TMI Tax Updates - e-Newsletter
August 2, 2013

Case Laws in this Newsletter:

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

Articles

1. INVOKING THE DOCTRINE OF ‘per incuriam’

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. ST-3 - eFiling Offline Utilities/Schema for the Half Year ending March 2013

2. Responsible Innovation and Regulation in the Financial Sector (Keynote address by Dr. Duvvuri Subbarao, Governor, Reserve Bank of India, at the IDRBT Banking Technology Excellence Awards Function on August 2, 2013 at Hyderabad)

3. Interest Subvention to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) and to NABARD for refinance to RRBs and Cooperative Banks for providing short-term crop loan to farmers at interest rate of 7 per cent per annum

4. RBI Reference Rate for US $ and Euro

5. Creation of the Special National Investment Fund

6. Disinvestment of 10 percent paid up equity capital of Indian Oil Corporation Limited

7. Interest Subvention to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) and to NABARD for refinance to RRBs and Cooperative Banks for providing short-term crop loan to farmers at interest rate of 7 per cent per annum

8. Unedited Transcript of Reserve Bank of India Post Policy Conference Call for Researchers and Analysts

9. Review of the policy on Foreign Direct Investment (FDI) in Multi-Branded Retail Trading

10. Review of Foreign Direct Investment (FDI) caps and routes in various sectors.

11. Review of the policy on foreign direct investment-definition of the term "control", for calculation of total foreign investment i.e. direct and indirect foreign investment in Indian companies

Notifications

DGFT

1. 32 (RE-2013)/2009-14 - dated 2-8-2013 - FTP

Permission to The Cotton Corporation of India Ltd. for export of cotton (Tariff Codes 5201 and 5203) during the cotton season 2012-13.

VAT - Delhi

2. F.7(433)/Policy-II/VAT/2012/Part File/565-576 - dated 2-8-2013 - DVAT

Extend the date for filing of stock statement in Form Stock-1 online for the stock available on 31st March, 2013

Circulars / Instructions / Orders

VAT - Delhi

1. F.7/T&T/PB/SCTT-(PR/Coordn.)/2546-64 - dated 1-8-2013

Constitution of Delhi Trade Board for National Capital Territory of Delhi.

Income Tax

2. Tender Ref. No. HW/NW/DIT (S)-IV/TAXNET/2013 - dated 2-8-2013

NOTICE of Extension to last date of submission of bids in Response to Request For Proposal for Selection of Managed Service Provider (MSP) for WAN, LAN, FMS and Video Conferencing

DGFT

3. 03 (RE-2013)/2009-2014 - dated 2-8-2013

Withdrawal of Policy Circular No.30 dated 10.10.2005 on Importability of Alternative inputs allowed as per SION.

Customs

4. F. No. 603/01/2011-DBK - dated 31-7-2013

Audit Report No. 15/2011-2012, Section 2, Duty Drawback Scheme

Highlights / Catch Notes

Income Tax

• Olympic Medal gifts and awards are exempt from taxable income u/s 56(2)(v) of the Income Tax Act.

  Case-Laws - AT : Gift u/s 56(2)(v) - Gifts/awards on winning of the Olympic Medal - in the case of the assessee, viz., Shri Abhinav Bindra, all the rewards/prizes/gifts received by him are covered by Circular No.447 dated 22nd January, 1986 and, therefore, should not be treated as income in his hands. - AT
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• Section 80M Income Tax Claim Allowed as Genuineness Confirmed; No Legal Grounds to Restrict Claim.

  Case-Laws - HC : When the claim is allowable then why it should not be allowed as per law. Genuineness of the claim is not doubtful. Therefore, the restricted claim under Section 80M of the Act is allowable - HC
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• Court Rules Against Denial of Tax Exemption u/ss 11 and 13; No Misuse of Funds Found.

  Case-Laws - HC : Exemption u/s 11 - Benefit u/s 13 - It has not been mentioned that the funds were misappropriated and were not utilized for the purpose according to the objects of the society, so the registration cannot be cancelled - registration was not cancelled, but the benefit of exemption was not given by the AO, which is not allowable - HC
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• Res Judicata Doesn't Apply to Tax: Each Year Stands Alone, But Consistency Matters if Unchallenged Over Time.

  Case-Laws - HC : Principle of res-judicata or estoppal is not applicable in the income tax proceedings, as each assessment year is an independent assessment year. - But fact remains that where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent years - HC
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• Assessing Officer's Oversight: Ignored Section 50C(2) by Not Consulting District Valuation Officer for Asset Valuation.

