TMI Tax Updates - e-Newsletter
August 14, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws FEMA Service Tax Central Excise CST, VAT & Sales Tax

Articles

1. RG-1 REGISTER

   By: DR.MARIAPPAN GOVINDARAJAN

2. CESTAT APPEALS: SOME FACTS

   By: Dr. Sanjiv Agarwal

News

1. RBI announces measures to rationalise Foreign Exchange Outflows by Resident Indians

2. Statement by CBDT on Safe Harbour Rules Under Section 92CB of the Act

3. Funds Allocated / Utilised for ECHS

4. Trade Relations with Pakistan

5. Approval for Setting up of NIMZs in Andhra Pradesh

6. Putting Preferential Market Access Policy on Hold

7. Setting up of Industrial Clusters

8. RBI Reference Rate for US $ and Euro

9. Index Numbers of Wholesale Price in India (Base: 2004-05=100) Review for the month of July, 2013

10. Proposal for exemption of prior approval of Cabinet for disposal of immovable properties acquired by the Central Government, under the provisions of Chapter XX-C of the Income Tax Act 1961

11. Setting up of Tax Administration Reform Commission

Notifications

Central Excise

1. 25/2013 - dated 13-8-2013 - CE

Seeks to amends Notifications No.12/2012-Central Excise, dated the 17th March, 2012

DGFT

2. 34 (RE–2013)/2009-2014 - dated 14-8-2013 - FTP

Amendment in the policy for import of Ammonium Nitrate

Income Tax

3. 62/2013 - dated 13-8-2013 - IT

Exemption u/s 35(1)(ii) - Approved Scientific Research Associations/Institutions - Centre for Development of Telematics (C-DOT), New Delhi

4. 44/2013 - dated 19-6-2013 - IT

Agreement between the Government of the Republic of India and the Government of the Kingdom of Bahrain for the Exchange of Information with respect to taxes

SEZ

5. C.2/1/2013-SEZ - dated 12-8-2013 - SEZ

Special Economic Zones (Amendment) Rules, 2013

Circulars / Instructions / Orders

SEZ

1. D.12/45/2009-SEZ - dated 12-8-2013

Amendment to Special Economic Zones Rules, 2006 – regarding

FEMA

2. 23 - dated 14-8-2013

Overseas Direct Investments

3. 24 - dated 14-8-2013

Liberalised Remittance Scheme for Resident Individuals- Reduction of limit from USD 200,000 to USD 75,000

DGFT

4. 23 (RE-2013) / 2009-14 - dated 13-8-2013

Export of Finished Leather, Wet Blue and EI Tanned Leather to be permitted through the notified port

Highlights / Catch Notes

Income Tax

• Section 50C of Income Tax Act not applicable to leasehold rights transfer; circle rate irrelevant for industrial plot.

  Case-Laws - AT : Application of section 50C of the Act to the transfer of leasehold rights in the industrial plot - Addition made by the AO on the basis of circle rate gathered from Sub-Registrar office of Rampur showing circle rate of properties cannot be applied as there was no application of section 50C in the case - AT
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• Reassessment u/s 147 Requires "Reason to Believe," Not "Reason to Suspect," Focusing on Section 40A(3) Expenditure Claims.

  Case-Laws - AT : Reassessment proceedings u/s 147 - Section 40A(3) applies in the case of expenditure claimed by the assessee, but in this case, the assessee did not claim any expenditure in the profit and loss account of all the concerns held by him - The AO had to act on the basis of reason to believe and not on reason to suspect - AT
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• Assessing Officer's Order u/s 154 Invalid; Deductions for Sick Industrial Company's Losses Upheld u/s 115JB.

  Case-Laws - AT : Minimum Alternate Tax (MAT) - Adjustment to book profit u/s 115JB - Adjustment of loss to sick industrial company - A.O. on long drawn process of reasoning should not have passed the order under Section 154 of the Act - whatever amount was reduced from the profit of business on account of loss to sick industrial company were in accordance with law. - AT
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• Tax Planning vs. Avoidance: Importance of Intent in Sale and Leaseback Transactions for Depreciation Claims.

  Case-Laws - AT : Tax Planning versus Tax Avoidance - Finance Lease / Operating lease - No straight jacket formula can be adopted to say that every case of sale and lease back transactions is sham or genuine - real intention was to enter into transaction of loan/finance only and the assessee was never intended to be the real and legal owner of the assets – Depreciation not allowed - AT
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• Trust's 12AA Registration Can't Be Canceled for Settler's 80G Deduction Claim on Trust Donations.

  Case-Laws - AT : Merely because the Settler of the trust has claimed deduction under section 80G of the Act on the donations made to the assessee Trust, does not merit the cancellation of registration granted to the Trust u/s 12AA - AT
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• Deduction Disallowed: No Additional Provision for Bad Debts u/s 36(1)(viia) in Audited Accounts.

  Case-Laws - AT : Disallowance u/s 36(1) (viia) - creation of reserve for bad debts - in the absence of any extra provision for bad and doubtful debts, having been created by the assessee as per the audited accounts available in the paper book, deduction not allowed - AT
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• Penalty Upheld for Cash Transactions Violating Income Tax Act's Section 269SS; No Reasonable Cause Found u/s 273B.

  Case-Laws - AT : Penalty u/s 271D - violation of section 269SS - Reasonable Cause u/s 273B - The claim of the assessee is that receipt of money by way of cash itself is a reasonable cause - mere receipt of cash, itself cannot be a reasonable cause. - Penalty levied - AT
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• Court Rules on MAT Calculation: Deduct Lesser of Unabsorbed Depreciation or Carried Forward Losses u/s 115 JB.

  Case-Laws - AT : Book profit for the purpose of MAT (Minimum alternate Tax) - The lower of the solitary figures of the unabsorbed depreciation or loss brought forward for all the earlier years taken together is to be reduced for the purposes of computing book profit u/s 115 JB of the Act. - Decided against the revenue. - AT
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• Section 14A & Rule 8D: Estimating Expenditure for Tax-Exempt Income Must Not Exceed Actual Claims by Taxpayer.

  Case-Laws - AT : Disallowance u/s 14A - Rule 8D is toward estimating the expenditure that can be attributed to the tax exempt income and, thus, could not, in any case, exceed the actual expenditure incurred and claimed by the assessee - AT
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• Court Rules Audit Report Can Be Submitted After Tax Return for Section 80IB Deduction, But Filing Still Required.

  Case-Laws - HC : Deduction u/s 80IB - Audit report not furnished - interpretation merely permits the assessee to produce the said report even after the date of the filing of the return as passed; it does not wholly do away with the requirement of filing the report altogether - HC
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Customs

• Applicant Penalized for Deliberately Delaying Foreign Travel Tax Deposit u/s 38(3) of Finance Act, 1979.

  Case-Laws - CGOVT : Foreign Travel Tax (FTT) - Delay in Depositing the amount – Applicant had deliberately contravened the provisions of Section 38(3) of Finance Act, 1979 (FTT) - For these contraventions, the applicant was now circumventing the basic truths and for these contraventions the department had very rightly imposed the minimum penalty as mandatorily prescribed in the Section itself - CGOVT
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• Customs Case: Hardware and Software Must Be Assessed Separately; Commissioner Exceeded Notice Scope on Software Valuation.

  Case-Laws - AT : VEscapement of duty – Hardware and software to be assessed independently on merits whether they imported together or separately - Commissioner had gone beyond the scope of show-cause notice by holding that the appellants have inflated the value of software - AT
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FEMA

• Section 10 Evidence Act: Statements or actions by one conspirator are admissible against all in proving shared intent.

  Case-Laws - HC : Relevant fact U/s 10 of Evidence Act - In a case a conspiracy if there was reasonable ground to believe that two or more persons have conspired together to commit an offence then by virtue of Section 10 of the Evidence Act, anything said, done or written by one of such persons in reference to their common intention, was a relevant fact as against each of the persons - HC
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Corporate Law

• Quasi-Partnership Rules: Private Agreements Not Grounds for Oppression Claims u/ss 397 & 398 of Companies Act.

  Case-Laws - Board : Oppression and Mismanagement - Principles of quasi partnership - The private agreements can neither be sought to be enforced nor their breach give any cause of action to file a petition under sections 397 and 398 of the Act - CLB
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Service Tax

• Reverse Charge Mechanism Maintains Tax Liability for Business Support Services; Revenue-Neutrality Not a Valid Tax Avoidance Justification.

  Case-Laws - AT : Reverse Charge - even if the service was taxable as ‘Business Support Service’, there will not be any change in tax liability under reverse charge mechanism or any other count - revenue-neutrality cannot be taken as a ground for avoiding payment of tax at any stage of a VAT system - AT
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• Residential Complex Section 65(91a) update: New composition scheme for tax liability; previous definitions remain valid.

