TMI Tax Updates - e-Newsletter
August 16, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Articles

1. ALTERNATIVE INVESTMENT FUNDS – PART I.

   By: DR.MARIAPPAN GOVINDARAJAN

2. Works Contract Service Tax liability under new ST Regime

   By: RadheyShyam Mangal

3. Highlights some difficulties & clarity to comply the reverse charge mechanism

   By: Vijay Chitte

4. Reverse charge method of service tax- further expansion in piecemeal manner- a major and wholesome inclusion of all small and less organized service providers is required for simplification and better control etc.

   By: DEVKUMAR KOTHARI

5. Service provided by Directors and Security Service under partial Reverse Charge

   By: Bimal jain

News

1. Anand Sharma condoles demise of Vilas Rao Deshmukh.

2. Public Comments Sought on Amendments in Registration and Licensing of Industrial Undertakings Rules.

3. Exports for July 2012 Stood at USD 22.4 billion.

4. Index Numbers of Wholesale Prices in India (Base: 2004-05=100)Review for the Month of July, 2012.

5. Auction for Sale of Government Stocks.

6. Violation of Competition Act by Cement Companies.

7. CCI Probe Against Malpractices of Google.

8. No exemption provided to any Sector under the Competition Act, 2002.

9. Regulation of Multi-Level Marketing Companies.

10. Payment of Dividend by Companies.

11. Frauds by Chit Funds and MLM Companies.

12. Activities of ROC and SFIO.

13. Industrial Production.

14. FDI Inflow.

15. Patent to Food Products/Medicines.

16. FDI in Multi Brand Retail.

17. Setting Up of Industries.

18. Foreign Companies in Retail Sector.

19. Food Articles Under WPI .

20. Report of Tariff Commission.

21. Trade with China.

22. Production of Spices .

23. Performance of SEZs.

24. Levying of Additional Fee on Sale of Generic Drugs.

25. Export of Gems and Jewellery.

Notifications

Income Tax

1. 30/2012 - dated 9-8-2012 - IT

Double Taxation Agreement - Agreement for Exchange of Information with respect to Taxes with Guernsey.

Circulars / Instructions / Orders

VAT - Delhi

1. 11 - dated 6-8-2012

Regarding DST Period Demands.

2. 12 - dated 6-8-2012

Revision of returns with excess Input Tax Credit bifurcated between Refund and Carry Forward.

FEMA

3. 14 - dated 13-8-2012

Exim Bank's Line of Credit of USD 40.32 million to the Government of the Republic of Chad.

Companies Law

4. 24 - dated 9-8-2012

Applicability of Service Tax on commission payable to Non-Whole Time Directors of a company under section309(4) of the companies act,1956.

Highlights / Catch Notes

Income Tax

• Indian Branch Expenses by Head Office Must Be Allowed Under IT Act Section 37(1), Irrespective of Section 44C.

  Case-Laws - AT : Once the amount is found to be incurred exclusively by H.O. towards the Indian branch, the same is required to be allowed in terms of section 37(1) without any reference to section 44C. - AT
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• Section 68: Gift from Unrelated Donor Deemed Not Genuine, Transaction Not Legitimate for Tax Purposes.

  Case-Laws - AT : Addition u/s 68 - there is no relationship of the donor with the assessee. - there is also no occasion for this gift. - gift in this case was not genuine. - AT
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• Court Rules Retroactive Revocation of Charitable Trust's Section 12A Tax-Exempt Status Illegal and Improper.

  Case-Laws - AT : Charitable Trust - cancellation of registration u/s 12A - Where an approval had been given, its withdrawal with retrospective effect is bad and illegal. - AT
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• Income Tax Act Section 153A: AO Must Issue Notices for Six Prior Years' Returns When Documents Found in Search.

  Case-Laws - HC : If a document is found in the course of the search, Section 153A is triggered & it is mandatory for the AO to issue notices u/s 153A calling upon the assessee to file returns for the six AYs prior to the year in which the search took place - HC
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• Flawed Judicial Process Can Undermine Even the Most Correct Decision, Emphasizing the Importance of Proper Procedures.

  Case-Laws - HC : The decision making process is as important as the correctness of the decision itself. Merely because the correctness of the decision appears unquestionable, the serious flaws or gaps in the steps that constitute the judicial decision making process cannot be overlooked. - HC
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• Assessee Not Penalized u/s 271(1)(c) Due to Chartered Accountant's Misjudgment in Transaction Scheme.

  Case-Laws - AT : Penalty u/s 271(1)(c) - whole scheme of the transactions seems to be wrongly conceived by the Chartered Accountant of the assessee for which the assessee cannot be penalized though being innocent - AT
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• Notional Rent Excluded from ALV Calculation if Property Intended to be Leased Remains Vacant Despite Efforts.

  Case-Laws - AT : Income from House property - notional rent need not be considered for arriving at the ALV of the property if the property was intended to be let out, however, despite effort taken for letting out, remained vacant. - AT
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• Subcontractor Denied Tax Deduction u/s 80IB(10) for Project on Defence Ministry Land Due to Ineligibility Criteria.

  Case-Laws - AT : Deduction u/s 80IB(10) - the land is owned by the Defence Ministry - The appellant is carrying out the project under reference in the capacity of a sub contractor - Deduction not allowed - AT
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• Understanding Indexed Cost for Long-Term Capital Gains on Inherited Property: Importance of Accurate Base Year and Inflation Adjustments.

  Case-Laws - AT : Computation of indexed cost of acquisition for of computation of LTCG - property sold got from inheritance from ancestors - AT
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• New Tax Agreement with Guernsey Boosts Transparency and Prevents Evasion through Information Exchange on Income Tax.

  Notifications : Double Taxation Agreement - Agreement for Exchange of Information with respect to Taxes with Guernsey. - Notification
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• High Court Quashes Order Due to Lack of Recorded Satisfaction in Cash Seizure u/s 132A of Income Tax Act.

  Case-Laws - HC : Search and seizure of cash – recording of satisfaction - condition precedent for the exercise of power under section 132A was lacking and the order made under it was liable to be quashed - HC
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• Section 74 Amended: Set-Off Rules for Unabsorbed Capital Losses Before AY 2003-04 Explained, Compliance Emphasized.

  Case-Laws - AT : Set off of unabsorbed capital loss - application of provisions of section 74 as amended by Finance Act, 2002 to unabsorbed capital losses relating to the AYs prior to the AY 2003-04 - AT
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• Electricity Distribution Company's Deduction Claim Denied: Clarifying "Substantial Renovation and Modernization" u/s 80-IA(4)(iv)(c) Explanation.

  Case-Laws - AT : Denial of claim of deduction u/s 80-IA(4)(iv)(c) - assessee is an electricity distribution company - the expression “undertakes substantial renovation and modernisation” cannot be read in isolation and has to be read along with Explanation to section 80-IA(4)(iv)(c) - AT
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• Clarification on Fringe Benefit Tax: Section 40(a)(ic) Deductions Not Applicable for Book Profits u/s 115JB.

  Case-Laws - AT : Disallowance of deduction on provisions of fringe benefit tax while computing book profits under section 115JB - prohibition u/s 40(a)(ic) does not apply to computation of book profit u/s 115JB - AT
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• Software Export Tax Deduction Dispute: Section 10A and Section 80IB(8A) Claims Denied for Non-Computer-Based Operations.

  Case-Laws - AT : Deduction u/s 10A and alternative claim u/s 80IB(8A) - export of computer software - assessee contended to be STP involved in software development - denial of deduction on ground that assessee’s operations do not have computer as primary and predominant hardware tool and scientific methods/tool are used - AT
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• Interest Paid by Indian Branch to Head Office Not Taxable in India Due to Self-Payment Nature.

  Case-Laws - AT : Interest paid to the head office of the assessee bank as well as its overseas branches by the Indian branch cannot be taxed in India being payment to self - AT
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• Non-compete Fees Classified as Taxable Business Income, Impacting Reporting and Tax Obligations Under Income Tax Laws.

  Case-Laws - AT : Non-Compete fees - taxability - chargeable to tax as ‘business income’ - AT
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• Tax Treatment of License Fees: Business Income or Other Sources? Key for Compliance and Deductions.

  Case-Laws - AT : Income from license fees - income under the head ‘Income from other sources’ OR 'business income' - AT
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• Transfer Pricing Adjustments: Ensuring Arm's Length Price in Income Tax for Associated and Non-Associated Enterprises.

  Case-Laws - AT : Transfer Pricing - adjustment to ALP - addition - consideration of transactions both with AEs and Non-AEs for the purpose of recommending adjustment - AT
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Customs

• Transaction Value Rejection Unjustified Without Evidence of Identical Goods at Higher Value in Contemporaneous Imports.