  Case-Laws - HC : Valuation u/s 50C - Reference not made to DVO - Assessing Officer ought to have referred the valuation of the capital asset to the Valuation Officer, whereas, the authorities below referred to Section 50C(1) of the Act alone without adverting to Section 50C(2) - HC
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• Trustee's Indirect Benefit Violates Section 13, Denies Tax Exemption u/s 11 of Income Tax Act.

  Case-Laws - AT : There was an indirect benefit to Shri P. Subramani, Managing Trustee of the assessee - Trust and this fell clearly within the scope of Section 13(1)(c) r.w.s. 13(2)(a) Such violation did warrant denial of exemption claimed under Section 11 - AT
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• Notional interest additions removed; funds intended for asset purchase until sale deed finalization.

  Case-Laws - AT : Addition on account of notional interest - it can be concluded that till the conclusion of sale deed amounts advanced continued to be for acquisition of assets - additions deleted - AT
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• Foreign Exchange Loss from Forward Market Deemed Business Loss, Eligible for Deduction: Court Decision.

  Case-Laws - AT : Loss from foreign exchange transaction in the forward market - speculative loss v/s business loss - assessee was entitled to claim deduction in respect of payment made on account of cancellation of forward booking of foreign exchange with banks as a business loss. - AT
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Customs

• Court Rules No Export Duty on Goods from Domestic Tariff Area to SEZ; Circular Imposing Duty Invalid.

  Case-Laws - HC : Export duty - Movement of goods from DTA to SEZ unit - Validity of circular levying duty - there was no provision in the SEZ Act to levy duties of customs (export duty) - HC
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Indian Laws

• EFiling Offline Utilities Update: ST-3 Form Schema for March 2013 Half-Year; Key Notes on Electronic Tax Return Filing.

  News : ST-3 - eFiling Offline Utilities/Schema for the Half Year ending March 2013
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Wealth-tax

• Plot Sale Without Conveyance Deed: Assessee Not Considered Owner for Wealth Tax Purposes.

  Case-Laws - AT : Inclusion of asset for wealth tax - It is a fact that assessee had sold a plot of land to one developer and except for the conveyance deed all legal formalities were completed. Therefore, the assessee could not be treated as owner of the said plot of land - AT
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Service Tax

• Sugar Factory Owns Cane; Activity Classified as 'Business Auxiliary Service', Not 'Manpower Recruitment'.

  Case-Laws - AT : The sugar cane belongs to the sugar factory in terms of the agreement of sale executed between the farmers and the sugar factory. Therefore, the activity undertaken by the appellant is one of procuring or processing of the goods belonging to the client which is classifiable under ‘Business Auxiliary Service' and not under ‘Manpower Recruitment of Supply Agency Service. - AT
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• Debate on Classifying CRS/GDS Services as "Online Database Access" for Tax; Referred to Larger Bench Review.

  Case-Laws - AT : Online Database Access or retrieval Service - Computer Reservation System“ (CRS)/Globai Distribution System (GDS) - A detailed order of difference of opinion - referred to larger bench - AT
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Central Excise

• Court Rules Buyer Must Prove Unawareness of Fake License; Denies Modvat Credit Due to Lack of Manufacturing Activity.

  Case-Laws - HC : Fictitious purchase - Modvat credit - No manufacturing activity started - Caveat emptor -It was for the buyer to establish that he had no knowledge about the genuineness or otherwise of the SIL in question - credit denied - HC
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VAT

• Tribunal Reduces Security for Dishonored Cheques; Section 138 Proceedings Under Negotiable Instruments Act Not Required.

  Case-Laws - HC : Dishonor of the cheques issued during search proceedings - Now since the Commercial Tax Tribunal has passed the order by which the security has been reduced and that the entire amount has been deposited, no useful purpose will be served in initiating proceedings under Section 138 of Negotiable Instrument Act - HC
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• Understanding Sales Tax: Differentiating Between Central and Local Sales Tax Requires More Than Just Delivery Across State Lines.