  Case-Laws - AT : Residential Complex u/s 65(91a) – The new entry uses the very same expressions defined earlier and subjected to tax but a new composition scheme for discharging liability was introduced - So it cannot be considered that the earlier entries were null and void. - AT
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• SPV in BOT highway projects cannot classify concessionaire as an agent for Business Auxiliary Services purposes.

  Case-Laws - AT : Classification of category under Business Auxiliary Services – SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, the Concessionaire cannot be considered as an agent of the NHAI - AT
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• Penalty Upheld for Non-Payment of Service Tax on GTA Services; Intent Argument Dismissed u/s 76.

  Case-Laws - AT : Penalty on service tax default section 76 – Failure to pay service tax on GTA service under reverse charge method – only reason stated was that the non-payment of service tax was not willful cannot be accepted - penalty confirmed - AT
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Central Excise

• Goods Removal from Job Worker Allowed if Intermediate Products u/r 4(6) Cenvat Credit Rules 2004.

  Case-Laws - AT : Removal of goods under Rule 4(6) of the Cenvat Credit Rules, 2004 - Sale of goods from the premises of Job worker - permission denied - Once the goods are recognized to be intermediate product there is no reason to deny the benefit Rule 4 (6) of Cenvat Credit Rules, 2004. - AT
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• Transfer of 10 Transformers Lacks RG-1 Entry; Non-Verification by Officers Not Evidence of Shortage.

  Case-Laws - AT : Just because there was no entry in the RG-1 register regarding transfer of 10 transformers from the bonded store room to the manufacturing section of the factory for reovening and when this fact was told to the officers at that time but still they did not verify, it cannot be concluded that there was unexplained shortage of 10 transformers - AT
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• Goods Confiscated u/r 25 for Missing RG-I Register Entry; No Automatic Duty Evasion Intent Assumed.

  Case-Laws - AT : Confiscation of goods under Rules 25 of the CER, 2002 – goods are not entered in RG-I Register, but it cannot be said that by merely not entering in RG-I Register, there was any intention to evade duty by the appellants - AT
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VAT

• High Court Quashes Legislative Changes on Transit Fees for Forest Products, Rules Unconstitutional and Beyond Competence.

  Case-Laws - HC : Constitutional validity - Legislative competence for enhancing transit fee and changing the basis of levy from cubic feat to advalorum between 5% to 15%, on variety of forest produce including timber, firewood, and other forest produce coming from mines e.g., coal, limestone, sand, bajari and other minerals - All the notifications quashed - HC
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Case Laws:

• Income Tax

• 2013 (8) TMI 421
  Adjustment in regard to marketing support services segment - Non reduction of suo motu disallowance of commission expenses - Held that:- commission expenditure which have been disallowed were payments claimed to be made to local dealers for assistance in procuring orders for the products of the assessee's associated enterprises from the Indian customers - Dispute Resolution Panel mistakenly written amount of profit of assessee - Transfer Pricing Officer has wrongly computed the margin of the assessee at 1.35 percent and if the said correction is made then the profit margin will be 9.63 percent - it cannot be said that commission expenses which have been suo motu disallowed by the assessee were not claimed as operating expenses while computing the arm's length price. If they are subsequently disallowed suo motu by the assessee in the revised return, they are required to be excluded from the operating cost and the calculation of the assessee should have been accepted that its profit margin should have been taken according to the income computed in the revised return for which the assessee has also paid the due taxes - Decided in favour of assessee. Rejection of three comparables out of five comparables selected by the assessee - Non availability of the current year's financial data - Held that:- only current year financial data is relevant for determination of the arm's length price - sub-rule (4) of rule 10B clearly states that the data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. The proviso carves out an exception that the data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of the transfer price in relation to the transactions being compared - Following decision of Mentor Graphics (Noida) (P.) Limited. Versus Deputy Commissioner Of Income-tax, Circle 6(1), New Delhi [2007 (11) TMI 339 - ITAT DELHI-H] - Decided against assessee. Determination of arm's length price - Only one comparable taken as basis - Held that:- Four comparables were involved in different lines of business and, therefore, did not meet requirements of rule 10C, which was a major factor in judging comparability of a case – on facts, ALP was to be determined only on basis of remaining one comparable - proviso as it existed for the relevant assessment year states that where more than one price is determined by the most appropriate method, ALP shall be taken to be arithmetical mean of such price, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding 5 per cent of such arithmetical mean - provision is applicable where more than one price is determined by the appropriate method - Following decision of Vedaris Technology (P.) Ltd. Versus Assistant Commissioner of Income-tax [2010 (3) TMI 898 - ITAT DELHI] and Perot Systems TSI (India) Ltd. Versus Deputy Commissioner of Income-tax, Circle-14(1), New Delhi [2009 (10) TMI 638 - ITAT DELHI] - Decided against assessee. Exclusion from operating expenses - Expenses incurred prior to the commencement of manufacturing activity - Held that:- what are operational expenses are the expenses which are incurred to earn that income. It is not even the case of the assessee that those expenses did not relate to manufacturing segment of the assessee out of which the revenue was earned by the assessee. If the expenses have nexus with the revenue then they are to be considered as operational expenses and they cannot be excluded simply for the reason that the date of occurrence of the revenue is later and expenses have been incurred prior to that - Decided against assessee. Deviation from net profit shown in books - Held that:- There cannot be any deviation in the net profit shown in the books of account and adjustment, if any, can be made to the same to eliminate the material effects of such differences to the extent these adjustments are reasonably accurate. Therefore, the position emerges is that the adjustments can be granted to the assessee in computation of the mean margin only to the extent of these being reasonably accurate - Decided against assessee. Computation of profit margin - Adjustment on capacity utilisation - every person who has entered into an international transaction is under an obligation to keep and maintain the information and documents with respect to the assumptions, policies and price negotiations, if any, which have critically affected the determination of the arm's length price. The Transfer Pricing Officer in its report has observed that the assessee did not submit any evidence for assuming the capacity utilisation of the comparables and whatever data relied upon by the assessee for seeking capacity utilisation adjustment was either unreliable or incorrect. When fixed cost itself is incurred only for a part of the year the same cannot be adjusted for differential capacity utilisation - Therefore, decided against assessee. Arm's length price determined on application of the most appropriate method is only an approximation and is not a scientific evaluation. Therefore, the Legislature thought it proper to allow marginal benefit to cases who opt for such benefit. In the case of a taxpayer who exercises the option and accepts the arm's length price as per the second limb of the proviso or in other words, he accepts the arm's length price even exceeding 5 percent of arithmetic mean determined by the tax authority as correct and is ready to pay tax on the difference between price disclosed by him and the above arm's length price. We do not see any valid objection on the part of the Revenue to the application of the above provision to such a case - Therefore, 5 percent is not available to the assessee with respect to marketing support service segment and it is available to the assessee with regard to manufacturing segment - Decided partly in favour of assessee. Disallowance u/s 40(a)(ia) - It has not been shown by the assessee that how these expenditure, which are claimed as provision, had accrued in the year under consideration. No details whatsoever have been filed in the paper book as no reference in the written submission regarding evidence has been made - There being no evidence on record to prove that these provisions were not in the nature of contingent liability - Decided against assessee. Depreciation - Whether printers and UPS can be classified as computer entitled to depreciation at 60% or have to be classified as general plant and machine entitled to depreciation only at 25% - Section 32, which grants depreciation allowance, does not define the word ‘Computer - As per the General Clauses Act, 1897, if a particular word is not defined in the Central statute then meaning given to such expression under General Clauses Act may be considered for guidance and adoption in the former enactment - Thus in order to determine whether a particular machine can be classified as a computer or not, the predominant function, usage and common parlance understanding, would have to be taken into account - In the case of ITO Vs. Samiran Majumdar [(2006) 280 ITR (AT) 74 (Kol.)] ITAT, Kolkata Bench - Held that when a device is used as part of the computer in its functions, then it would be termed as a computer - Decided in favour of assessee.