  Case-Laws - AT : Valuation of imported goods - higher value of identical goods - there was no contemporaneous import showing import of identical goods at a higher value, the rejection of the transaction value was not justified - AT
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• Split ACs from Japan Eligible for Benefits Under Notification No. 29/2010-Cus Dated Feb 27, 2010.

  Case-Laws - AT : Import of indoor units of split air conditioners in pre-packed form from Japan – benefit of Notification no. 29/2010-Cus dated 27.02.2010 is available - AT
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FEMA

• Exim Bank Grants $40.32 Million Credit Line to Chad's Government for Development Projects.

  Circulars : Exim Bank's Line of Credit of USD 40.32 million to the Government of the Republic of Chad. - Circular
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Corporate Law

• Service Tax Applicability on Non-Whole Time Directors' Commissions Under Companies Act, 1956: Legal Interpretation & Compliance Guidance.

  Circulars : Applicability of Service Tax on commission payable to Non-Whole Time Directors of a company under section309(4) of the companies act,1956. - Circular
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• Sale Agreement Post-Winding-Up Petition Deemed Unenforceable Under Companies Act Sections 531 and 531A.

  Case-Laws - HC : Winding up - Agreement to sell relied on by the appellant was of a date after the filing of the winding up petition and was thus unenforceable under Sections 531 & 531A of the Act - HC
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Service Tax

• Court Orders Recovery of Education Cess Refunded with Service Tax Exemptions to Exporters.

  Case-Laws - AT : Recovery ordered of education cess refunded to exporters along with service tax, by virtue of exemption notifications where whole of service tax is exempt - AT
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• Appellants' Eligibility for Tax Refund on Exempted Services under Notification No. 17/2009 Examined.

  Case-Laws - AT : Whether the appellants could have paid tax on an exempted services and claimed refund under Notification No. 17/2009 which allows refund of tax paid on services used in or in relation to the export of goods - AT
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• Court Rules "Collaboration Fees" in Education Franchises Are Taxable as Franchise Fees Under Service Tax Law.

  Case-Laws - HC : Franchise service – educational purposes - 'collaboration fees' was nothing but the 'franchise fees' and it clearly fell in the net of service tax - HC
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• Reversal of Cenvat Credit on Input Services: Notification No. 01/2006-ST Benefit Denied Despite Judicial Clarifications.

  Case-Laws - AT : Denial of benefit of Notification No. 01/2006-ST - If an amount taken as cenvat credit on the input services is reversed, various judicial pronouncements holds that such an amount is to be treated as credit not availed. - AT
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• Main Contractor's Service Tax Liability on Survey Contract Under Review for Compliance Verification.

  Case-Laws - AT : Survey and Map Making - liability - assessee contended that main contractor was discharging the service tax liability on the entire contract executed - matter remanded for vertification - AT
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Central Excise

• Dispute Over Shikakai Powder Classification: Revenue Authorities vs. Assessee on Duty Payment Under CETA Chapters 33 and 14.

  Case-Laws - AT : Classification of shikakai powder - Revenue contending classification under Chapter 33 of the CETA particularly under sub-heading 3305.90. whereas assessee not discharging duty on the premise that it is a vegetable product and more over classifiable under Chapter 14 of the Central Excise Tariff Act, 1975 - AT
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• Party Claims Three-Year Service Tax Refund u/r 5 for Unutilized Export Credits Recorded in Single Entry After Delay.

  Case-Laws - AT : Refund claim under Rule 5 - all of a sudden took a credit for the past three years and claiming the same as accumulated unutilized on account of export of goods - service tax for three years were taken by making one entry that after a lapse of time - AT
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VAT

• New Circular Requires Splitting Excess Input Tax Credit into Refund and Carry Forward for Streamlined Tax Processing.

  Circulars : Revision of returns with excess Input Tax Credit bifurcated between Refund and Carry Forward. - Circular
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• Businesses Must Update VAT & Sales Tax Calculations for Daylight Saving Time Changes to Ensure Compliance & Accuracy

  Circulars : Regarding DST Period Demands. - Circular
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Case Laws:

• Income Tax

• 2012 (8) TMI 371
  Deduction of expenses incurred at the head office directly in relation to Indian branches - expenses incurred for solicitation of deposits from NRI I.E. NRI marketing expenses - Non-resident banking company – assessee contended the same to be not covered by the provisions of section 44C – Held that:- Exclusive expenses incurred by the head office for Indian branch are outside the purview of sec. 44C and only common head office expenses are governed by this section. Once the amount is found to be incurred exclusively by H.O. towards the Indian branch, the same is required to be allowed in terms of section 37(1) without any reference to section 44C. See ADIT(I.T.) Vs. Bank of Bahrain & Kuwait (2011 (1) TMI 923 - ITAT, MUMBAI ), CIT v. Emirates Commercial Bank Limited (2003 (4) TMI 2 - BOMBAY HIGH COURT) - Decided in favor of assessee Entertainment expenses – dis-allowance u/s 37(2) - assessee estimated dis-allowance at 30% whereas AO increased the dis-allowance to 80% - application of provision in Article 7(3) of the India-USA DTAA - Held that:- Qualification in Article 7(3) of the DTAA that the expenses will be allowed “in accordance with the provisions of and subject to the limitations of the taxation laws of that State” applies to all expenditure incurred for the business of the PE and not merely to Section 44C alone. It, therefore, follows that the deductibility of expenses in assessee’s case is subject to the relevant provisions including section 37(2) under the provisions of DTAA. Dis-allowance computed at 50 %. The fact that the assessee’s interpretation was accepted in earlier year does not mean that it cannot be departed with when several orders have been subsequently rendered by various benches of the Tribunal taking contrary view. Dis-allowance u/s 14A - Interest on tax free bonds – gross interest claimed as exempt u/s 10(15)(iv) – assessee contended that provisions of section 14A are not applicable where the shares are held as stock in trade - Held that:- Here assessee has tried to make out a case that main purpose of the holding of shares was to earn income from sale and the dividend income was just incidental to such holding. Section 14A talks of making dis-allowance of expenses incurred in relation to an income not chargeable to tax. No exception, such as the dividend being main or incidental income, has been carved out in the provision. The relation of expenses for dis-allowance is with the exempt income irrespective of the source or nature of the exempt income. When the legislature in its wisdom has not spelt out any exception coming in the way of applicability of section 14A, it is wholly impermissible to artificially find any such exception contrary to the language of the provision and the intention of the legislature. Dis-allowance u/s 14A is warranted – Decided against assessee. Dis-allowance u/s 14A - expenditure attributable to earning the interest income and dividend liable to tax at special rate u/s 115A – Held that:- Judgment of Supreme Court in Rajasthan State Warehousing Corporation (2000 (2) TMI 5 - SUPREME COURT ) is authority for the proposition that if an assessee is carrying an indivisible business then the entire expenditure including that which was incurred for earning the tax free income would be a permissible deduction. What has been inhibited by section 14A is the deduction of expenses incurred by the assessee in relation to income not at all chargeable to tax and not the income chargeable to tax at lower rate of tax. Therefore, deduction allowed against the income chargeable to tax at the regular rate of tax – Decided against Revenue. Club expenses – dis-allowance – Held that:- Issue covered in favour of the assessee. See Otis Elevator Co. (India) Ltd. v. CIT [1991 (4) TMI 53 - BOMBAY HIGH COURT ]

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• 2012 (8) TMI 370
  Addition u/s 68 - gift received from unrelated party - revenue contending the same to be accommodation entry - addition of commission alleged to have been paid by the assessee for procuring the gift - Held that:- It was held in case of Rajiv Tondon vs. ACIT (2007 (7) TMI 40 - HIGH COURT , DELHI) that in a case where donor had absolutely no connection with the assessee and has made gifts to the assessee only because he needed money to buy a house and they wanted to help him. It was not only quite unusual but also quite unnatural. In present case, there is no relationship of the donor with the assessee. There is also no occasion for this gift. The taxing authorities have rightly looked into the surrounding circumstances and drawn the conclusion that gift in this case was not genuine. Addition confirmed - Decided against assessee

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• 2012 (8) TMI 369
  Charitable Trust - cancellation of registration u/s 12A on ground of pursuing commercial activity - association engaged in the activity of promoting and regulating the game of Cricket in Mumbai entered into a concession agreement with Shrike Infrastructure (Concessionaire) for development of Indoor Cricket Academy (ICA) - activity undertaken at ICA includes running four restaurants with bar, banquets hall - concession provided to Concessionaire to recoup its cost by admitting 7000 Associates to the ICA facility who will be permitted to make use of such facilities on payment of charges to the Concessionaire - Revenue contended that assessee(MCA) had conceived and executed the plan and is owner whereas SI is mere a contractor for few years - activity cannot be said to be incidental to the cricket activity - collecting associate fee of around 10 to 15 lacs per member could not be said to be non-business activity - assessee contesting withdrawl and retrospective withdrawal of registration Held that:- Where an approval had been given, its withdrawal with retrospective effect is bad and illegal. However, department can any time review the function, in fact the CIT can review the grant of registration at any time because the words used in the provision are, "and subsequently the Commissioner is satisfied", which means that registration can be reviewed at any given point of time. Nevertheless, registration cannot be cancelled retrospectively. Cancellation of registration granted to MCA, shall not date back to the date of signing of the Concessionaire Agreement, i.e. 12.12.2005, but shall be effective from 01.06.2010. i.e. the date when the amendment was inserted in the provision - Decided partly in favor of assessee.