  Case-Laws - HC : Levy of CST or LST - local sales or interstate sale - it is not enough that the buyer takes delivery of the goods from the seller for the purposes of dispatching them to another State, nor it is enough that the seller pursuant to the instructions of the buyer despatches the goods across the border to another State. - HC
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Case Laws:

• Income Tax

• 2013 (8) TMI 57
  Assessment pursuant to DRP order - 43 issues. Issues decided in favor of assessee:- Addition of freight inward/ import clearing expenses to cost of closing inventory - Addition on account of cost of rejection of semi finished goods and obsolete items - Addition of provision for increase in price of material to the value of closing inventory - Disallowance of cost of scrap material - Adjustment on account of provision for increase in price of material as prior period expenditure or preponement of revenue - Disallowance of alleged excessive purchases price paid to related parties as per AS-18 - Disallowance of purchase under section 40(a)(ia) for alleged failure to deduct TDS u/s 194C - Disallowance of advisory services availed from Hero Corporate Services Ltd. (HCSL) - Payment received on behalf of Hero Honda Fin lease Ltd. (HHFL) deemed as dividend u/s 2(22)(e) - Addition on account of difference in amount of excise duty in inter unit transfer price of goods - Addition to value of closing stock on the basis of value reported in cost audit report - Disallowance u/s 14A as per Rule 8D - Disallowance of Rs. 4.26 crores on account of payment to LIC to cover leave encashment on the ground that same is allowable on actual payment of leave encashment under section 43B(f) of the Act; - Disallowance of Rs. 2.08 crores being the actual amount of leave encashment to employees during the year, on account of no evidence establishing such payment. - Disallowance of expenditure incurred in connection with expansion of business at Hardwar - payment of passenger tax to Government on behalf of transporters - Reimbursement of free service coupons to dealer for repair of vehicle - Payment to dealers on account of reimbursement of advertisement expenses - Reimbursement of repair and maintenance cost of Omax Auto Ltd. - TDS on reimbursement of out of pocket/ traveling expenses to consultant/ vendors - TDS on rental of leased lines from MTNL/BSNL - TDS on rent paid towards property taken on lease (matter remanded back) - TDS on management fee under a portfolio management scheme - TDS on payments exceeding exemption limit specified under 197 certificate - TDS at lower rate or wrong provision - TDS on incentive/ discount to dealers - TDS on clearing charges paid towards import consignments (matter remanded back) - TDS on reimbursement of cost of gifts distributed to customers by FX Enterprise Solutions Pvt. Ltd. - Addition on account of non-recognition of royalty income during the relevant previous year - Addition on account of non-recognition of membership under the passport scheme - Disallowance of reimbursement of foreign traveling expenses to directors/ employees, on the ground of no evidence/ proof of actual expense incurred by employees. - Disallowance of advertisement expenses on the ground of being capital in nature - payment for advertisement and publicity of the brand name of the assessee and for promotion of its product during the Cricketing events of ICC versus royalty / fee for technical services - Disallowance of provisions for advertisement expenses under section 40(a)(ia) - Disallowance of provision for warranty - Disallowance of royalty/ technical guidance fee on the following grounds: a. capital expenditure; (b) applying section 40(a)(ia) for failure to deduct tax at source at rate applicable to business profits - Disallowance of export commission for alleged failure to deduct tax at source - Transfer pricing adjustments - Disallowance of alleged prior period expenses amounting to Rs. 489.07 lacs - Disallowance of excess provision for discounts/ incentives payable to dealers at the end of the relevant year, which was recovered in next year on receipt of actual bills from the dealers - Disallowance of payment made towards use of aircraft for alleged failure to deduct tax at source under section 194-I - Addition on account of outstanding liability DRP Directions - Gains from sale of investments income treated as business income - Disallowance of provision towards medical reimbursement/ leave travel allowance: (DRP Directions) Issues decided against the assessee:- Disallowance of provision for price increase reversed in the next year - Disallowance of deduction u/s 80-IA in relation to generation of power - Disallowance of additional depreciation of computers installed at supervisory office - Disallowance of deduction u/s 35(1)(iv) in respect of R&D assets - Disallowance of first car insurance premium on the ground of capital in nature relating to acquisition of car - Disallowance of repair/ maintenance expenses of existing assets as capital expenditure - TDS on motorbikes gifted to various winners of contestants at TV shows - TDS on use of catering services provided by hotels and room rent to hotels - TDS on hire charges of generator used at the corporate office - TDS on purchase of flowers - TDS on stitching charges of uniform for employees - TDS on provisions of various miscellaneous expenses made at the end of relevant year - Disallowance of incorrect deduction on account of additional depreciation reversed in succeeding year.