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• 2013 (8) TMI 413
  Application of section 50C of the Act to the transfer of leasehold rights in the industrial plot - The assessee had transferred leasehold rights in the plot of District Industrial Centre, Rampur to Shri V.K. Gupta as per directions/terms or consideration of district Rampur and paid stamp duty of Rs.3400 and also got registered agreement from some Registrar, Tehsil Sadar, Rampur on 14.3.2007 - Assessee got a leasehold plot from District Industrial Center, Rampur for lease of 99 years for setting up an industrial unit. The assessee obtained required permission from the concerned authorities for transfer of leasehold rights after making payments of dues and transfer charges – Held that:- The assessee had transferred leasehold rights in the plot of District Industrial Centre, Rampur to Shri V.K. Gupta as per directions/terms or consideration of district Rampur and paid stamp duty of Rs.3400 and also got registered agreement from some Registrar, Tehsil Sadar, Rampur on 14.3.2007 - Assessee was having only leasehold rights and it had no absolute right to sale, exchange or relinquish the property. As per recital of the original lease deed, actual rights were in the hands of General Manager of District Industrial Center on behalf of Government of U.P - The triparty agreement was executed between the assessee, Shri V.K. Gupta and General Manager, District Industrial Center, Rampur on behalf of Govt. of UP and the deed was executed after granting approval by the District Magistrate, Rampur with certain conditions mentioned in the approval/permission. Assessing Officer did not give any finding to the fact that the assessee received additional consideration in addition to the consideration mentioned in the sale agreement and also the Assessing Officer did not gather any material to establish with cogent evidence that there was evasion of tax by suppressing or concealing the true and correct consideration of transaction - Addition made by the Assessing Officer on the basis of circle rate gathered from Sub-Registrar office of Rampur showing circle rate of properties cannot be applied as there was no application of section 50C in the case - Decided against the Revenue.

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• 2013 (8) TMI 412
  Intention of the assessee, whether an assessee has made investment in shares or it was an adventure in the nature of trade - To discern the intention of the assessee, whether it has made investment or just on account of change of law, it is trying to convert its stock-in-trade as investment – Held that:- In the light of tests laid down in the case of Sarnath Infra- structure Pvt. Ltd. vs. ACIT reported in [2007 (12) TMI 261 - ITAT LUCKNOW-B], facts of the present case was examined and it was revealed that assessee has not converted its stock-in-trade into investment, just after the announcement of change in the tax rate on short term capital gain. It has been independently making purchases, which are shown as investment in the investment registered. It has took the delivery of shares, this aspect was specifically pleaded before the CIT (A) and it has been accepted. It has not used borrowed funds for making investment. The AO has not pointed out this aspect in the assessment order also. The shares have been valued at cost at the end of the year, while closing the accounts. The Board had passed the resolution for investment in the month of January, some of the shares were old shares on which short term capital gain has been declared, they were appearing in the opening stock as investment. Thus cumulative setting of all these factors suggest that assessee had made investment in the shares – Decided in against the Revenue. Allowance of security transaction tax – Held that:- Deduction of security transaction tax is not admissible to the assessee, once its claim of short term capital gain is accepted – Decided against the Revenue. Disallowability of deduction under section 14A of the Income Tax Act – Held that:- If it is not possible for the AO to pin point any specific expenditure from the accounts relatable to earning of exempt income then he would look into surrounding circumstances – AO is directed to re-adjudicate this issue, keeping in view the judgment of Hon'ble Delhi High court in the case of Maxopp Investment Ltd. Vs. CIT [347 ITR page 272].

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• 2013 (8) TMI 411
  Initiation of re-assessment proceedings u/s 147 of the Income Tax Act - reason to believe or reason to suspect - The assessee filed return of income declaring total income of Rs.11,35,776/- which was accepted by the AO while computing income of the assessee – Held that:- The profit and loss account and balance sheet are filed in the paper book of these concerns to show that the assessee did not deal in real estate and was also not colonizer in assessment year under appeal - Nature of business of these concerns held by the assessee would also support the submissions of the assessee that in the year under consideration, the assessee was not colonizer and dealer in real estate - The AO had not examined this information before recording his satisfaction of escaped income and initiated the re-assessment proceedings. The AO had acted only on the basis of suspicion that the assessee was a colonizer and dealer in real estate. The AO was having no material or evidence with him to support his belief that the assessee acted as colonizer or dealer in real estate in the assessment year under appeal. The reasons recorded by the AO for reopening of the assessment are factually incorrect and non-existent. Section 40A(3) applies in the case of expenditure claimed by the assessee while computing business income, but in this case, the assessee did not claim any expenditure in the profit and loss account of all the concerns held by him - The AO had to act on the basis of reason to believe and not on reason to suspect - The AO had failed to incorporate any material for his satisfaction for re- opening of assessment. There was no foundation to his reasons to believe that there was escapement of income in the assessment year under appeal. Therefore, the issuance of notice u/s. 148 of the IT Act for re-assessment proceedings was not valid – Appeal allowed – Decided in favor of Assessee.

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• 2013 (8) TMI 410
  Mistake apparent from record for invocation of section 154 of Income Tax Act,1961 - Minimum Alternate Tax (MAT) - Adjustment to book profit u/s 115JB - Adjustment of loss to sick industrial company - Held that:- The Auditor of the assessee in Annexure-A also reduced the loss of sick industrial company from the profit. Therefore, assessee has disclosed all the particulars regarding income to be computed under Section 115JB while filing return of income. The certificate regarding assessee is sick industrial company issued by BIFR was also filed at the assessment stage - There was no scope for the A.O. to have resorted to the provision of Section 154 of the Act for the purpose of enhancing the income of the assessee. The ld. CIT(A) gave specific finding of fact that the assessee is sick industrial company during the year under consideration. A.O. on long drawn process of reasoning should not have passed the order under Section 154 of the Act - Assessee also correctly demonstrated from the provision of Section 115JB(2) of the Act that whatever amount was reduced from the profit of business on account of loss to sick industrial company were in accordance with law. Therefore, there was no justification for A.O. to pass the order under Section 154 of the Act - No merit in the appeal of the Revenue – Decided against the Revenue.

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• 2013 (8) TMI 409
  Allowance of carry forward of loss on account of provisions of section 79 of the Income Tax Act – Held that:- Issue of carry forward would depend upon the finality of order for earlier years as it would have bearing on the year under appeal – Issue is remitted to the file of AO to determine the carry forward losses based on the outcome to the decision for the earlier years. Allowability of warranty expenses - Assessee debited expenses on account of warranty expenses - H ble Apex Court in the case of Rotork Controls [2009 (5) TMI 16 - SUPREME COURT OF INDIA] has laid down the conditions which are required to be satisfied for making claim in respect of post sale customer service and has laid down the principle pertaining to the same - The Hon ble Apex Court in Rotork Controls case noted that provision made for warranty based on past experience (historical trend) was most appropriate as it fulfilled accrual concept as well as matching concept. A detailed assessment of the warranty provisioning policy is required particularly if the experiences suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty – Held that:- There is no finding with respect to the compliance of aforesaid guidelines of Apex Court by assessee in the order of AO or DRP - Matter needs to be examined in the light of the principles laid down by Hon ble Apex Court – Matter remitted to the file of AO for deciding the issue afresh in the light of the decision of Hon ble Apex Court in the case of Rotork Controls case. Acceptability of DRP Order for making assessment - DRP has not dealt with the objections raised by the assessee by giving any cogent reasons as to why these objections are not acceptable to them - DRP has simply approved the adjustments made by the TPO. This has resulted in DRP s order being non-speaking – Held that:- Ld. DR has tried very hard to meet these objections by referring to various relevant income tax rules and the case laws but this effort of Ld. DR is not arising out of the order of the DRP. Therefore assessment orders passed by assessing officer in consequence to the DRP s order have to be set aside relying upon the decision in the case of Vodafone Essar Ltd vs. Dispute Resolution Panel reported in [2011 (12) TMI 22 - Delhi High Court], wherein it has been held that when quasi-judicial forum like DRP deals with section 144C of the Act then it is obligatory on its part to ascribe cogent and germane reasons as reasons are the heart and soul of the matter and facilitate the appreciation of the order when the matter is called in question either before a superior or appellate forum - Accordingly the DRP s order along with the impugned order is set aside in respect of transfer pricing adjustments to the file of DRP with the direction to pass a speaking order after taking into consideration the submissions of both the parties.