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• 2012 (8) TMI 368
  Search and Seizure – assessment – application of Section 153A if incriminating material is found during search even if assessments are completed - Tribunal deleted the addition made on various ground for reason that no material was found during the search carried out u/s 132 and also on the ground that for all the six years under consideration, the returns filed by the assessee before the search had been processed u/s 143(1)(a) and Section 153A was not a de novo assessment and have to be necessarily restricted to the undisclosed income unearthed during the search Held that:- AO has the power u/s 153A to make assessment for all the six years and compute the total income of the assessee, including the undisclosed income, notwithstanding that the assessee filed returns before the date of search which stood processed u/s 143(1)(a). Where assessment or reassessment proceedings are pending completion when the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included. The other reason given by the Tribunal that no material was found during the search is factually unsustainable since the entire case and arguments had proceeded on the basis that the document embodying the transaction with Mohini Sharma was recovered from the assessee. If a document is found in the course of the search, Section 153A is triggered & it is mandatory for the AO to issue notices u/s 153A calling upon the assessee to file returns for the six AYs prior to the year in which the search took place – Decided in favor of Revenue.

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• 2012 (8) TMI 367
  Search and seizure - suppression of sale - assessee recorded two rates on the papers found whereas in the bills it had accounted only for the lower rate - Tribunal upheld deletion made by CIT(A) on ground that no evidence was found to show that the actual turnover of the assessee was more than the declared turnover - Held that:- Unlike Chapter XIV-B, Section 153A does not provide that a search assessment has to be made on the basis of evidence found as a result of search or other documents and such other materials or information as are available with the Assessing Officer and relatable to the evidence found. In present case, CIT (Appeals) found that the assessee did record two rates as found from the seized papers, but entered only the lower rate in the sale bills, and has agreed with the AO that the book results deserved to be rejected u/s 145 and an estimate of the true income earned by the assessee had to be made. However, he misdirected himself in not upholding the turnover as estimated by the AO and accepted the turnover provided by assessee. Tribunal also while upholding action of CIT, erred in looking for some other corroboration to substantiate the contents of the loose papers, overlooking that the loose papers needed no further corroboration and the sale bills compared with the seized papers themselves corroborated the suppression of income. Tribunal ought to have examined the estimate made by the AO. The observation of the Tribunal that no evidence was found to show that the actual turnover of the assessee was more than the declared turnover is hair splitting. The decision making process is as important as the correctness of the decision itself. Merely because the correctness of the decision appears unquestionable, the serious flaws or gaps in the steps that constitute the judicial decision making process cannot be overlooked. Question answered in favour of the Revenue by passing the order of remit to the Tribunal.

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• 2012 (8) TMI 366
  Penalty u/s 271(1)(c) - addition made for dis-allowance u/s 40(a)(ia) - payments made to non-resident without TDS - addition however have been deleted during quantum appeal on ground that such payment was not chargeable to tax in India as the recipient has no PE in India - Held that:- In the absence of an contrary material placed on record by the Revenue and in view of the fact that the quantum appeal has been decided in favour of the assessee, virtually the basis for imposition and levy of penalty u/s 271(1)(c) is not available. penalty deleted - Decided in favor of assessee.

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• 2012 (8) TMI 365
  Employees’ contribution to PF and ESIC - dis-allowance - delayed payment - Held that:- If the employee’s share of contribution is paid before the due date of filing of the return u/s 139(1), then no dis-allowance can be made. Omission of second proviso to section 43B is operated retrospectively - Decided in favor of assessee. Addition on account of low G.P. - AY 05-06 - A.O. made the impugned addition following the addition made in the assessment for the A.Y. 2004-05 - Held that:- In the absence of any material show that the purchases are vouched and verifiable and considering the fact that in the A.Y. 2004-05, the Tribunal has restricted the addition to 2% of the cash purchases, we are of the view that in the interest of justice it will be fair and reasonable if the addition of 1% of the cash purchases is sustained - Decided partly in favor of Revenue

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• 2012 (8) TMI 364
  Validity of reopening proceedings of firm in which assessee is partner - assessment reopened on ground that firm has made payment of Rs.83.25 lacs on various dates towards purchase of land and that firm is neither assessed to tax nor it has filed any return of income in respect of these years or for any earlier AY - Held that:- It was noted that the assessee firm was not having any regular and known source of income and, therefore, the source of payment made against purchase of land remained unverified and unexplained as per the A.O. Addition was made in the hands of individual Shri R N Patel on protective basis and, therefore, the assessment of this assessee was reopened u/s 147. Since the proviso to Section 147 is not applicable in the present case and the notice was issued by the A.O. after recording the reasons, hence reopening upheld - Decided against assessee. Advance towards plot booking received form 41 persons out of which the assessee produced only 3 persons - creditworthiness of the alleged depositors could not be proved - Held that:- Since no such evidence regarding creditworthiness of the depositors and genuineness of transaction could be produced, hence addition confirmed - Decided against assessee Introduction of capital by partners - Held that:- This issue is now covered in favour of the assessee by the judgement rendered in the case of Pankaj Dyestuff and hence, no addition could be made in the hands of the firm but the revenue is at liberty to reopen assessment of the partners as per law and this issue can be examined in their cases as to whether they could explain the source of investments in the assessee firm or not - Decided in favor of assessee Deletion of addition made in hands of partners in their individual capacity on protective basis - Held that:- It is found that entire addition in both the years was deleted by CIT(A) on this basis that substantive addition has already been made in the case of the firm M/s. Maruti Developers and therefore, the protective addition made in the hands of the individual partner is to be deleted. Hence, no addition can be made in the hands of the assessee on protective basis - Decided against Revenue

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• 2012 (8) TMI 363
  Unexplained cash credit - gifts from three parties - Held that:- Out of three gifts totaling Rs.5 lacs, one gift of Rs.2 lacs is received by the assessee from his father who is income tax assessee and the gift given by him is duly shown in his capital account copy, hence cannot be proved as bogus - gifts form renaming two parties were not satisfactorily explained by the assessee as the parties are not the relatives of assessee and gifts of such huge amount form unknown person is always subject to doubt - partly in favour of assessee. Disallowance of telephone expense - used for personal use - Held that:- As out of telephone expenses disallowance of 20% has been made as assessee is not maintaining any personal telephone this disallowance is not excessive - against assessee. Disallowance of excess interest paid - assessee had paid interest @ 24% to this concern as against the rate of 18% paid to other entities - Held that:- No evidence have been brought on record except that this party is a financier and other financiers were also charging similar rate of interest as compared to other ordinary lenders - against assessee. Addition on unexplained purchases - Held that:- Addition made by A.O. u/s 69C is not warranted as the source of incurring the expenditure is not in doubt because the source of expenditure is from book but as per the ledger account of the party sales of Rs.4,51,989/- has been shown but the assessee is showing purchases of Rs.5,35,392/- and difference of Rs.83,403/- could not be reconciled by the assessee before the A.O. or before Ld. CIT(A)- proved to be a case of bogus purchases - against assessee. Disallowance of unverifiable purchases - CIT(A) deleted the addition - Held that:- The used tyres by the transporter is generally not having any resale value and whatever nominal amounts are receivable against the said tyres is adjusted by the truck driver against minor repair/puncture and other miscellaneous repairs - against revenue. Restricting the disallowance of expenditure to Rs.25,964/- Held that:- Disallowance on account of these petty expenditure cannot be made on the basis that expenses are not fully verifiable and there is no allegation of the A.O. that the expenditure are personal in nature - against revenue. Disallowance of interest expenses - Held that:- Going through the Opening and Closing balances of assessee's balance sheet it depicts that the sufficient own interest free funds were available with the assessee and, therefore, no disallowance of interest is justified in respect of these interest free advances - against revenue. Disallowance u/s.40A(2)(b) - Held that:- It was erroneous on the part of the AO to seek comparison with the payment made to other supervisors instead of asking the Assessee to furnish evidence in support, once the Assessee had discharged the initial burden of furnishing the relevant evidences along with the other details, the onus had shifted on to the AO to make inquiries and to bring relevant evidence on record to disprove the Assessee's claim - no justification on the part of the A.O. in making any disallowance under the provisions of section 40A(2)(b)- against revenue. Disallowance of messing & truck-trip expenses - Held that:- making such disallowance of expenses on suspicion alone cannot be sustained - when expenditure are incurred locally, it can be accounted for under specific heads of expenditure but when truck driver goes on a long trip and incur petty expenses during the trip, he is not expected to maintain head wise details of such expenditure being illiterate or semi literate - if such claim of the driver regarding expenses is near about to such reasonable limit as accepted by the business man then the payment of such expenditure to the driver cannot be questioned even if the same is not supported by proper evidence - against revenue. Disallowance of freight expenses - Held that:- Disallowance was made by the A.O. on ad hoc basis without bringing any adverse material on record - against revenue. Disallowance of claim of insurance payment - Held that:- Not satisfied on this aspect with CIT(A)because the liability neither accrues on the basis of receipt of notice nor on payment if the insurance premium is paid for a subsequent period, the same is not allowable in the present year and, therefore, on this issue,the order of CIT(A)is reversed and restore back to the A.O. - in favour of Revenue. Addition on account of ingenuine purchases - Held that:- On taking into account both the ledger accounts of assessee and other in the name seller and if both the accounts are considered together, the entire expenses get reconciled - against Revenue. Addition on account of low household expenses - Held that:- CIT(A) on this basis that the assessee’s wife has shown withdrawal of Rs.36,000/- and therefore, the addition has to be restricted to Rs.14,000/- only after reducing this amount of Rs.36,000/- from the addition made by the A.O. of Rs.50,000/- - no controvert finding against CIT(A) - against revenue.