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• 2013 (8) TMI 56
  Gift u/s 56(2)(v) - Gifts/awards on winning of the Olympic Medal - Assessee claimed exemption under Circular No.447 of CBDT - CIT(A) upheld addition made by A.O. - Held that:- For applicability of Section 14 and thereafter Section 56, what is required is the receipt in the nature of income. In Circular No.447, it has been clearly stated "In view of this, it is clarified that such awards in the cases of a sportsman, who is not a professional, will not be liable to tax in his hands as it would not be in the nature of income." - Therefore, as per the Circular, the receipt by way of award by a sportsman who is not a professional sportsman will not be in the nature of income. - CIT(A) has distinguished between the words "reward" and "award", of course with reference to Section 10(17A). - Section 10(17A) is not applicable where the above Circular is applicable. Shri Abhinav Bindra is the first person in the history of independent India to have won the Olympic Gold Medal. In a country whose population is more than 100 crores, if a sportsman who is not a professional sportsman has won the gold medal for the first time after 60 years of independence of the country and he has been given the awards/rewards/prizes mainly by various governments, local authorities, trusts and institutions and of course some corporate/individuals, a liberal construction of Circular No.447 is required. Considering the facts of the case and the nature and spirit of Circular No.447, we hold that in the case of the assessee, viz., Shri Abhinav Bindra, all the rewards/prizes/gifts received by him are covered by Circular No.447 dated 22nd January, 1986 and, therefore, should not be treated as income in his hands. - Decided in favour of assessee.

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• 2013 (8) TMI 47
  Stay of proceedings - various rounds of litigation - Search proceedings - Matter in appeal before apex court - Petitioner contends for stay of proceedings initiated from search and seizure due to order of this court - Held that:- The principle is well settled that the statement that a fact as to what transpired at the hearing recorded in the judgment of the Court, are conclusive of the fact so stated and no one can contradict the such statement by affidavit or other evidence - Filing of the present application is nothing but an abuse of the process of Court - Decided against assessee.

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• 2013 (8) TMI 46
  Deduction u/s 80M - CIT allowed partial deduction u/s 154 - Tribunal allowed full deduction to assessee - Held that:- Assessee has received dividend income from United Trust of India and made a claim - It was for the AO either to reject the entire claim or allowed the claim, but it was allowed partly. In the rectification application, the assessee has asked to restrict deduction as per law - When the claim is allowable then why it should not be allowed as per law. Genuineness of the claim is not doubtful. Therefore, the restricted claim under Section 80M of the Act is allowable - Decided against Revenue.

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• 2013 (8) TMI 45
  Institution established for charitable purposes - Entitlement for Exemption u/s 11 - benefit of statutory accumulation u/s 13 - Nature of donations/grants to organizations - Word benefit - exgratia expenditure - huge expenditure on non-charitable activities - misappropriation of funds. HELD THAT:- There is no basis for assuming it for the reasons that the amounts passed on to other organizations were in nature of donations/grants to organizations carrying on charitable activities of which the members of the Governing Council of the Sansthan would not be beneficiaries. The establishment expenditure incurred at the Head Office was only a fraction of the total of such expenditure, a major portion of which had been incurred on the units carrying on charitable activities. The conclusion of the AO that the bulk of the expenditure was on non-charitable activities is, therefore, by no means sustainable. Further, the beneficiaries i.e. the President and the Treasurer, who got the accommodation were also the office bearer of the Motilal Memorial Society. Thus, if at all there is a case of providing benefit to the persons of prohibited category, then it should be invoked in the case Motilal Memorial Society and certainly not in the case of the assessee. Needless to mention that the Hon ble Allahabad High Court in the case of CIT vs. Kamla Town Trust- 2005 (8) TMI 90 - ALLAHABAD HIGH COURT] , has held that it has to be shown by the Department that trust has provided land and building or other property of the trust for use of the persons of prohibited category for any period during the previous year without charging adequate rent or other compensation. Therefore, the term benefit would cover a case of one way flow of privilege and advantages to the persons of prohibited category, out of the funds, property or income of the trust. In the instant case, it has not been mentioned that the funds were misappropriated and were not utilized for the purpose according to the objects of the society, so the registration cannot be cancelled. The registration was not cancelled, but the benefit of exemption was not given by the AO, which is not allowable as per the ratio laid down in the case of American Hotel and Lodging Association vs. CBDT, [ 2008 (5) TMI 17 - SUPREME COURT] . On the plain language of Section 11(1)(i) of the Act, the assessee was entitled to accumulate 25% of the donation received should be the income of the trust. Thus, the assessee-society is entitled to accumulate 25% of its income from the property/donation etc. held in the trust as rightly observed by the Tribunal. Hence, we do not find any reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with reasons mentioned therein. The answer to the substantial question of law is in favour of the assessee and against the revenue. In the result, the appeals filed by the appellant-Department are hereby dismissed.