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• 2013 (8) TMI 408
  Tax Planning versus Tax Avoidance - Finance Lease / Operating lease - Sale and Lease back transaction, whether genuine transaction or sham transaction - Appellant purchased energy meters of different makes for measuring electrical energy for a consideration from Gujarat State Electricity Board , referred to as GEB. These meters (assets) were then immediately leased back to GEB vide lease agreement. After deduction of lease management fee and first month's rental, the appellant paid balance to GEB. In the P B.M. Karwar –[1968 (8) TMI 14 - SUPREME Court] etc., it has been well observed that in none of the authorities it has been held that each case of Sale and Lease back transaction or of thelease whether claimed to be operative or financial, the depreciation or the deduction or relief under the Income Tax act is to be allowed or disallowed. In each of the authorities as mentioned above, it is only after considering the facts and the evidence on the file, the various courts have given finding in the respective authorities to the effect that transactions in question were genuine transactions or sham transactions - Whether a transaction or the agreement etc. is genuine or sham cannot be a question of law but the question of fact only - No straight jacket formula can be adopted to say that every case of sale and lease back transactions is sham or genuine - For the purpose of deciding whether a particular transaction is a lease or not, the question of intentions of the parties is to be determined and the intention has to be inferred from the circumstances of each case. In the case in hand the sole motive or object of the agreement in question is to defeat the provisions of Income Tax Act,1961 so as to enable the assessee to claim depreciation @ 100% on the value of goods worth Rs.49972800.00 to which it otherwise is not entitled to and, further, to get mutual benefit of this wrongful claim by making wrongful loss to the revenue - Tax avoidance by way of tax planning or structuring the transactions so as to reap the largest tax benefit may be permissible under law but fraudulent transfer of assets or income or engaging in sham transactions with the object of reducing the tax liability cannot be said to be a case of tax avoidance but of tax evasion - In the case in hand, whole of the effort has been made to transfer the right to claim depreciation on the assets to the assessee for the purpose of the Income Tax Act, but not the assets itself. It is always the goods or the assets itself which are the primary subject of a valid transfer, not the incidental benefits, which automatically pass to the transferee with the transferred asset. In the case in hand, only the incidental tax benefits are intended to be transferred without any intention to transfer the asset itself - In Para 13 of the notes to the Annual Accounts of GEB for F.Y. 1993-94, as reproduced in para which has been reproduced in Para 3.(P) indicates that the real intention was to enter into transaction of loan/finance only and the assessee was never intended to be the real and legal owner of the assets – Depreciation not allowed – Decided against the Assessee. Lease rental income in the ‘Sale and lease back transaction’, whether includible in income under the head ‘profits and gains from business and profession’ – Held that:- Transaction in question is held to be a finance transaction, the principal component in the lease rent received cannot be treated as income. Evidently, since the transaction was held to be for financing the electric meters, only that portion of the lease rent which represents interest/finance charges can be treated as income. The capital component included in the lease rent being return of capital investment cannot be treated as income. Applicability of Section 234B of the IT Act – Held that:- As per explanation 2 to section 234B, it has been provided that where an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purpose of this section. Section 234(3) is to be read in conjunction with and not in isolation to section 234(1) of the Act. Hence the contention of the assessee is also not found to be tenable

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• 2013 (8) TMI 407
  Cancellation of registration of Trust granted under section 12AA of the Income Tax Act, 1961 - The assessee had given donations to other charitable institutions in line with one of its objects – Held that:- It is not the case of the revenue that the trust was not carrying on its activities in accordance with its objects - Assessee had followed the procedure of law and registered itself with the Registrar of Societies before moving the application for registration under section 12A of the Act. In the totality of the facts and circumstances of the case, the supplementary Trust Deed executed by the assessee on 25.05.2007 is nothing but the combination of the all clauses of the earlier two Trust Deeds and the aims and objects in all the deeds remain the same. In the absence of the Commissioner of Income-tax bringing on record any evidence to establish that the assessee was not carrying on its activities in accordance with its objects, we find no merit in the order passed by the Commissioner of Income-tax in withdrawing the registration granted to the Trust. Merely because the Settler of the trust has claimed deduction under section 80G of the Act on the donations made to the assessee Trust, does not merit the cancellation of registration granted to the Trust - No merit in the objections raised by the Assessing Officer that the trust was running its activities from where another trust was also being run under the name and style of M/s Durga Mani Foundation, which is the second assessee before us and also another concern was operating from the said address. In the totality of the facts and circumstances of the case, we reverse the order of Commissioner of Income-tax passed under section 12AA(3) of the Act and hold that the assessee is entitled to the registration already granted to it under section 12AA of the Act - Grounds of appeal raised by the assessee are allowed – Decided in favor of Assessee.

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• 2013 (8) TMI 406
  Assessment u/s 153A - Addition under section 68 of Income Tax Act, as unexplained expenditure - There are entries of deposits of cash and cheques in the denominations of Rs.49,000/- and Rs.54,000/- in ICICI and IDBI Banks - The details of deposit of Rs.70,14,083/- was not pointed out by the assessee nor such details are available on record – Held that:- Unless contrary materials are put on record, the fact recorded by the A.O. is to be taken as correct which is that the assessee has deposited cash and cheques in the denomination of Rs.49,000/- and Rs.54,000/- totaling to Rs.70,14,083/- in both the Bank accounts. The CIT(A) without appreciating the facts recorded by the A.O. and without verifying the Bank accounts, deleted the addition - The CIT(A) is not correct in observing that during the course of search, no incriminating documents were found, therefore, addition cannot be made because the order of the A.O. is in consonance with provisions of section 153A of the Act. The CIT(A) has wrongly accepted alternate contention of the assessee and allowed telescoping benefit against the profit from M/s Deepak Security of Rs.81,94,000/- - The assessee has to establish by pointing out the relevant entries that the amount of Rs.70,14,083/- is on account of profit from M/s. Deepak Security of Rs.81,94,000. The assessee has failed to furnish such reconciliation before the CIT(A) as well as before us - Onus is on the assessee as it was contention of the assessee that the amount of Rs.70,14,083/- was out of the transaction of Rs.81,94,000/- but the assessee has failed to discharge the onus by not furnishing relevant records and relevant reconciliation. As per the judgment by Hon'ble Madras High Court in the case of CIT vs. Krishnaveni Ammal, [1983 (1) TMI 3 - MADRAS High Court] wherein it was held that the law of evidence mandates that if the best evidence is not placed before the Court, an adverse inference can be drawn against the person who ought to have produced it - In the case under consideration, assessee were asked to furnish copies of Bank accounts but the same were not produced. In the light of the facts of the case and failure on the part of the assessee, the addition made by the A.O. while making assessment under section 153A is correct and in accordance with law – Revenue appeal allowed – Decided in favor of Revenue. Allowability of household expenses - A.O. made addition of Rs.88,000/- on account of house hold expenses. The CIT(A) has deleted the said addition following his orders for earlier years – Held that:- In the absence of any material on record in favour of the revenue, we do not find any justification to interfere with the order of the ld. CIT(A). - Decided against the revenue.

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• 2013 (8) TMI 405
  Disallowance u/s 36(1) (viia) - creation of reserve for bad debts - Held that:- as per the provision of section 36(1)(viia), the deduction is allowable in respect of provision for bad and doubtful debts - But assessee has made reserve for bad and doubtful debts towards standard assets, and therefore, the same cannot be said to be akin to the provision for bad and doubtful debts - assessee is not eligible for any further deduction, in the absence of any extra provision for bad and doubtful debts, having been created by the assessee as per the audited accounts available in the paper book - Decided against assessee.

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• 2013 (8) TMI 404
  Penalty u/s 271D - violation of section 269SS - Reasonable Cause u/s 273B - receipt of loan by cash exceeding Rs. 20,000/- Held that:- no penalty shall be imposable on the assessee for receiving or accepting loan or deposit otherwise than by account payee cheque or by account payee demand draft, if there was genuine and bonafide transaction and the taxpayer could not get a loan or deposit by account payee cheque or account payee demand drat for some bonafide reason, the authority vested with the power to impose penalty has a discretionary power not to levy the penalty - assessee is not claiming that cash was received due to reasonable cause. The claim of the assessee is that receipt of money by way of cash itself is a reasonable cause - mere receipt of cash, itself cannot be a reasonable cause. The assessee is expected to demonstrate the reasonable cause for not receiving the loan by account payee cheque or demand draft - Decided in against the assessee.