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• 2012 (8) TMI 362
  Addition on account of unaccounted purchases - Held that:- The assessee has filed copies of acknowledgement of return of income of all the suppliers which contains complete details viz. PAN, address, ward in which assessed etc. and that in two cases, notices u/s 133(6) could not be served as there is change in address of the parties - as the payments were made through a/c payee cheques and the A.O. has not brought any evidence on record by making inquiry from the bank that he payments have not gone to the accounts of the suppliers and that the same have been received back by the assessee - the assessee has made purchases from these parties only and after purchasing diamonds form them, the same have been exported and the quantitative details are given in the tax audit report - deletion of addition by CIT(A) is thus warranted - in favour of assessee. Disallowance of claim of loss due to theft - Held that:- The quantitative details adduced from the sale and purchase invoices and the theft was found on 29.03.2007 as on the same day, FIR was filed with the police department - although the assessee has not maintained stock register and merely because stock was uninsured, no adverse interference can be drawn - in favour of assessee.

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• 2012 (8) TMI 361
  Rejection of the claim for acceptance of book result - addition on account of unexplained transactions - AO estimated GP @ 19.06% of the total turnover - Held that:- AO did not proceed to make addition by enhancing GP but proceeded to disallow the expenses and made addition in respect of unexplained transactions. Assessing Officer estimated the GP and took a view that an addition of Rs.16,25,424/- was required to be made. However, he did not make such addition in view of other disallowances made in the same order. Since, books of account, bills and vouchers etc., could not be produced because it is claimed that these are destroyed in flood, no disallowance can be made on the basis of non-existent books - Since the AO had determined GP rate at 19.06% of the total turnover and he took a view that an addition of Rs.16,25,424 - was required to be made. As per Section 144 AO should have determined total income at Rs.6,10,460/- + Rs.16,25,424/-. Thus, total income assessed u/s. 144 should be at Rs.22,35,884 - Since the AO has rejected the book results and estimated the GP, therefore, it would subserve the interest of justice if the addition is restricted to the extent of profit estimated by the AO - direct AO to restrict the addition to the extent of Rs.16,25,424 and delete all other disallowances - we hereby direct the AO to verify whether excess receipt has been offered to tax in next year, if so, the relief in accordance with law may be granted in favour of assessee - partly in favour of assessee.

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• 2012 (8) TMI 360
  Penalty u/s 271(1)(c) - assessment was reopened u/s 147 to bring to tax the distribution of capital asset by way of transfer u/s 45(4) r.w.s. 50 - Held that:- On analyzing the facts of the case it appears that the partners of the assessee firm were of bona fide belief that withdrawing the asset from one of their partnership firm and inducting the same to another of their partnership firm, will not bring in any gain or loss affecting them. Further, the transaction had taken place by passing book entries and not by executing any conveyance deed or sale agreements. As decided in Btx Chemical P. Limited Versus Commissioner of Income-Tax [2006 (7) TMI 155 - GUJARAT HIGH COURT] penalty u/s 271 (1) ( c ) cannot be levied for a mistake committed by the Chartered Accountant of the assessee - in this case as whole scheme of the transactions seems to be wrongly conceived by the Chartered Accountant of the assessee for which the assessee cannot be penalized though being innocent - though the additions are sustained in this case, levy of penalty u/s 271 (1) ( c ) is not warranted and farfetched - in favour of assessee.

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• 2012 (8) TMI 359
  Income from House property - adoption of ALV of the property at the figure of actual rent as against the net realizable rent - Held that:- The decision rendered in Premsudha Exports Pvt. Ltd. Vs ACIT [2007 (5) TMI 348 - ITAT MUMBAI ]wherein it was held that the notional rent need not be considered for arriving at the ALV of the property if the property was intended to be let out, however, despite effort taken for letting out, remained vacant. The assessee-company could hold properly either to use it for its own business or to let as mentioned memorandum of association - the assessee approached various estate and finance consultants for letting the properties but unfortunately during the year under appeal, the assessee could not get a suitable tenant. Since the property was held to be let, its annual letting value could only be worked out under sub-clause ( c ) of section 23(1)and according to this clause, the rent received or receivable during the year was nil and that had to be taken as the annual value of the property in order to compute the income from house property - the decision rendered by the learned CIT(A) need not be interfered with even if there is a finding with respect to completion of 2nd floor to 9th floor of the building - in favour of assessee.

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• 2012 (8) TMI 358
  Disallowance of claim u/s 80 IB - CIT(A) deleted the addition - Held that:- The AO’s action of allocating the profit in the ratio of sales turnover is not accepted as the two units i.e. Unit- III and Unit –IV are separately registered with Excise Authorities, the books of accounts are separately maintained, two units are producing different items and Unit-IV is producing items in which the appellant has got monopoly, accordingly, it will be unfair to compute profits of Unit-IV in the same proportion as that of overall business for the purpose of section 80IB - the appellant has suomoto apportioned administrative expenses to Unit-IV and accordingly, further apportionment and disallowance of deduction u/s. 80IB is not required - sustain the apportionment worked out by the assessee - against revenue.

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• 2012 (8) TMI 357
  Addition on account of cash loan paid against the security of cheques - CIT(A) deleted addition - Held that:- CIT(A) has not given opportunity to the A.O. before accepting the reconciliation of the assessee and deleted the additions made - though reconciliation submitted by the assessee appears to be reasonable but verification is to be made by the A.O. - the matter is remanded back to the A.O. to reconsider the reconciliation submitted. Addition on account of interest accrued on such cash loan - Held that:- The A.O. had not brought on record any evidence to substantiate that the assessee had charged interest on cash loan. There was disclosure on account of cash loan by the assessee at Rs.1.41 crore for the block period. The A.O. has presumed date for calculation of interest as date of search. It appears that there was no noting on seized material about charging of interest and no evidence had been gathered by the A.O. from the loanee. In absence of any conclusive evidence, the addition cannot be sustained. The A.O. made addition on conjuncture and surmises - in favour of assessee. Addition on account of investment in jewellery - Held that:- The assessee had made disclosure of Rs.2.76 crore for the block period from 1998-99 to 2004-05 out of which Rs.3.78 lakh disclosure was pertained on account of jewellery found. The remaining jewellery was as per the Board Circular as well as jewellery reflected in books of accounts. Therefore, this ground of appeal of the revenue is dismissed. Addition of Rs.7 lakhs unaccounted cash - Held that:- The assessee admitted the unaccounted cash Rs.7 lakh u/s 132(4) and claimed that this is part of disclosure of Rs.10426230/-, therefore, A.O. is directed to verify the total disclosure made by the assessee - If contention of the assessee is found correct, the credit may be given to the assessee and no double addition is to be made in the hands of the assessee - the matter is set aside to the A.O.

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• 2012 (8) TMI 356
  Dis allowance of deduction u/s 80IA(4) - Held that:- The assessee is a work contractor of the Railway department who has executed the contract for supply of materials, trenching, laying, testing, commissioning of 4 quad cables, installation and commissioning of gate, telephones and emergency posts etc. - the nature of the contract is civil which had been assigned by the Railway Department in part of already rail laid and no new railway line or telecommunication system has been executed by the assessee - dis allowance is thus warranted - against assessee. Dis allowance of deduction u/s 80IB(10) - Held that:- The appellant is carrying out the project under reference in the capacity of a sub contractor - the land is owned by the Defence Ministry and assessee is mainly work contractor, the construction of house were for the Air Force not for any middle class - The permission of the Municipal Authority in the name of Defence Ministry with no full responsibility of the assessee for execution of the development projects - The assessee had not directly charged collection from the members but payments were received by the assessee from N.B.C.C. for work contract on fixed price - - dis allowance is thus warranted - against assessee

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• 2012 (8) TMI 355
  Disallowance claim for depreciation - the assessee is a charitable trust engaged in education - Held that:- The assessee had already been allowed assets as expenditure/application of fund. When full value of assets had been adjusted as an expenditure or application of fund, no assets remained to be depreciated - following the decision in CIT v/s. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992 (2) TMI 51 - GUJARAT HIGH COURT] in which depreciation has been allowed even capital assets allowed fully as an expenditure - decided in favour of assessee.