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• 2013 (8) TMI 44
  Bad debts u/s 36 - A.O. held amount as capital investment - CIT upheld addition - Tribunal deleted addition - Held that:- assessee is engaged in the business of money lending. The income earned from the illegal business is also taxable income - There is a loss to the assessee as both the companies in which assessee made deposits have closed down their business and disappeared from town. Recovery of the amount in question is not possible. So, the assessee had written off the amount in the books of accounts as "bad debt" - to treat the debt as a bad debt had to be a commercial or business decision of the assessee based on the relevant material in the possession of the assessee. Once the assessee records the debt as a bad debt in his books of account that would prima facie establish that it was a bad debt unless the Assessing Officer for good reasons holds otherwise - Following decision of Director of Income Tax (International Taxation) vs. Oman International Bank [2009 (2) TMI 54 - BOMBAY HIGH COURT], CIT vs. Sri Ram Gupta [2005 (5) TMI 64 - ALLAHABAD High Court] and TRF Ltd. vs. CIT [2010 (2) TMI 211 - SUPREME COURT] - Decided against Revenue.

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• 2013 (8) TMI 43
  Interest u/s 40A(2) - Interest allowed in previous years - excessive interest - CIT disallowed interest - Tribunal deleted addition - Held that:- Principle of res-judicata or estoppal is not applicable in the income tax proceedings, as each assessment year is an independent assessment year. But fact remains that where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent years - Following decision of Radha Swami Satsang v. CIT [1991 (11) TMI 2 - SUPREME Court] and CIT v. M/S. Walchand & Co. (Pvt.) Ltd. [1967 (3) TMI 2 - SUPREME Court] - Decided against Revenue.

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• 2013 (8) TMI 42
  Valuation of property - Acquisition of property u/s 269UD(1) - Held that:- Appropriate Authority has ignored the directions of this Court with impunity by giving the same reasons in support of acquisition of the said property - Comparison of the two orders would itself indicate that it was a cut and paste job and there is no independent application of mind by the Appropriate Authority while passing the impugned order - All the three properties being relied upon by the Appropriate Authority are not similarly placed - The impugned order gives no reason nor does it disclose the manner in which the value of said property has been arrived at from purchase price of built up premises being relied upon by the Appropriate Authority - The Appropriate Authority has completely ignored the directions of this Court and continued to give the same reasons which this Court had found not good enough to sustain the acquisition of the said property - Appropriate Authority has no other reason to justify its action for passing an order under Section 269UD(1) of the Act and therefore, continues to pass orders giving the same reasons. This itself makes the impugned order unsustainable - Reasons for exercise of preemptive right of purchase under Chapter XXC of the Act cannot be sustained as it is passed without considering the submissions of the petitioners - Decided in favour of Assessee.

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• 2013 (8) TMI 41
  Capital loss - speculation loss or not - Sale of partly convertible debenture - Held that:- Following decision of Commissioner of Income Tax Vs. New Ambadi Estates (P) Ltd. [2012 (3) TMI 79 - MADRAS HIGH COURT] - Decided against Revenue.

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• 2013 (8) TMI 40
  Valuation u/s 50C - Reference not made to DVO - Tribunal upheld valuation done u/s 50C - Held that:- when specific objection was made by the assessee as to the Assessing Officer adopting the market value, under Section 50C(2) of the Act, the Assessing Officer ought to have referred the valuation of the capital asset to the Valuation Officer, whereas, the authorities below referred to Section 50C(1) of the Act alone without adverting to Section 50C(2) - Decided in favour of assessee.