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• 2013 (8) TMI 403
  Transfer pricing adjustments - Book profit for the purpose of MAT (Minimum alternate Tax) - Adjustment for the difference in capacity utilization - Selection of comparables for Transfer Pricing – Held that:- Out of the two comparables identified by Assessee company , relevant financial data of Sanmar Speciality Chemicals Ltd. for the year under consideration was not available in public domain as admitted by the assessee company also. Therefore, the said company was rejected as comparable. Adjustment for the capacity utilization – Held that:- The issue of difference in capacity utilisation generally comes in the case of manufacturing concern and like any other business undertaking, the manufacturing concern has mainly two types of overheads i.e. fixed overheads and variable overheads - The variable overheads vary in proportion to the sales and they therefore do not have any effect on the profit margin as a result of difference in capacity utilization. The fixed overheads, on the other hand, do not vary with the volume of sales and since they remain by and large static irrespective of level of capacity utilization, the profit margin gets affected as a result of difference in capacity utilization on this count. Further, the difference in capacity utilization materially affects the profit margin and if there is a difference in the level of capacity utilization of the assessee and the level of capacity utilization of the comparable companies, adjustment is required to be made to the profit margin of the comparables on account of difference in capacity utilization as per clause (e)(iii) of sub-rule (1) of Rule 10-B of the Income Tax Rules, 1962. Value of closing stock on account of Excise Duty in terms of provisions of section 145A of the Act – Held that:- Relying upon the decision in the case of CIT v. Mahalaxmi Glass Works Pvt. Ltd. [2009 (4) TMI 182 - BOMBAY HIGH COURT ], it was held that the adjustment on account of Excise/Modvat credit is required to be made as per the provisions of section 145A of the Act in respect of closing stock as well as opening stock. For the purpose of clause (iii) of Explanation 1 to section 115 JB of the Act, one consolidated figure of brought forward losses or unabsorbed depreciation for the earlier years is to be taken or the same is to be considered on year to year basis – Held that:- Relying upon the decision in the case of Amline Textiles (P) Ltd. v. TPO reported in [2008 (11) TMI 438 - ITAT MUMBAI], it is held that by using the words 'amount' and 'loss' in clause (iii) of Explanation 1 to section 115 JB of the Act, the point has been made clear that it is a composite figure each of the unabsorbed depreciaion and brought forward loss, that merits consideration. - There is nothing in the language of section, which could suggest, even remotely, that the Legislature intended to consider year-wise figures. The lower of the solitary figures of the unabsorbed depreciation or loss brought forward for all the earlier years taken together is to be reduced for the purposes of computing book profit u/s 115 JB of the Act. - Decided against the revenue.

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• 2013 (8) TMI 402
  Income from house property or business income - Property let out on lease - Held that:- income realized by the owner by way of rental income from a building, whether commercial building or residential, is assessable under the head income from house property. Therefore, to the extent of leave and license amounts received by the assessee by letting out the commercial building is concerned, the CIT(A) has correctly analysed and came to a conclusion that the income is assessable under the head income from House Property - Following decision of Shambhu Investment Pvt. Ltd. vs. CIT [2003 (1) TMI 99 - SUPREME Court] - Decided in favour of assessee.

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• 2013 (8) TMI 401
  Sale of shares - short term capital gain v/s income from business - Held that:- Both the authorities below have themselves drawn support from the assessment for the earlier years, implying the facts to be the same. No separate case, by analyzing the facts for this year has been made out by the authorities below - Following decisions of ASSTT COMMISSIONER OF INCOME TAX VERSUS HITESH S BHAGAT [2013 (7) TMI 474 - ITAT MUMBAI] and New Jehangir Vakil Mills Co. Ltd. vs. CIT [1963 (4) TMI 60 - SUPREME COURT] - Decided in favour of assessee. Disallowance u/s 14A - CIT upheld disallowance order following Rule 8D - Held that:- total expenditure incurred by the assessee during the relevant year, as per its profit and loss account, forming part of its return of income for the year is less than the sum of disallowance - no disallowance qua the interest expenditure stood made by the A.O.; the assessee having not incurred any interest expenditure; rather returned a positive interest income of Rs. 1,22,380/-, and which, as apparent from the computation of the income, is the gross and not the net interest earned by her - Rule 8D is toward estimating the expenditure that can be attributed to the tax exempt income and, thus, could not, in any case, exceed the actual expenditure incurred and claimed by the assessee - Decided in favour of assessee.

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• 2013 (8) TMI 382
  Deduction u/s 80IB - Audit report not furnished - Held that:- interpretation merely permits the assessee to produce the said report even after the date of the filing of the return as passed; it does not wholly do away with the requirement of filing the report altogether - assessee having produced the necessary reports at the necessity time - Following decision of Commissioner of Income Tax vs. Berger Paints (India) Ltd. [2002 (2) TMI 97 - CALCUTTA High Court] - Decided against Revenue.

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• 2013 (8) TMI 381
  Depreciation on intangible assets - CIT(A) deleted the disallowance - Held that:- CIT (A) on proper examination of evidences and material rightly came to the conclusion that software is intangible asset and was loaded in the system of machine. The learned CIT (A) also rightly held that installation of software could be checked by the technical person whether it was loaded in the system or not. Therefore, the finding in the survey cannot be relied upon. Even the AO has accepted the fact that some of the software were developed locally and installed in the system. The finding of fact recorded by learned CIT (A) find support from the valuation report of assets prepared by Dalai Mott Macdonald which was found in survey which indicated that software developed and installed by the assessee in the system. The assessee produced all the vouchers and receipt for the same which was also examined by learned CIT(A) - Unless perversity is pointed out, no question of law arises for this Court to interfere as both have dealt with the issues elaborately giving sound and cogent reasons - Decided against Revenue. Deduction u/s. 80HHC and 80IA - CIT allowed deduction - Held that:- Such deduction would be available only there was positive income. The Assessing Officer, while framing the assessment, made certain additions and thereby converted the return of the assessee of one of loss into the assessment order computing positive income. Only at that stage, the question of the assessee pressing for the deductions under Sections 80HHC or 80-IA of the Act arose. This would be known and available to the assessee only once the Assessing Officer passes his order. Under the circumstances, the assessee in the appeal before the Commissioner in addition to questioning the validity of the additions themselves, also raised an alternative legal contention of deductions under the said provisions - Commissioner committed no error He only entertained such an contention but remanded ,the proceedings for verification of facts to the Assessing Officer - occasion to press for deduction under the said provision arose only when once the Assessing Officer passed an order of assessment - Decided against Revenue.

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• Customs

• 2013 (8) TMI 414
  Foreign Travel Tax (FTT) - Delay in Depositing the amount – The “Carrier” failed to deposit an amount of towards the FTT for the month of March, 2003 within the period as stipulated in Rule 9 of the FTT Rules, 1979 read with Notification No. 1/2002 and deposited the same after a delay of 2 days – The Applicant while denying all the charges submitted that there was no delay and if any it was not deliberate or intentional - Notice was issued as to why the amount should not be recovered from them towards interest in terms of Section 35A(1) of the Finance Act, 1979 read with Notification No. 3/94-FTT for depositing the said amount of FTT after a delay of 3 days and penal action under Section 38(3) of the Act for violating the provisions of Rule 4 of the FTT Rules, 1979 - Held that:- The applicant failed to deposit the full amount of tax collected into the account of the Central Govt. by due date, hence they were liable to penal action under Section 38(3) in addition to the payment of tax not so paid and the interest leviable - The only option with the adjudicating authority was the quantum of penalty to be imposed on the applicant which was to be within the range of minimum one-fifth of the tax not paid and maximum up to three times tax not paid as prescribed in the Section itself - The adjudicating officer had imposed the appropriate minimum penalty after considering all the facts, circumstances and submissions of the applicant as made - Therefore Commissioner (Appeals) has rightly upheld the imposition of said penalty. Applicant had deliberately contravened the provisions of Section 38(3) of Finance Act, 1979 (FTT) - For these contraventions, the applicant was now circumventing the basic truths and for these contraventions the department had very rightly imposed the minimum penalty as mandatorily prescribed in the Section itself – The conclusion of the Government finds support from the judgement MALAYSIAN AIRLINES Versus UNION OF INDIA [2010 (8) TMI 786 - BOMBAY HIGH COURT] – Decided against applicant.

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• 2013 (8) TMI 399
  Escapement of duty – whether there was the case as to the escapement of duty on the part of assessee – department was of the view that they had artificially splited into the values to software and hardware and claimed nil rate of duty on the value of CD ROM/software while paying duty for the hardware HWT imported separately through port - Held that:- Order passed by the Commissioner on appreciation of erroneous facts - order was not sustainable in the eyes of law – Court followed the judgement of PSI DATA SYSTEMS LTD. Versus COLLECTOR OF CENTRAL EXCISE (1996 (12) TMI 47 - SUPREME COURT OF INDIA) - order was beyond the scope of the show-cause notice - Hardware and software to be assessed independently on merits whether they imported together or separately - Commissioner had gone beyond the scope of show-cause notice by holding that the appellants have inflated the value of software – decided in favour of assessee.