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• 2012 (8) TMI 354
  Disallowance u/s.80IB(1) - land being integral part of a housing project but did not belong to the assessee - Held that:- As decided in Commissioner of Income-tax Versus Radhe Developers [2011 (12) TMI 248 - GUJARAT HIGH COURT ]that the relevant terms of development agreement are to be examined so as to ascertain the terms on which the assessee was granted right of construction of a housing project to ascertain whether it was a “work contract” or a “Development Contract” - not the only criteria for allowing the claim u/s.80IB(10) but the domain over the land and the control over the project has to be examined by the AO - matter is going back for reconsideration, then the agreements connected to the land and the details of the approval granted by the local authority permitting to develop the housing project can also be examined if deem fit - in favour of revenue for statistical purposes.

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• 2012 (8) TMI 353
  Addition made by way of disallowance of deduction claimed u/s.80-IB(10) - CIT(A) deleted the addition - Held that:- As neither the Assessee nor the Revenue have placed any compilation to appreciate the exact terms and conditions of the agreement, stated to be a development agreement, the matter has been restored back to the AO - As in the event if the AO finds that the land had been purchased by the undertaking of the assessee and has all the dominant control over the project and developed the land at their own cost and risks, the AO should allow the deduction u/s.80IB(10) - in favour of revenue for statistical purposes.

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• 2012 (8) TMI 352
  Computation of indexed cost of acquisition for of computation of LTCG - property sold got from inheritance from ancestors - Held that:- As in case capital asset been inherited by the assessee and previous owner had acquired the property prior to 1.4.1981 the cost of acquisition to the assessee will be the cost of acquisition to the previous owner or FMV of the property as on 1.4.1981 at the option of the assessee - As in this case, the assessee had opted for FMV as on 1.4.1981 as the cost of acquisition no dispute that the previous owner had acquired the property prior to 1.4.1981 and thus while computing indexed cost of acquisition of the property, the cost inflation index of 100 (as on 1.4.1980) and cost inflation index of the year in which the property was sold by the assessee has to be taken into account and not the cost inflation index of the year in which the assessee first held the property - in favour of assessee.

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• 2012 (8) TMI 340
  Search and seizure of cash – Held that:- Deputy Director prepared a satisfaction note and placed it along with statements and other documents before Director of Income-tax (Investigation), who recorded satisfaction and issued warrant of authorisation under section 132A - On basis of warrant of authorisation, Deputy Director collected amount of Rs. 11 lakhs – since R had in his statement recorded under section 133A stated that he had given cash to assessee through JJ, then without due verification with JJ, no satisfaction could have been recorded that seized cash represented income which had not been, or would not have been, disclosed for purposes of Act by assessee - condition precedent for the exercise of power under section 132A was lacking and the order made under it was liable to be quashed; and there was no material on record to sustain the order made on the firm - warrant of authorisation under section 132A of the Act cannot be sustained.

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• 2012 (8) TMI 339
  Set off of unabsorbed capital loss - application of provisions of section 74 as amended by Finance Act, 2002 to unabsorbed capital losses relating to the AYs prior to the AY 2003-04 - STCG of Rs. 2.21 crores earned during the year set off against the long-term capital loss relating to AY 2001-02 - reference to Special Bench - Held that:- Section 74(1), as substituted w.e.f. 01.04.2003, uses the present tense and refers to the long-term capital loss of the current year. The said provisions thus are applicable to the long-term capital loss of AY 2003-04 onwards and not to the long-term capital loss relating to the period prior to AY 2003-04. The set-off of long-term capital loss relating to a period prior to AY 2003-04 is governed by s. 74(1) as it stood prior to the amendment made by the Finance Act, 2002. Therefore, assessee is entitled to claim set off of any brought forward long term capital loss relating to AY 2001-02 against short-term capital gain. The golden rule of construction is that, in the absence of anything in the enactment to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed. Unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right otherwise than as regards the matters of procedure. See Shah Sadiq and Sons (1987 (4) TMI 2 - SUPREME COURT), Govindas & others vs ITO (1975 (12) TMI 144 - SUPREME COURT) - Decided in favor of assessee Interest on Income Tax Refund - Held that:- It being a statutory obligation would be assessable under the head “ Income from other sources” Interest on excess refund - Section 234D - Held that:- Explanation 2 has been inserted in sec.234D by the Finance Act, 2012 with retrospective effect from 1.6.2003 clarifying that the provisions of sec.234D shall also apply to the assessment year commencing before the first day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date. Since proceedings in respect of the said AY 03-04 has been completed on 30.11.2005, we are of the view that the assessee is liable to pay an interest u/s.234D

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• 2012 (8) TMI 338
  Levy penalty u/s.271(1)(c) - short term capital loss of dividend stripping not shown - Held that:- Assessee has offered the amount on account of short term capital loss of dividend stripping as per section 94(7) when a query was raised by the AO - Merely for committing the lapse by the assessee does not amount to furnishing inaccurate particulars of income as for not reducing the loss on account of dividend stripping from the total short term capital loss declared by the assessee due to mismatch in the computer calculation is an inadvertent mistake for which assessee has given an explanation and the said explanation cannot be rejected outright - it is not a fit case for levy of penalty u/s 271(1)(c) - in favour of assessee.

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• 2012 (8) TMI 337
  Denial of claim of deduction u/s 80-IA(4)(iv)(c) - assessee is an electricity distribution company - Held that:- For entitlement to claim deduction u/s.80-IA(4)(iv)(c)there should be substantial renovation and modernisation of existing network of transmission or distribution lines by the electricity distribution company & the Assessee had to achieve an increase in the book value of the fixed assets - plant & machinery viz., Lines, Cable Network by at least 50% of the book value of such plant & machinery as on 01.04.2004. The criteria for claim of deduction u/s 80 IA was not satisfied as the assessee seeks to rely on the expenditure incurred during the previous year which were in connection with renovation and modernization of cable and transmission line which were not complete and were in progress and therefore classified as CWIP. The fact that they were shown as CWIP in the books of account would only mean that renovation and modernization of the existing transmission or distribution lines had not been recognized as complete - reliance of assessee on the point "the same should be put to use" for allowance of deduction is nowhere mentioned - the expression “undertakes substantial renovation and modernisation” cannot be read in isolation and has to be read along with Explanation to section 80-IA(4)(iv)(c) - against assessee.

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• 2012 (8) TMI 336
  Challenge to revision proceedings initiated by Commissioner u/s. 263 - Income from sale of old rubber trees - CIT(A) took the view that on said income Rule 7A will apply - Held that:- On a careful perusal of Rule 7A the said rule talks about computation of income derived from sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes etc & said rule does not talk about the taxability of income from sale of old rubber trees - CIT has placed incorrect interpretation on Rule 7A and it cannot be said that there is incorrect application of law on the part of the AO, thus the CIT was not correct in assuming jurisdiction over this issue by making incorrect interpretation of law. Indexation benefit allowed in the case of the sale proceeds of Grevillea trees - Held that:- CIT(A) took the view that the AO had converted the capital loss claimed in respect of Grevillea trees into long term capital gain of equivalent amount and was not justified in treating the above said amount as capital gain. The Revenue challenged the said decision of the CIT(A) before the ITAT who dismissed the ground raised by the Revenue. All these discussions show that the issue of the taxability of income on sale of Grevillea trees has been considered and decided by the CIT(A) as well as the Tribunal. Hence as per specific provisions in Clause (c) of Explanation to sec. 263(1), the said issue falls outside the scope of revisionary proceedings u/s. 263. Disallowance of proportionate interest relatable to investments made in subsidiary companies - Held that:- It is not a case that the AO has completely failed to examine the issue of applicability of provisions of sec. 14A to the case of the assessee as he had considered the application of Sec. 14A in respect of re-plantation expenses, which means that the AO has examined the applicability of sec. 14A to the case of the assessee - It is a well settled proposition of law that if the AO has taken one plausible view, with which the CIT does not agree revisionary proceedings u/s. 263 shall not lie in respect of the same. Disallowance of share transfer expenses - Held that:- As the said expenses have been incurred in connection with the maintenance of share holders register, considering the CBDT Instruction No. F. No. 10/25/63-IT(A.a) dated 18-06-1964 that the remuneration paid by the Company to its Registrar for performing duties in connection with the company's legal obligations to be discharged under the Company Law, should be regarded as revenue expenditure. Hence the CIT has entertained the view in respect of share transfer expenses without properly appreciating the facts relating to the same - no ground to initiate revision proceedings - decided in favour of assessee.

