by appellants, amounted to sale and was liable to be taxed or not – It was, therefore, not open to Commissioner to revise order of ADC on grounds other than those referred to him and on ground that appeal could not have been entertained belatedly – Therefore order of Commissioner, seeking to revise order of ADC hereby set aside – Decided against revenue. Printing and Supply of cine-walls – Held that:- In order to constitute sale it is necessary that there is agreement between parties for purpose of transferring title to goods, agreement must be supported by money consideration and property should actually pass in goods – For being classified as works contract transaction, under consideration, must be composite transaction involving both goods and services – If transaction involves only service, i.e. work and labour, then it cannot be treated as works contract – Expression tax on sale or purchase of goods in Entry 54 of List II of Seventh Schedule, when read with definition clause 29-A of Article 366, includes tax on transfer of property in goods whether as goods, or in form other than goods, involved in execution of works contract Authorities had treated business transactions of assessees as sale of goods, and not as works contracts – Work involving preparation of negatives of wall-posters, was exclusively job work involving skill and labour, hence price charged thereof could not be subject to sales tax – However, second part of work involving printing of positive prints of wall- posters, was deemed to be works contract and, as such, tax was levied – Activity of printing and supply of cine wall-posters cannot be considered as failing under terms fitting out, improvement or repair, as supply of cine wall-posters was not supply of goods; and there was no improvement or repair, consequently these transactions cannot constitute specified works contracts referred to in Section 2(t), therefore not exigible to tax under APGST Act – It was only after 01.04.2005 that all kinds of works contracts were brought within ambit of works contracts as defined in Section 2(ja) of CST Act – Therefore no tax could have been levied on such works contracts under CST Act also – Subject transactions were not liable to tax either under APGST Act or CST Act during the relevant period – Decided against revenue. Payment of Tax – Against refund order – Whether Commissioner could have directed appellants to pay tax under APGST, 1957, and CST, 1956, when order of ADC setting aside order of assessing authority withholding refund under Section 33-BB had attained finality – Held that:- As appellants had already paid tax, consequence of order of ADC was that they were entitled to claim refund of tax paid earlier –Upon revisional order of Commissioner, appellants-assessees were liable to pay tax – As long as order of Commissioner remained in force, assessees continued to remain liable to pay tax and was not disabled from revising earlier order of ADC – Decided in favour of revenue. Tax collected from Customers – Whether appellants can be permitted to retain amounts collected by them from their customers on manufacture, printing and supply of cine wall-posters –Held that:- appellants may not be liable to pay tax as subject transactions were not sale of goods, but it was not disputed that appellants have collected tax from their customers on manufacture, printing and supply of cine wall- posters – Doctrine of unjust enrichment is just and salutary doctrine – As appellants were not exigible to tax during relevant period, appellants cannot be permitted to retain amount collected by them from their customers as that would resulted in their unjust enrichment – Onus was on appellants to show that they have not collected tax from their customers to whom they supplied cine wall-posters manufactured and printed by them – Decided against Appellant.
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2015 (8) TMI 446
Unfair trade practices - high discount on the sale price of the drugs - Held that:- Essentially the claim of the petitioner appears to be complaining of unfair practices adopted by certain medical retailers. The monopolic tendency of such retailers indulging unfair practices are highlighted. - it is beyond the scope of Commissioner of Sales Tax, to probe. The Statute like Competition Act, 2002 has made a mechanism to deal with such issues. The petitioner has to work out such remedy either by availing the redressal mechanism of such Act or such other mechanism. No relief can be granted by this Court. - Decided against appellant.
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Wealth tax
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2015 (8) TMI 432
Determination of net wealth of assessee - Renting of property - Business Income or asset - Held that:- CWT(A) while treating the asset as a commercial property has followed the decision of the Tribunal in assessee’s own case [2015 (6) TMI 252 - ITAT PUNE] in the 263 proceedings and has also relied on various other decisions and since the Ld. Departmental Representative was unable to distinguish the findings given by the CWT(A) by placing any cogent material, therefore, we do not find any infirmity in the order of the CWT(A) deleting the addition made by the WTO. As already mentioned earlier, the AO in the order passed u/s.143(3) had treated the rental income from the property as “business income” which was set-aside by the CIT u/s.263 of the I.T. Act. On appeal by the assessee the Tribunal quashed the order passed u/s.263. Therefore, once the rental income from the property is treated as “business income” and the character of the asset remains as commercial establishment or commercial complex as envisaged in sub-section 5 of clause (i) of section 2(ea) of the Wealth Tax Act, the same cannot be brought into the ambit of Wealth as the same falls within the exclusions provided in clause (i) of section 2(ea) of the Wealth Tax Act. - Decided against Revenue.
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