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• 2013 (8) TMI 398
  Applicability of Notification No.04/2006 - appellant imported Indigo powder 94 percent Wettable falling under chapter 3204.1559 claiming the benefit under Notification No.04/2006 from the payment of CVD – department rejected the claim on the ground that condition of the notification No.04/2006CE was not fulfilled – Held that:- Exemption notification should be read literally and if once it is found that notification applicable to case of assessee, the same has to be construed having regard to purpose and object it seeks to achieve court followed the judgement of Commissioner of Customs, Amritsar vs. Malwa Industries ltd.(2009 (2) TMI 41 - SUPREME COURT) - while considering serial no.67 of Notification No.04/2006-CE had held that same factory meaning that imported goods are required to be used in the factory belonging to the importer where manufacturing activity takes place - if the excisable duty was not leviable on manufacture of goods, question of importer paying any additional duty for import of like goods does not arise – order set aside – decided in favour of assessee

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• 2013 (8) TMI 397
  Reduction in amount of fine and penalty - the goods were confiscated u/s 111 (d) for violation of the import control restriction - appellant paid the redemption fine, penalty and customs duty and cleared the good - appeal filed being aggrieved that the redemption fine and penalty imposed is very high and needs to be set aside – Held that:- in case of such multiple contraventions the redemption fine imposed was only about 17% and this cannot be considered as excessive - penalty imposed was about 6% and therefore both these should not be interfered with – appeal decided against the assessee.

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• 2013 (8) TMI 396
  Leviability of duty - assessee imported and cleared a consignment of 'Polyether Polypol' under brand name of 'Voranol-3010' - DC by order had decided that 'Voranol-3010' was leviable to safeguard duty on the basis of lab opinion – Held that:- The findings of Commissioner (Appeals) was fair and reasonable and no reason to interfere - Commissioner (Appeals) remanded the matter to the adjudicating authority for de novo adjudication - the Commissioner (Appeals) set aside the order of the lower appellate authority and allowed the appeal of the assessee - the lower authority proceeded on the basis of evidence of the manufacturer's specification provided by the Department and decided the issues without supplying to them - It was seen from the record that the matter was remanded on an earlier occasion - the submission of learned AR was not maintainable – decided agiasnt revenue.

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• 2013 (8) TMI 395
  Waiver of pre deposit of penalty u/s 114A and 114AA– redemption fine u/s 125 - stay application – Held that:- The SRFR products were imported to meet warranty obligations and were not meant for resale - all the expenses incurred by the assessee for import of products were reimbursed by the supplier - These reimbursements were in addition to the "funding discount" claimed on SRFR imports - "funding discount" was applicable only to complete products meant for resale and not permissible in respect of SRFR products which were not meant for resale - against the demand of duty in respect of SRFR products HP (India) had not made out a prima facie case - HP (India) misdeclared the value of the goods and also suppressed vital facts with intent to evade payment of appropriate duty of customs - the extended period of limitation had been rightly invoked in this case – 120 crores were asked to be submitted as pre deposit – after such submission rest of the pre deposit was ordered to be waived – decided partly in favour of assessee.

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• 2013 (8) TMI 394
  Confiscation of goods – excessive penalty imposed – department confiscated the goods and allowed its redemption on payment of a fine and penalty – held that:- Penalty imposed by Commissioner (Appeals) was excessive – court did not agree with the arguments that the penalty to be imposed u/s 114 had to be equal to the duty sought to be evaded – court followed the judgement of COMMR. OF CUSTOMSTuticorin Vs Sai Copiers 2008 (1) TMI 402 - HIGH COURT OF JUDICATURE AT MADRAS – court reduced the penalty – decided partly in favour of assessee

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• Corporate Laws

• 2013 (8) TMI 393
  Oppression and Mismanagement - Principles of quasi partnership - Whether respondent No. 1 company was run on the basis of principles of quasi partnership - Held that:- The respondents had not denied neither admitted the fact of family business and quasi partnership – Therefore the respondent No. 1 company was a family run company and the principles of quasi partnership will apply since the petitioners and the respondents hold 50 per cent. each and there was no change in the shareholding pattern - There was no denial to the report and it further strengthens the stand that the petitioners' group and the respondents' group hold 50 per cent. each - Moreover the respondents have neither specifically denied nor admitted with respect to the averment made by the petitioners that respondent No. 1 company was a family business and a quasi partnership except stating that in view of family arrangement the question of 50 per cent. ratio does not arise. Inspection of Records and Registers - Whether the respondents denied the inspection of records and registers to the petitioners - Held that:- From the correspondence it was seen that there was no clear intention of the respondents to provide inspection of the documents to the petitioner - it was directed the company to provide the inspection of registers and records to the petitioners in accordance with law - The petitioners were also entitled to the notices for the board and general meetings as per the articles of association and the law - It was an admitted fact that the petitioners are 50 per cent. shareholders of the company and they were entitled to inspect the records and registers in the capacity as shareholders and directors. Family Settlement and Arrangement - Whether the Bench had any power to direct the parties to enforce the family arrangement/settlement - Held that:- The private agreements between the parties, however, will not be considered by the Company Law Board - The private agreements can neither be sought to be enforced nor their breach give any cause of action to file a petition under sections 397 and 398 of the Act - The said provisions were the exclusive domain of the members and shareholders of the company against acts of oppression and mismanagement in the affairs of the company, but cannot seek any specific performance of private agreements - the family arrangement/settlement was not within the purview of this Bench - Reliance Natural Resources Ltd. v. Reliance Industries Ltd. [2007 (10) TMI 402 - HIGH COURT OF BOMBAY] - the memorandum of understanding is a private pact between the members of the family. Relief - The interest of the company was paramount - Irrespective of the above, if the parties, i.e., the petitioners and the respondents act in good faith to resolve their differences and disputes permanently, it would not be an impediment to any of the observations/views in this order to part ways by amicable means of settlement if necessary by appointing an independent valuer to value the assets of the company - The observation was not obligatory - With the above the company petition was disposed of - No orders as to costs - All applications stand disposed of - All interim orders stand vacated – Decided against petitioner.

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• FEMA

• 2013 (8) TMI 400
  Officer u/s 25 of Evidence Act - Customs Officer was under the Act of 1962 not a police officer within the meaning of Section 25 of the Evidence Act and the statements made before him by a person who was arrested or against whom an inquiry was made were not covered by Section 25 of the Indian Evidence Act - Badku Joti Savant case[1966 (3) TMI 17 - SUPREME COURT OF INDIA] Right to Cross examination – Whether the petitioner was denied the right to Cross examination – Held that:- statement of the co-accused was recorded u/s 40 of FERA by an officer of the department in the pre-charge evidence, the statement of co-accused was exhibited by Assistant Director of Enforcement - the complainant had not recorded the statement – Phool Kumar v. Delhi Administration [1975 (3) TMI 129 - SUPREME COURT] - any objection as to the mode of proof of a document had to be taken at the earliest opportunity i.e. when the document was exhibited in the presence of the Petitioner - no objection was taken at that stage, the Petitioner cannot take such an objection now - Further Section 80 of the Evidence Act raises a presumption as to the documents produced as record of evidence. Framing of Charges - Offence u/s 8(1) of FERA - Whether there was any other evidence on record against the Petitioner or in the absence of any other evidence on record whether charge can be framed merely on the statement of the co-accused - statement of the co-accused being admissible in evidence and duly exhibited – Held that:- There was a recovery of foreign currency from the co-accused - the statement of the co-accused and the other documents seized show that the co-accused was acting on the behest of the Petitioner - At this stage, the Court will not dissect the evidence against each accused and come to the conclusion that the only evidence against the Petitioner was the statement of the co-accused and that being not substantive evidence, no charge can be framed against him. Relevant fact U/s 10 of Evidence Act - In a case a conspiracy if there was reasonable ground to believe that two or more persons have conspired together to commit an offence then by virtue of Section 10 of the Evidence Act, anything said, done or written by one of such persons in reference to their common intention, was a relevant fact as against each of the persons believed to be so conspiring, as well for the purpose of proving the existence of the conspiracy, as for the purpose of showing that any such person was a party to it - At this stage, it had only to be seen whether a prima facie case exists against the Petitioner - prima facie a strong suspicion arises that the Petitioner along with the co-accused committed the offence as alleged - Whether the said evidence is sufficient for sustaining a conviction would be seen after the witnesses are examined and the entire evidence is adduced – there was no infirmity in the order – Decided against petitioner.

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• Service Tax

• 2013 (8) TMI 419
  Classification of Service - Reverse Charge - ‘Business Auxiliary Service’ u/s 65 (105) (zzb) or ‘Business Support Service’ u/s 65 (105) (zzzq) - Duty demand – Interest and Penalty – Assesse was a manufacturer and exporter and was taking the services of agents abroad and paying commission to them – Revenue was of the view that services were taxable as ‘Business Auxiliary Service’ u/s 65 (19)(i), the service provider was located abroad the Revenue was of the view that the service was taxable in the hands of the assesse - Held that:- The service was taxable as Business Auxiliary Service and chargeable in the hands of the assesse - the relief that would have been available for getting refund of such tax paid for export of goods has to be kept in view – even if the service was taxable as ‘Business Support Service’, there will not be any change in tax liability under reverse charge mechanism or any other count - revenue-neutrality cannot be taken as a ground for avoiding payment of tax at any stage of a VAT system – relying upon [Microlabs Ltd. Vs. CST 2008 2008 (1) TMI 182 - CESTAT, BANGALORE]. Waiver of Pre- deposit – assesse failed to make out the prima facie case in its favor - 10Lakhs were ordered to be submitted – upon such submission rest of the duty to be waived till the disposal – Decided partly in favor of assesse.