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• 2012 (8) TMI 335
  Disallowance of deduction u/s 10B - AO stated that the deduction under section 10B is to be allowed after set off of brought forward business losses and unabsorbed depreciation - Held that:- The loss incurred by the assessee under the head "Profits and gains of business or profession" has to be set off against the profits and gains, if any, of any business or profession carried on by such assessee. Therefore, as the profits and gains under section 10A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise - As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise - Since the provisions of section 10A and 10B are similar in nature the contention of assessee that carry forward business losses and depreciation cannot be set off to the profits of the undertaking while working the claim u/s 10B is uphold - in favour of assessee. Non inclusion/deducting the amount credited/debited as income/expenses relatable to unit eligible for tax holiday under section 10B for computing book profits u/s 115JB - Held that:- Under the scheme of provisions of section 115JB Minimum Alternate Tax (MAT) is levied with reference to the book profit disclosed in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI of Companies Act, as opposed to ‘profits or gains of business or profession’ as computed as per the provisions of the Act - Explanation to section 115JB(2) provides for the purposes of this section, ‘book profit’ means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by the amount or amounts of expenditure relatable to any income to which section 10 or section 10A or section 10B or section 11 or section 12 apply - - deduction claimed by the assessee under section 80HHE has to be worked out on the basis of adjusted book profit under section 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business - while working out deduction under section 80HHC are equally applicable to the provisions of section 10B while working out deduction under section 115JB, respectfully following the same uphold assessee’s contentions - in favour of assessee Disallowance of deduction on provisions of fringe benefit tax while computing book profits under section 115JB - Held that:- Considering Board Circular FBT is a liability qua employer,an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub-clause (ic) of clause (a) of section 40 of the Income-tax Act expressly prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head “profits and gains of business or profession”. This prohibition does not apply to the computation of ‘book profit’ for the purposes of section 115JB - in favour of assessee.

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• 2012 (8) TMI 334
  Dis-allowance u/s 40(a)(ia) - non-deduction of tax at source u/s 194C on the trucks provided - assessee engaged in the business of transport arranging vehicles for transportation of goods and earning commission thereof - Held that:- It is observed that assessee has filed P/L A/c showing lorry freight receipts at Rs 79.71 lacs and lorry cartage paid at Rs 74.22 lacs showing net revenue of Rs 5.49 lacs. However, it claimed TDS on a larger amount and total freights as per the register aggregates to Rs.1.72 crores. Books of accounts stand rejected by AO. There is no reconciliation with reference to the total receipts as per the freight register and what was shown in the P/L A/c. There is also no finding either by AO or by the CIT (A) about the exact nature of assessee’s business. Further whether mere arrangement of trucks resulted in any contract is to be examined as AO has not invoked the provisions of section 194C nor disallowed amounts u/s 40(a)(ia). Since these aspects are not examined by AO in its correct perspective, we set aside the assessment to the file of AO to examine the above issues and complete the assessment accordingly

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• 2012 (8) TMI 333
  Dis-allowance u/s 14A - interest expenditure and administrative expenses - Held that:- It is observed from balance sheet that share holders’ fund aggregates to more than Rs.73 crores and the in investment in shares were around 57.65 crores. Thus, the assessee had own funds which were available for making the investment in the shares. Therefore, dis-allowance on account of interest expenditure u/s 14A is not sustainable. However, on the disallowance on account of administrative expenses u/s 14A, Tribunal has held that the disallowance should be restricted upto 5% of the dividend earning - Decided partly in favor of assessee. Employees’ contribution to PF and ESIC - dis-allowance - delayed payment - Held that:- If the employee’s share of contribution is paid before the due date of filing of the return u/s 139(1), then no dis-allowance can be made - Decided in favor of assessee.

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• 2012 (8) TMI 332
  Validity of reassessment order passed u/s 147 of the order framed u/s 143(3), when the same was subject matter of rectification u/s 154 - assessment reopened on ground that write off of loan of Rs 1.35 crores is the capital loss and should not have been allowed as bad debts - Held that:- It is found that Notice u/s. 154 was issued to rectify the mistake apparent from record of allowance of the claim of bad debt of Rs. 1.35 crore. Also, reasons given for the reopening of the assessment are on principle identical with the reasons given for the reopening of the assessment which shows that AO himself was not certain as to under which section he should proceed while framing the assessment u/s. 147. Further, no tangible material has been brought on record, the AO has simply disallowed the claim of write off on the facts and circumstances which were available before him while framing the original assessment. This approach clearly show that the AO has merely changed his opinion in relation to the allowability of the said write off. Moreover, it cannot be said that assessment proceedings were completed as the order passed u/s. 154 is also an order which can be subject to appeal and revision and as the proceedings are not been completed on record, it cannot be said that any income has escaped assessment. Hence, assessment order passed u/s. 147 is bad in law and is accordingly cancelled - Decided in favor of assessee.

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• 2012 (8) TMI 331
  Deduction u/s 10A and alternative claim u/s 80IB(8A) - export of computer software - assessee contended to be STP involved in software development - denial of deduction on ground that assessee’s operations do not have computer as primary and predominant hardware tool and scientific methods/tool are used - end products could not be treated as as service similar to export of customized electronic data - Held that:- Neither AO nor the DRP have taken cognizance of the findings of the Tribunals given in ITO Vs Accurum India (P) Ltd (2009 (11) TMI 550 - ITAT MADRAS-A ), M.L.Outsourcing Services Pvt. Ltd v. ITO (2011 (5) TMI 594 - ITAT, DELHI ), while deciding the issue of the present assessee, though according to the assessee, the issue in question is squarely covered by the above orders of the Tribunal. Also, assessee was not given proper opportunities to present his case before the Assessing Officer and the DRP and hence, the matter requires re-examination by the Assessing Officer. Therefore, in the interests of principles of natural justice and equity, the issue should be remitted back to the file of the AO for fresh consideration - Assessee’s appeal is treated as allowed for statistical purposes.

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• 2012 (8) TMI 330
  Transfer pricing - adjustment - CIT(A) deleted addition on ground that difference between the ALP so worked out and the sales price shown by the assessee was less than the safe harbor limit of 5% - revenue contesting the same and inclusion of other cases - Held that:- CIT(A) was fully justified in excluding the said three cases suggested by revenue since these were not exactly comparable with the case of the assessee and for the purpose of comparative study and deleting the addition made by the A.O. on account of TP adjustment after having found that the difference between the ALP worked out by excluding the said three cases from comparables and the sales price charged by the assessee to its AE was within the safe harbor limit of 5% - Decided against assessee. Interest on Income Tax refund - Business income vs Income from other sources - Held that:- It is observed that there is a contradiction in the findings recorded by the A.O. conceding it to be interest on income-tax refund whereas and CIT (A) conceded it to be interest on bank deposits, hence matter restored to file of the A.O. to ascertain exact nature of interest income received.

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• 2012 (8) TMI 329
  Interest paid to the Head office of the assessee bank as well as its overseas branches by the Indian branch - dis-allowance - assessee being commercial bank having its Head Office in France - Held that:- Issue stands squarely covered by the decision rendered in case of Sumitomo Banking Corp. Mumbai (2012 (4) TMI 80 - ITAT MUMBAI ) wherein it was held that interest paid to the head office of the assessee bank as well as its overseas branches by the Indian branch cannot be taxed in India being payment to self which does not give rise to income that is taxable in India as per the domestic law or even as per the relevant ‘tax treaty’ - Decided in favor of assessee. Dis-allowance u/s 14A of expenditure incurred in earning exempt income - Held that:- Since dividend income accrued from the investment out of its own funds, hence dis-allowance has been rightly deleted - Decided in favor of assessee. Guarantee commission offered to tax on accrual basis - addition - method of accounting - Held that:- Income from deferred guarantee commission did not accrue or arise in the year in which guarantee agreements were entered. It was held in case of CIT vs. Bank of Tokyo that such income should be spread over the period to which the guarantee commission related and should be assessed proportionately. Therefore, system of accounting regularly followed by the assessee should not be disturbed and accept the income as declared by the assessee following the same method - Decided in favor of assessee.