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• 2013 (8) TMI 39
  Entitlement for exemption u/s 11 - whether there was no violation as mentioned under Section 13(1)(c)(ii) - noted by AO that the amounts were due from two concerns in which Managing Trustee of the assessee, namely, Shri P. Subramani was an interested party - Held that:- Treatment of transactions in the books of accounts are prima facie evidence of the nature of such transactions. If an assessee wants to say that payments were for a different purpose than what was shown by it in its account, then the burden of evidence which lies on it is much more rigorous. Except for two Memorandum of Understandings, nothing was brought on record by the assessee. Such Memorandum of Understandings were blindly believed by the CIT(Appeals) without appreciating that these were nothing but self- servicing documents, and not sufficient to dislodge the nature of the transaction recorded by the assessee in its books. Thus, for the impugned assessment year, what was find is that as at the end of the relevant year, even if the three concerns were considered together, a sum of Rs. 1,41,05,523/- was due to the assessee. Assessee has no case that any interest was received from such parties to which money was lent. There was no security whatsoever given to the assessee. Thus there was an indirect benefit to Shri P. Subramani, Managing Trustee of the assessee- Trust and this fell clearly within the scope of Section 13(1)(c) r.w.s. 13(2)(a) - Such violation did warrant denial of exemption claimed under Section 11, therefore, CIT(Appeals) fell in error in blindly following the order of preceding assessment year and accepting the case of the assessee - appeal filed by the Revenue is allowed.

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• 2013 (8) TMI 38
  Addition on account of notional interest - advance amount to Toy N Toy International against the purchase of building with furniture fixture fittings - Held that:- The assessee started giving advances in financial year 2006-07 and on 12.5.2006 MOU was executed between the parties for transfer of factory premises and part possession was conveyed. On 2.7.2007 sale deed was executed. Therefore, it can be concluded that till the conclusion of sale deed amounts advanced continued to be for acquisition of assets for which Tribunal had already deleted the notional interest in earlier year. The assessee has passed an entry for purchase of asset on 2.7.2007. The facts of the present case are similar to the facts of earlier year as the transaction started in earlier year and the amount advanced being for purchase of an asset for business purposes, no disallowance can be made. AO wrongly made the addition by holding that assessee itself added back notional interest from 25.5.2007 which is though a fact but the interest was added back on amounts advanced which was over and above the sale consideration. Therefore, no difference in facts and circumstances of the present case with the earlier year & consequently the addition deleted. In favour of assessee.

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• 2013 (8) TMI 37
  Interest and administrative expenditure - disallowance u/s 14A - CIT(A) restricted the disallowance at 4.03% of the total expenditure on account of interest and other expenditure - Held that:- The assessment year involved in the present appeals is the A.Yr. 2006-07. As decided in case of M/s. Godrej Boyce Manufacturing Co.Ltd. vs DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT) the amendment had not been made with retrospective effect and that therefore, Rule 8D not to be used with retrospective effect and that therefore, Rule 8D cannot be used in cases prior to the Assessment Year 2007-08. Further in the case of DCIT, Circle-1, Kolkata vs M/s.Exide Industries Ltd. [2013 (6) TMI 533 - ITAT KOLKATA] following the decision of Sagarika Goods and Services Pvt. Ltd. vs ITO [2013 (6) TMI 534 - ITAT KOLKATA] and DCIT vs EIH Associated Hotels Ltd (2008 (1) TMI 426 - ITAT CALCUTTA-D) has restricted the disallowance u/s 14A at 1% of the exempt income for years prior to the A.Yr.2008-09. Therefore, respectfully following the same AO directed to recomput the disallowance of expenditure relating to the exempt income at 1% of the exempt income being Long Term capital gain and dividend income - appeal of the assessee partly allowed and Revenue dismissed.

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• 2013 (8) TMI 36
  Penalty u/s 271D - violation of the provisions of section 269SS as loan was taken otherwise than by A/c Payee cheque or A/c Payee Bank Draft - Held that:- There was a reasonable cause with the assessee company in requesting its sister concern to immediately make payment to old supplier with whom litigation was going on and also to the supplier of machinery. Thus satisfied that the provisions of section 273B have come to the rescue of the assessee in the present circumstances, thus with the existence of such reasonable cause, there can stand no penalty u/s 271D. In favour of assessee. Penalty u/s 271E - assessee made cash re-payment totaling Rs. 3,70,306/- thus violation of the provisions of sections 269T - Held that:- M/s Devang Industry Inc. paid Rs. 1,00,000/- to M/s Prajvi Industrial Supplies and Rs. 4,00,000/- to M/s Ravi Industrial Corporation on behalf of the assessee due to financial crunch on the assessee. In order to repay the said loan, the assessee made certain re-payments in cash over the period form 02.04.2005 to 21.08.2005 which totaled Rs.3.70 lacs. Force in the submissions of the assessee that the sister concern was mounting pressure on the assessee to immediately repay the amount in cash, even if it was to be in small installments. Apart from that, it is further noticed that the assets of the company were attached on 11th August 2006 and such attachment was lifted only on 18.03.2006. All the amounts in question were paid to the sister concern during the period of attachment. These facts and circumstances do go to show that there was a reasonable cause within the meaning of section 273B for making such re-payments otherwise than by way of A/c Payee Cheques or A/c Payee Bank Drafts. Thus penalty u/s 271E was wrongly sustained. In favour of assessee.