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• 2013 (8) TMI 418
  Residential Complex u/s 65(91a) –Duty demand – Interest and Penalty - Revenue was of the view that housing complex constructed would fall within the definition of Residential Complex and service tax had to be paid for such services - Whether the residential units could be considered for personal use – Held that:- If the property in the residential unit was transferred to another person the residential unit may not be considered to be for personal use even if such transfer is done without any consideration - The contention that the activity was taxable only from 01-06-2007 when the entry for works contract u/s 65 (105) (zzzza) was introduced could not be accepted - This was because the levy under the said entry covers construction of residential complex which was already covered by section 65 (105) (zzzh) with effect from 16-06-05 - The new entry uses the very same expressions defined earlier and subjected to tax but a new composition scheme for discharging liability was introduced - So it cannot be considered that the earlier entries were null and void. Waiver of pre-deposit – as the assesse was the NGO only 10lakhs were ordered to be submitted – on such submission rest of the duty to be waived – Decided partly in favor of assesse.

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• 2013 (8) TMI 417
  Research and Development Services – the appellant was paying service tax – Held that:- assessee can claim CENVAT credit thereof and utilise it for payment of duty of excise on their domestic products - plea of revenue neutrality has not been successfully rebutted - prima facie there is a case in favour. Stay application – waiver on pre deposit is allowed – stay granted in the favour of the assessee.

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• 2013 (8) TMI 416
  Classification of category under Business Auxiliary Services – Whether the assessee was into the activity of Widening and Improvement of road or Collecting Toll charges – Assessee contended that activity undertaken by them was widening and improvement of the road and they incurred cost for undertaking this activity and towards compensation for the cost incurred, they were permitted to collect Toll charges from the users of the highway - they have undertaken collection of Toll charges for themselves and not on behalf of NHAI - Held that:- After reading of the Circular No. 152/3/2012-ST dated 22.2.2012 makes it absolutely clear that an SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, the Concessionaire cannot be considered as an agent of the NHAI. Waiver of pre deposit – prima facie strong case in the favour of the assessee – thus court allowed from the waiver of the pre deposit – stay granted – appeal decided in the favour of the assessee.

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• 2013 (8) TMI 415
  Penalty on service tax default section 76 – Failure to pay service tax on GTA service under reverse charge method –respondent pleaded that they were not aware of the relevant service tax provisions - Held that:- Penalty is liable to be imposed on the respondent under Section 76 - assessee suppressed the factum of having availed GTA service for such purpose over a period of time – assessee has not come with clean hands to oppose the proposal for imposition of Section 76 penalty - court rejected the contention of ignorance of law particularly when such plea comes from a corporate entity which is engaged in the manufacture of excisable products - corporate recipient of GTA service became a person liable to pay service tax w.e.f. 01/01/2005 by virtue of the aforesaid rule made by the Central Government and notified to the public under Section 68 –- only reason stated was that the non-payment of service tax was not willful cannot be accepted- appeal allowed in the favour of the revenue.

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• Central Excise

• 2013 (8) TMI 392
  Remission under Rule 21 of the Central Excise Rules, 2002 and under Section 23 of the Customs Act – Fire Accident in the in the factory and the applicant - Applicants procured the raw material as well as the capital goods indigenously as also imported, without payment of duty – Held that:- Revenue is not disputing the incident of fire – Also, ld. Sr. Counsel appearing on behalf of the applicant made a statement that the duties in respect of Excise and Customs regarding which remission claim are not part of their insurance claim - Application for waiver of the pre-deposit of the dues is allowed and recovery thereof stayed during the pendency of the appeal – Decided in favor of Assessee.

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• 2013 (8) TMI 391
  Cenvat Credit on iron and steel items like angles, channel, joist, bar, plates, sheets and coil falling under Chapter heading 72 under the category of capital goods - Appellant are engaged in the manufacture of sugar and molasses falling under Chapter 17 of the Central Excise tariff – Capital items which are in the nature of construction material and are not used in or in relation to the manufacture of final products i.e. Sugar and molasses – Held that:- Issue in relation to the Cenvat credit in respect of structural steel items like angles, channels sheets and joists etc. came for decision before the Larger Bench in the case of Vandana Global reported in [2010 (257) ELT 440 (Tri-LB - Del] in which it was held that these items are used for laying foundation and structural support which are neither the machinery items nor components or parts of plant and machinery and therefore are not covered in the definition of capital goods – Relying upon the decision in the case of Vandana Global, Credit of duty paid on these items used in foundation and supporting structures is not available to the assessee – Decided in favor of Revenue.

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• 2013 (8) TMI 390
  Documents for availing Cenvat Credit in terms of rule 9(1) of Cenvat Credit Rules, 2004 - Appellant is engaged in the manufacture of Lead Oxide, Metallic Stearates, Zinc Oxide etc. they purchased a consignment of inputs and raw materials on high Sea Sales basis. The bill of entry was filed by them and the goods were cleared by availing the services of CHA and various other agencies. As the invoices raised by the services providers were either in the name of CHA, or the original importer a/c appellant - Appellant has availed Cenvat Credit on the Strength of debit notes as shown in Annexure 'A' to the show cause notice - Some bills do not have mention of service tax registration of the service providers, some bills do not have reference of separate service tax amount, some bills are not issued in the appellant's name - Some invoices do not have the reference of name of the service provided – Credit to be availed on the basis of proper documents – Held that:- learned Advocate submission for setting aside the impugned order and allowing the appeal by following the earlier decision of the Hon'ble member judicial, in their own case Appeal stands allowed with direction to the appellant to file affidavit that the credit shall not be subjected to repeated claim in different hands i.e. one in the hands of the appellant and other in the hands of others making abuse of those documents - Assessee to file affidavit for himself and no affidavit can be filed on behalf of the other persons, swearing that the other person will not claim the credit on the basis of the said documents - Unable to follow the above order and to allow the appeal on the short ground of filing of affidavit by the appellant on behalf of others – Case remanded back for deciding the issue on merit.

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• 2013 (8) TMI 389
  Waiver of pre-deposit – Stay application - Issue involved is availability of Cenvat credit in respect of various iron and steel items used as supporting structures in the appellants' factor. The issue finally stand decided against the appellant by the Larger Bench of Tribunal in the case of Vandana Global Ltd. vs. CCE [2010 (4) TMI 133 - CESTAT, NEW DELHI (LB)] – Further, the appellants advocate agreed that the issue stand decided against them - Only contention raised that there was no malafide or mis-statement or suppression with intent to evade payment of duty on the part of the applicant and as such, the benefit of limitation should be extended to them – Held that:- The demand of around Rs.One crore fall within the normal period of limitation, they were directed to deposit the said amount within the period of 10 weeks (period suggested by learned Advocate). As regards, the financial condition, appellants have not placed any document/evidence on record reflecting upon their poor financial condition - Two letters addressed to the Bank exchequer, throws no light on their actual financial condition - On the other hand, the report of jurisdictional Additional Commissioner (Rev) is very clear indicating progress in business of the appellant inasmuch as the production is admittedly higher than the previous corresponding period and payment of duty is also on the higher side.

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• 2013 (8) TMI 388
  Removal of goods under Rule 4(6) of the Cenvat Credit Rules, 2004 - Sale of goods from the premises of Job worker - permission denied - Respondent manufactures copper anode, copper cathode etc. at their Tuticorin factory - They sought permission from the Deputy Commissioner of Central Excise, Tuticorin Division for removal of copper anode to their units at Silvassa , Chinchpada and Pipara under Rule 4 (6) of Cenvat Credit Rules, 2004 for converting it to cathodes or copper wire – Held that:- Anode is both final product as well as intermediate product at their factory at Tuticorin . It is final product when it is cleared on payment of duty. It is intermediate product when it is further used in the manufacture of cathode or wire rods. Once the goods are recognized to be intermediate product there is no reason to deny the benefit Rule 4 (6) of Cenvat Credit Rules, 2004. That is what was advised to the respondent by CBEC. That is what is decided by Tribunal in very many decisions given in the context of erstwhile rule 57 F( 4) which provision was replaced by Rule 4 (6) in the new Rules – Reliance is placed upon the decision in the case of Eveready Industries Ltd. Vs. CCE - 2004 (8) TMI 302 - CESTAT, BANGALORE ] and Tega India Ltd Vs. CCE – [ 1999 (6) TMI 109 - CEGAT, CALCUTTA].- Decided in favor of Assessee.