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• 2012 (8) TMI 328
  Non-Compete fees - taxability - assessee along with some other entities being promoters of a D Ltd, holding 52.60% shares of the said company transferred its shares and in addition to sale consideration received amount as ‘non-compete fees’ - revenue considered the same to be business income as against assessee contention of it being part of capital gain - AY 06-07 - Held that:- It is observed that assessees companies in the present cases were the ‘promoters’ and ‘shareholders’ of M/s. D and were having controlling interest in said company hence consideration paid would fall under the category of "Consideration paid to persons associated with the transferor to ensure that they also do not indulge in competing business" consequently payment for “not carrying out any activity in relation to any business” as covered by the provisions of sec.28(va)(a) and since the said provisions were applicable w.e.f. 01.04.2003, the same will be chargeable to tax as ‘business income’ as held by the AO and not as ‘capital gains’. reliance placed on case of Dr B.V. Raju (2012 (2) TMI 217 - ITAT HYDERABAD )- Decided against Assessee Sale of shares of other companies - dis-allowance of claim of long term capital loss - assessee contended that said shares were transferred as a part of the family settlement and could not be regarded as ‘transfer’ and invoking the provisions of section 47(iv), and treating the loss as a notional loss - Held that:- We restore the matter to the file of the A.O. for deciding this issue afresh on merits after examining the stand of the assessee in the light of relevant documentary evidence. Dis-allowance u/s 14A - Rule 8D - Held that:- As held in Godrej & Boyce Mfg. Co. Ltd. v. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] that disallowance u/s.14A for the years prior to AY 2008-09 has to be made by adopting some reasonable method, we restore the matter to the file of the A.O. for recomputation.

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• 2012 (8) TMI 327
  Income from license fees - income under the head 'Income from other sources' OR 'business income' - Held that:- As premises was taken on license by the assessee along with other licensor in the property, sub-licensed to M/s. Mid-day Publications Pvt. Ltd., came up for adjudication before the Tribunal assessment year 2005-06 where it was directed that the license fees should be taxed for the full year at Rs.18.97 lakhs and not for the period of three months held to be considered as business income - In the absence of any distinguishing features in the facts of the present assessee and the other licensor in the same property, respectfully following the precedent direction to tax the license fees for the entire year at Rs.18.97 lakhs as business income. Assessment of income as ‘Income from house property’ - Held that:- As the assessee had filed a copy of the Occupation Certificate received from Municipal Corporation & contended that the he was allowed possession of the premises much after the close of the financial year. Since this Certificate from Municipal Corporation came into existence after the passing of the assessment order and it will be just and fair if the impugned order on this issue is set aside and the matter is restored to the file of AO.

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• 2012 (8) TMI 326
  Transfer Pricing - adjustment to ALP - addition - consideration of transactions both with AEs and Non-AEs for the purpose of recommending adjustment - assessee engaged in the development and sale of computer software objected to the comparables chosen - Held that:- It is observed that assessee entered into international transactions with its AEs and also non-AEs and transfer pricing adjustment can be made only with reference to the international transactions with the AEs and not non-AEs. It is quite natural also because there can be no scope for arranging the transactions with non-AEs so as to reduce the due tax in India. On Revenue contention of restoring the matter to the file of TPO for a fresh determination of PLI on ground of non-availability of data it is held that facts indicate that the allocation of total revenues and total cost between AEs and non-AEs, was very much available before the TPO as well as DRP and none of these authorities have adversely commented on such allocation. It, therefore, implies that they accepted these figures as correct. Further, TPO finally chose 33 uncontrolled comparable cases on the basis of their revenues from IT/ITES and the companies in fact are those which appear to be exclusively engaged in rendering IT/ITES. It is manifest that the service fee charged by the assessee from international transactions with its AEs is more than the ALP determined by applying the PLI as found out by the TPO and hence no addition/adjustment is called for. We, therefore, order for the deletion of addition - Decided in favor of assessee

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• 2012 (8) TMI 325
  Bad Debts - dis-allowance on ground that assessee has not filed the necessary details - assessee contended that AO never asked any further details and it is not necessary to establish that the debt has become bad/ irrevocable - Held that:- Assessee has satisfied the conditions stipulated in section 36(2)(i) since these are business debts which could not be recovered and written off. Further, Supreme Court in the case of TRF Ltd vs. CIT (2010 (2) TMI 211 - SUPREME COURT) has held that it is not necessary to establish that the debt had in fact had become irrevocable after the provisions were amended w.e.f. 1.4.1989. bad debts stand allowed. Rebate u/s 88E - stock broking - assessee out of the gross income considered 5% of the expenditure whereas AO on assumption that assessee has not furnished any details of expenditure attributable to the above transactions and estimated the income at 25% of the gross expenditure - Held that:- As seen from the detailed schedules of the balance sheet, the stock in hand has gone up from Nil in earlier year upto Rs.1,46,27,156/-. It indicates that the borrowed funds were used for its business in trading transactions. If an analysis of the borrowed funds and its use was considered interest payment alone of Rs.22,80,089/- is attributable to the trading activity. Therefore, in our view AO is very conservative in attributing only 25% of the expenditure to the share trading activity. We uphold the action of AO Dis-allowance u/s 14A - Held that:- Even though on legal principles the matter is in favour of assessee, since assessee has not furnished any details of expenditure before AO and the working furnished was without prejudice to its claim. However in the interest of justice, matter requires re-examination by AO keeping in view of the principles laid down by the above cases and also to see there is any expenditure incurred in relation to the exempt income - Decided partly in favor of assessee.

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• Customs

• 2012 (8) TMI 351
  Plea for condonation of delay - non-receipt of order due to alleged incorrect pin code mentioned in address - assessee contending pin code to be 110 087 instead of 110 041 - Held that:- On perusal of the record, we find that the appellants themselves have given the address on their letter showing pin code as 110041. Moreover, in appeal memo also they have shown the Pin Code as 110 041 instead of 110 087. As Revenue has dispatched the orders at the given address on 30.7.98 and 29.4.2002 respectively, therefore, we hold that appellants have been served the orders properly and they have not filed the appeal in time. Applications filed for condonation of delay are dismissed.

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• 2012 (8) TMI 350
  Demand of duties - assessable value - higher value of identical goods - clearance of HCH brand ball bearing imported from China – Held that:- Assessing officer has loaded the value based upon the price list of HCH brand ball bearings after giving 30% discount as per the guidelines of Commissioner of Customs (Import) - there was no contemporaneous import showing import of identical goods at a higher value, the rejection of the transaction value was not justified - in the absence of any corroborative evidence of contemporaneous imports, the enhancement of transaction value is not in accordance with the law - assessing officer has not brought on record any evidence of contemporaneous imports – Demand set aside

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• 2012 (8) TMI 324
  Plea for waiver of pre-deposit of penalties - penalty imposed of Rs.13 lakhs u/s 114 and 114AA of Customs Act, 1962 for alleged impersonation by appellant and exporting over-valued goods - assessee contended serious financial hardship and inability to even deposit 25% of the amounts involved - Held that:- Since issue is not free from doubt and considering the fact that the first appellate authority has himself expressed observation and doubt as regards maintainability of penalty under both the Sections of the Customs Act, 1962, we find that the appellant should be put to condition of depositing of Rs.2 lakhs for hearing his appeal by first appellate authority.

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• 2012 (8) TMI 323
  Import of indoor units of split air conditioners in pre-packed form from Japan – denial of benefit of exemption from Special Additional duty of Customs under notification no. 29/2010-Cus – Held that:- Notification no. 29/2010 grants exemption to a pre-packaged goods intended for retail sale in relation to which there is a statutory requirement of declaring on the package thereof the retail sale price of such article - indoor units imported by the appellant satisfies those requirements - benefit of Notification no. 29/2010-Cus dated 27.02.2010 is available to the appellant

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• Corporate Laws

• 2012 (8) TMI 349
  Arbitration - Singaporean company alleged misrepresentation and fraud on part of Indian companies - A joint venture agreement was entered into between Indian telecom companies and a Singaporean company to carry on telecome business in India after 2G Spectrum licences were granted by Telecom Department - Subsequently a shareholders' agreement was also entered into - In both agreements there was an arbitration clause for referring any disputes between parties to arbitration, seated at Singapore – Held that:- Parties are referred to Arbitration in accordance with the Arbitration Rules of the Singapore International Arbitration Centre as contemplated under Article 13 of the SSA entered into between the parties - Company Law Board was bound to refer parties to foreign arbitration at Singapore

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• 2012 (8) TMI 322
  Winding up - appellant claims to have entered into an agreement with the Company in liquidation for purchase of land – Held that:- Agreement to sell relied on by the appellant was of a date after the filing of the winding up petition and was thus unenforceable under Sections 531 & 531A of the Act - the ignorance, even if any of the appellant, of the pendency of the winding up petition was of no avail and would not validate the transaction in question - appellant, in the absence of any valid agreement can neither seek a direction to the Official Liquidator nor will any purpose be served in granting permission to the appellant to sue the Company in liquidation – appeal dismissed

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• Service Tax

• 2012 (8) TMI 375
  Violation of the principles of natural justice - denial of Cenvat Credit - order based on reports called from the range officer after hearing appellants - absence of opportunity to appellant to defend their case - Held that:- It is undisputed that the reports was called for behind the back of appellant and that too after the issue was heard and arguments of appellants were closed. When it is clear that the appellant was not given a copy of the said report, and it was obtained after the personal hearing in the matter, we find that there is definitely a gross violation of the principles of natural justice. In our considered view, all the three impugned orders are liable to be set aside on this account.