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• 2013 (8) TMI 35
  Loss from foreign exchange transaction in the forward market - speculative loss v/s business loss - Held that:- As in the present case assessee is not a dealer in foreign exchange & is engaged in the business of edible oils. In the course of import of vegetable oil from foreign supplier, the company entered into a contract. If the assessee in accordance with the proposed purchase booked a foreign currency forward contract with its banker in order to safeguard the company's interest from loss on account of foreign exchange fluctuation that contract cannot fall under the purview of Section 43(5) as per which speculative transaction means a transaction in which a contract for the purchase or sale of commodity settled otherwise thereby actual delivery or transfer of such commodity. If an assessee in order to hedge against the exchange fluctuation losses had booked foreign exchange transaction in the forward market with the Bank and incurred any loss, that loss cannot be considered as speculative loss and it is a business loss. As decided in CIT vs. Badridas Gauridu Pvt. Ltd. (2003 (1) TMI 61 - BOMBAY High Court) in order to hedge against the losses, the assessee had booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for export of cotton in some cases failed. Thus the assessee was entitled to claim deduction in respect of payment made on account of cancellation of forward booking of foreign exchange with banks as a business loss. Also see CIT vs. Soorajmull Nagurmull (1980 (9) TMI 69 - CALCUTTA High Court). Thus AO has to see the forward contract entered by the assessee for covering risk of underlying transaction and such underlying transaction to be segregated and loss on these transactions to be considered as business losses. Loss on other transaction which are not underlying transaction has to be considered as speculative transactions. As assessee has filed a chart showing the details of speculative transaction at Rs. 19,63,702/-. The Assessing Officer is directed to exclude these contracts and decide accordingly - appeal of assessee partly allowed for statistical purposes.

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• Customs

• 2013 (8) TMI 34
  Waiver of pre deposit - Misdeclaration of goods- duty liability on Tuna Fishing Hooks - imported along with vessel which was brought in for ship breaking by the assesse – Revenue were of the view that the assesse had not declared the fishing hooks along with the vessel - Held that:- The deposit as enough security to hear and dispose the appeals - the issue involved in these cases was debatable one – Assesses had stated that the amounts were still lying with the Department - Since 50% of the duty liability and 50% of the penalty imposed on the main appellant stand deposited – waiver of pre deposit allowed – stay granted.

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• 2013 (8) TMI 33
  Export duty - Movement of goods from DTA to SEZ unit - Validity of circular levying duty - assessee filed the petition against the circular levying of duty of customs on the goods moved from various places in India situated outside the SEZ into the SEZ in India – Held that:- There was no movement of goods from India to a place outside India thus export duty cannot be levied - it would not be open to the revenue to levy duties of customs on such goods by way of Notifications or Circulars - goods which are taken out of India to a place outside India the levy u/s 12 was applicable - Notification No. 66/2008-Customs states that the levy of duties of customs being export duty would be applicable only in respect of goods which are exported outside India - there was no provision in the SEZ Act to levy duties of customs – court relied upon Essar Steel Limited v. Union of India (2009 (11) TMI 141 - GUJARAT HIGH COURT ) and Commissioner of C.Ex., Bangalore v. Biocon Ltd. (2011 (2) TMI 460 - KARNATAKA HIGH COURT). SEZ Act a separate Code - it would not be open to the respondents to levy duties of customs on goods moved from Domestic Tariff Areas into Special Economic Zones, as per the definition found in Section 2 - it would not be proper on the part of the department to levy duties of customs on goods supplied from the Domestic Tariff Areas to the units situated in the Special Economic Zones - If levy of duties of customs are to be made applicable to such goods it could only be by way of appropriate amendments introduced in the Customs Act, 1962, as well as in the SEZ Act – petition decided in favour of assessee.