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• 2013 (8) TMI 387
  Exemption Notification No. 30/94-C.E. - Commissioner rejected exemption - Held that:- there is no requirement that separate account or inventory of the inputs meant for exempted and dutiable finished products must be maintained. There is no allegation in the show cause notice that the appellant have taken cenvat credit even in respect of inputs which were used in the manufacture of exempted final products - there is no justification for denying the exemption Notification No. 30/94-C.E. to the appellant during the period of dispute and as such the duty demand against the appellant does not appear to be sustainable - Following decision of CHANDRAPUR MAGNET WIRES (P) LTD. Versus COLLECTOR OF C. EXCISE, NAGPUR [1995 (12) TMI 72 - SUPREME COURT OF INDIA] - Decided in favour of assessee.

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• 2013 (8) TMI 386
  Short paid duty - undervaluation of goods - Commissioner confirmed demand - Held that:- show cause notices were issued on the ground that the Appellant undervalued their goods in comparison with the assessable value of the goods cleared to others under the Appellant's own name, 'Yule Shakti', whereas the learned Commissioner confirmed the demand on the ground that the Appellant did not submit a copy of the Agreement. However, the learned Commissioner at Para 8(xvi) of his Order, has recorded that a copy of the Agreement dated 11.6.1982 entered into between the Appellant and M/s. Goodyear, was submitted. Surprisingly, he has not given any finding in regard to the copy of the Agreement produced by the Appellant - It is well-settled principle that the already approved Price Lists cannot be re-opened retrospectively. So far as invoking the extended period is concerned, the Department is required to show that the assessee had suppressed the material facts from the Department - Department could not show that the appellant had suppressed the material facts from the Department - demand-cum-show cause notices are hit by limitation of time and therefore, the impugned Order does not survive - Decided in favour of assessee.

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• 2013 (8) TMI 385
  Confiscation of Raw material under Rule 15 of the CCR, 2004 – Held that:- Under Rule 15 of the Cenvat Credit Rules, the inputs can be confiscated only if wrong Cenvat credit has been availed in respect of the same - There is no finding that the appellant have availed Cenvat credit wrongly in respect of the metalized film and plastic granules – Therefore, just for non-accountal of the plastic granules and metalized film as per the provisions of Rule 9(5) of the Cenvat Credit Rules, the same could not be confiscated under Rule 15 and the confiscation order passed is not sustainable. Confiscation of Plastic film, an intermediate product for captive consumption – Held that:- Appellant admittedly were maintaining its account in the RG-1 register by treating the same as goods manufactured, though for captive consumption - To the extent the stock of plastic film was not accounted for in the RG-1 register, the same would be liable for confiscation. However, looking to the nature of the contravention, the quantum of redemption fine and penalty on the appellant on this count is higher side. Accordingly, the redemption fine is reduced to Rs. 50,000/- and penalty imposed on the appellant-company is reduced to Rs. 20,000/-. Penalty under Rule 26 of the Central Excise Rules, 2002 – Held that:- Impugned order does not give any finding as to how the provisions of Rule 26 are attracted in the case Shri Umesh Kumar Agarwal, Director as this Rule is applicable in respect of person who knowingly deals with the excisable goods which he knew or had reason to believe are liable for confiscation – Decided in favor of Assessee.

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• 2013 (8) TMI 384
  Clandestine removal of finished goods i.e. Transformer – Held that:- In the Panchnama itself it has been recorded that when Shri Dubey of the respondent company was asked about the 10 missing transformers, he explained that the same have been put in the oven, but the oven was not opened at that time as it was not feasible to do so - Shri Ravi Dubey of the appellant company in his statement dated 12-9-1997 recorded under Section 14 of Central Excise Act, 1944 has made the statement that the 10 transformers had been put in the oven for reovening. Just because there was no entry in the RG-1 register regarding transfer of 10 transformers from the bonded store room to the manufacturing section of the factory for reovening and when this fact was told to the officers at that time but still they did not verify, it cannot be concluded that there was unexplained shortage of 10 transformers - Duty demand on the 10 transformers set aside. Shortage of input 30.745 M.T. of BP sheets and 29.65 M.T. of CRGO electrical steel sheets – Cenvat credit taken on the inputs – Held that:- These shortages had not been detected by comparing their stock available in the factory at the time of officer’s visit on 12-9-1997 with the stock as reflected in RG-23A Pt. I register - In respect of BP sheets Investigating officers added the quantity issued for manufacturing during period from 1-9-1997 to 12-9-1997 to the stock of BP sheets as reflected in RG-23A Pt. I register and, thereafter, compared this total with the stock of BP sheets lying in store room as well as in the factory in various stages of processing - The shortage in respect of CRGO sheets has also been determined in the same manner - In ascertaining the stock of cenvated inputs in this manner the officers have not taken into account certain quantity which was available in the factory and certain quantity which has been used in the manufacture of finished goods - Department has not been able to prove that there was actual shortage of BP sheets and CRGO sheets as alleged in the show cause notice – Decided against the Revenue. Clandestine removal of 14.124 M.T. of wires and strips in respect of which Cenvat credit had been taken – Held that:- Allegation is based on the presumptive consumption of this item by the department and as such there is no evidence regarding any removal of this item without payment of duty – Revenue allegation is based on the presumption of total quantity supposed to have been consumed on the basis of GTP specifications - Consumption is not always according to the GTP specifications and can be higher also – Cenvat Credit demand dropped – Decided against the Revenue. Illicit removal without payment of duty of 9 M.T. of cenvated wires and strips which is shown to have been destroyed in fire in 1994 and 1995 - Appellant’s claim is that this large quantity of wires and strips was contained in the newly made as well as repaired transformers which had been totally destroyed in fire accidents in the factory in 1994 and 1995 – Held that:- Neither the respondent had reported about any fire accident during this period nor any claim for remission of duty on the transformers claimed to have been lost in fire have been made - In this case neither there is any evidence of loss of finished goods due to fire nor any claim for remission of duty on the finished goods lost in fire has been made - The respondent, therefore, would be liable to pay duty equal to the amount of Cenvat credit availed on 9,000 kg. of wires and strips - The respondent would also be liable for penalty under Rule 57-I(4) for taking this wrong Cenvat credit – Decided in favor of Revenue.

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• 2013 (8) TMI 383
  Confiscation of goods under Rules 25 of the CER, 2002 – Held that:- Under Rule 25 of the Central Excise Rules, 2002, the goods are liable to be confiscated subject to the provisions of Section 11AC of the Central Excise Act, 1944. Therefore, to confiscate the goods under Rule 25, ingredient of Section 11AC of the Act are required i.e. fraud, collusion, wilful mis-statement and suppression of fact or contravention of Rule/Act with an intent to evade payment of duty - Inputs procured by the appellants have been duly entered in Form-4 Register - These goods are not entered in RG-I Register, but it cannot be said that by merely not entering in RG-I Register, there was any intention to evade duty by the appellants - The goods are not liable for confiscation in the facts and circumstances of the case. As the goods are not liable for confiscation, therefore, redemption fine is not imposable, but as the appellants are not maintaining the statutory record properly, therefore, they should be penalized for not maintaining the record properly. To penalize for non-maintaining of proper record, Rule 27 is the proper Rule to impose penalty on the appellants – Penalty of Rs. 5000/- imposed on the appellants.

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• CST, VAT & Sales Tax

• 2013 (8) TMI 420
  Constitutional validity - Legislative competence for enhancing transit fee and changing the basis of levy from cubic feat to advalorum between 5% to 15%, on variety of forest produce including timber, firewood, and other forest produce coming from mines e.g., coal, limestone, sand, bajari and other minerals - Meaning of ‘forest’ and ‘forest land’ - words 'forest' and 'forest land' are not defined - words must be understood according to its dictionary meaning for purpose of section 2(1) Forest Conservation Act - 'forest land' would also include forest like areas, whether notified or not – forest like area explained by court by referring various correspondences between departments - it would cover all statutory recognized forest either notified as reserved, protected or village forest or not - principles and criteria of defining forest has to be based on sound ecological and scientific basis. Forest produce - Definition of forest produce is inclusive and not exhaustive - Only those articles and goods, which are defined in Section 2 (4), (a) and the Notification dated 4.6.2011, by which the 'U.P. Transport of Timber and Other Forest Produce Rules, 1978' was amended by the 5th Amendment, are quashed. - Decided in favor of petitioner.

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