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• 2012 (8) TMI 374
  Recovery ordered of education cess refunded to exporters along with service tax, by virtue of exemption notifications where whole of service tax is exempt - Held that:- According to section 95(1) of Finance (No. 2) Act, 2004 and section 140 (1) of Finance Act, 2007. Education Cess and Secondary and Higher Education Cess are leviable and collected as service tax, and when whole of service tax is exempt, the same applies to education cess as well. Since Education Cess is levied and collected as percentage of service tax, when and wherever service tax is NIL by virtue of exemption, Education Cess would also be NIL. Henceforth, where education cess has been refunded to exporters along with service tax, by virtue of exemption notifications where whole of service tax is exempt, the same need not be recovered. Commissioner's orders for recovery of part of the refunds sanctioned are set aside.

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• 2012 (8) TMI 373
  Whether the appellants could have paid tax on an exempted services and claimed refund under Notification No. 17/2009 which allows refund of tax paid on services used in or in relation to the export of goods – Held that:- No clause barring an assessee from paying tax on exempted services and claiming refund thereafter in the Finance Act, 1994 unlike in the case of payment of duty under the Central Excise Act - findings of the lower appellate authority that the assessee could not have claimed refund under Notification No. 17/04 is not correct in law – in favor of assessee

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• 2012 (8) TMI 372
  Franchise service – waiver of pre-deposit - petitioner is a Society established solely for educational purposes - Anti Evasion Wing of Central Excise Division, Ajmer, revealed that the petitioner was engaged in providing 'franchise service' to various parties/schools – Held that:- Agreement entered into between the petitioner and other four schools, it is revealed that the petitioner not only permitted, allowed and granted a revokable license to these schools to use the name 'Mayoor School', its logo and moto, but in consideration of the grant of said license - this 'collaboration fees' was nothing but the 'franchise fees' and it clearly fell in the net of service tax - writ petition dismissed

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• 2012 (8) TMI 344
  Denial of benefit of Notification No. 01/2006-ST as amended, for the reason that the appellant has availed the cenvat credit while providing the Commercial or Industrial Construction services - plea for waiver of pre-deposit - assessee contended reversal of cenvat credit taken on input services - Held that:- If an amount taken as cenvat credit on the input services is reversed, various judicial pronouncements holds that such an amount is to be treated as credit not availed. Since this plea was not taken before the lower authorities, it is better left to the lower authorities to consider this plea in the factual matrix and come to a conclusion. Matter remitted back.

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• 2012 (8) TMI 343
  Plea for condonation of delay - reason provided for non filing the appeal in time being resignation of director looking after legal matters in August 2011 and non-information of order by him to management - in affidavit date of receipt of order mentioned as 04.05.12 whereas in ST-5 it is mentioned as 08.08.11 - Held that:- We find that the appellant has been callous in exercising his right of appeal before us and has not given sufficient cause for seeking the condonation of delay. There is no bonafide reason for not filing the appeal in time. Accordingly, we are convinced that the appellant has not made out a case for the condonation of delay. Appeal dismissed.

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• 2012 (8) TMI 342
  Plea for waiver of penalty imposed u/s 78 - assessee engaged in services of erection, commissioning and Installation contended by Revenue to be falling under work contract category w.e.f. 1.6.2007 - assessee submitted that provisions of section 80 may be invoked since there was confusion in the industry and two authorities of the department itself has given two different conclusions - Held that:- While confirming the demand of duty as not contested, penalties imposed under Section 78 are set aside as there was confusion in the field, and non-payment of Service Tax was not on account of any mala fide - Decided in favor of assessee.

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• 2012 (8) TMI 341
  Survey and Map Making - liability - assessee contended that main contractor was discharging the service tax liability on the entire contract executed by them and the appellant is only executing a part of the contract which have been awarded to them hence not liable to tax - Held that:- On perusal of the certificates issued by original contractor, we find that the original contractor had given ref. no. of the contract and also their service tax registration no. which could have been verified by the lower authority inter departmentally. In our considered view this should have been done by the adjudicating authority before adjudicating the issue. Appeal is allowed by way of remand to the adjudicating authority

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• Central Excise

• 2012 (8) TMI 348
  Interest for utilisation of cenvat credit disallowed by the lower authorities and subsequently paid by the appellant through PLA - first appellate authority while directing to take the credit of cenvat on discharging the duty liability through PLA has put an override that such credit cannot be availed till the interest is paid - Held that:- Unless the period to which the interest liability arises on the appellant is indicated, there cannot be any calculation to discharge the interest amount, which according to Revenue, the appellant has to pay. Matter is remanded back to the first appellate authority.

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• 2012 (8) TMI 347
  Cenvat credit on various input services - appellant engaged in ship manufacturing activity and providing services for ship repairs and refitting - denial of credit on ground of non-production of original bills/invoices and that ship breaking is exempt from payment of duty - Held that:- Observation that ship breaking for which the appellants are exempted from payment of duty seems to be erroneous finding as Central Excise Tariff clearly indicates that new ships are liable to duty and the Service Tax credit that has been denied to the appellant, seems to be on wrong footing. In our view, the entire issue needs to be considered by the adjudicating authority in the light of the fact that the appellant is able to produce invoices and Central Excise Tariff indicates that the finished goods manufactured by the appellant are liable to duty. Matter remitted back.

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• 2012 (8) TMI 346
  Classification of shikakai powder - Revenue contending classification under Chapter 33 of the CETA particularly under sub-heading 3305.90. whereas assessee not discharging duty on the premise that it is a vegetable product and more over classifiable under Chapter 14 of the Central Excise Tariff Act, 1975 - period 1.4.1993 to 31.3.1998 - invocation of extended period of limitation - Held that:- As the issue involved is more than of classification of shikakai powder, which was held against the appellants in 2009 in case of Mayil Mark Nilayam Vs. CCE, Chennai (2009 (3) TMI 170 - CESTAT, CHENNAI), therefore, demand for the extended period of limitation is not sustainable but demand for the normal period of limitation is sustainable. As the issue is of classification, no penalty is warranted in this case. Hence the penalties are set aside. As the appellants have not collected duty separately, therefore the amount of clearance be treated as cum-duty price, so duty liability is to be reduced to that extent - Decided partly in favor of assessee.

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• 2012 (8) TMI 345
  Discharge of Education Cess wherein Education Cess is to be calculated as a percentage of excise duty levied and collected - assessee contending that once duty liability is exempt, cess has to be nil - Held that:- It was held in case of Indo Farm Tractors & Motors Ltd (2007 (7) TMI 150 - HIGH COURT, HIMACHAL PRADESH ) that Education Cess which is levied as a percentage of excise duty can be calculated irrespective of the fact whether the excise duty payable on such goods exempted. Hence, excise duty can always be calculated even if it is not collected and on this notional calculation, the education cess can be calculated. This cess has to be collected in terms of the Finance Act - Decided against assessee.

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• 2012 (8) TMI 321
  Demand imposed on ground that assessee has not reversed proportionate cenvat credit attributable to exempted goods cleared whereas assessee contended reversal of proportionate cenvat credit attributable to the exempted goods cleared - period involved 01.01.2005 to 31.10.2005 - Notification No.6/2002-C.E. - Held that:- In view of the retrospective amendments in the provisions of Rule 6, amount already reversed by the appellant as proportionate input cenvat credit attributable to the exempted goods cleared from the factory premises, should be enough compliance of the law. Order set aside - Decided in favor of assessee

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• 2012 (8) TMI 320
  Waiver of pre-deposit - refund claim under Rule 5 of the Cenvat Credit Rules - accumulated Cenvat Credit of duty paid on input used in or in relation to the manufacture of exported goods on the ground that the applicants were unable to utilize the same – Held that:- During the period 2004, 2005 and 2006, the applicant does not even mentioned the said amount of Cenvat credit as receivable in the books of accounts and all of a sudden took a credit for the past three years and claiming the same as accumulated unutilized on account of export of goods - service tax for three years were taken by making one entry that after a lapse of time - applicant failed to make out a case for total waiver of duty - applicants are directed to deposit 50% of the amount of demand

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• 2012 (8) TMI 319
  Input credit of excise duty on M.S, Angles and M.S. Channel, beams, plates etc. – denial on the ground that such items are not used in the manufacture of M.S. Ingots - Show Cause Notice for disallowing the credit taken in the year 2004 was issued on 8th August, 2008 - demand is time-barred

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• 2012 (8) TMI 318
  Cenvat credit on house keeping, rent-a-cab and courier services – Held that:- there was nexus between input services and final products - no reason to deny the credit of service tax paid on the three input services

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