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• 2013 (8) TMI 32
  Typographical error corrected in the judgement of NOVOPAN INDIA LTD. Versus COLLECTOR OF C. EX. AND CUSTOMS, HYDERABAD [1994 (9) TMI 67 - SUPREME COURT OF INDIA] - matter was related to classification of goods and interpretation of the statute.

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• Corporate Laws

• 2013 (8) TMI 31
  Convening of meeting equity shareholders - Transfer of one company into another - Held that:- written consents/NOC obtained and averments made in the application, the requirement of convening the above said meetings are hereby dispensed with. Since there is no secured creditor in the Transferee Company, the question of convening their meeting does not arise.

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• Service Tax

• 2013 (8) TMI 58
  Manpower Recruitment or Supply Agency Service or Business Auxiliary Services – demand of duty - Penalty u/s 77 and 78 – department contended that the assessee was providing harvesting sugar cane and transporting the harvested sugar cane from the farmers' fields to the factory site and the same was classifiable as ‘manpower recruitment or supply agency service' and is chargeable to service tax and penalty u/s 77 & 78 - Held that:- The activity undertaken by the assessee was one of procuring or processing of the goods belonging to the client which was classifiable under ‘Business Auxiliary Service' and not under ‘Manpower Recruitment of Supply Agency Service. - The work undertaken is harvesting of sugar cane and transporting the same to the sugar factory for which labour is employed. The sugar cane belongs to the sugar factory in terms of the agreement of sale executed between the farmers and the sugar factory. Therefore, the activity undertaken by the appellant is one of procuring or processing of the goods belonging to the client which is classifiable under ‘Business Auxiliary Service' and not under ‘Manpower Recruitment of Supply Agency Service. - Decided in favor of assessee.

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• 2013 (8) TMI 52
  Penalty u/s 77 and 78 – assessee provided the services of Rent-a-Cab service - Held that:- Penalty imposed under Section 78 may be reduced to 25% of the penalty if such payment is made within 30 days - If payment was not made within the time mentioned - full penalty amount have to be paid by the assessee - it was not a fit case for exercise of powers under Section 80 – assessee had paid entire tax liability along with interest immediately on pointing out the non-payment - In fact amount slightly more than the demand confirmed was also paid - Court followed the judgement of K.P. Pouches .Vs UOI (2008 (1) TMI 296 - HIGH COURT OF DELHI) – appeal rejected with partial relief in favour of assessee.

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• 2013 (8) TMI 51
  Service tax liability on the ground that appellant being Commission Agent of IOCL - Contracts entered with IOCL indicates the same as Job Contract. Appellants submits that he purchases and causes sale of goods and hence cannot be considered as a Commission Agent, falling within the definition of 'Business Auxiliary Services' enshrined in Section 65 (19) of the Finance Act, 1994 – Held that:- There is nothing on record, to come to a conclusion that appellants have been purchasing and selling the goods - In the Job Contract, it is directed that the appellants herein shall maintain pump in a particular way for sale of the goods and, or ask for supplies as and when requirement arises. – Arguments that services rendered by the appellants would not fall under the category of Business Auxiliary Services, is debatable one and needs deeper consideration - Appellants have not made out a prima-facie strong case for the waiver of pre-deposit of the amounts involved. Accordingly, directed appellants, M/s. Jaysukh Dayani to deposit Rs. 3,00,000/- (Rupees three lakhs only) and Shri M/s. Vilesh Premji Thacker to deposit Rs. 2,00,000/- (Rupees two lakhs only) within eight weeks.

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• 2013 (8) TMI 50
  Waiver of pre-deposit - Cenvat credit of the service tax paid on canteen services, air travel agency services and air agent services – Held that:- First appellate authority in order to hear and dispose the appeal had directed them to deposit 25% of the amount held as ineligible cenvat credit and penalties which have been complied with - Prima facie, the cenvat credit availed by the appellant on canteen services and air travel agency services cannot be denied as it has been stated by the appellant as being used in the activity of business they are conducting i.e. manufacturing and clearing of the final product – Amounts already deposited by the appellant can be considered as enough deposit to hear and dispose the appeal as the issue, prima-facie, seems to be covered by various decisions – Appeal for waiver of pre-deposit allowed – Decided in favor of Assessee.

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• 2013 (8) TMI 49
  Levy of Service tax on air transport activity - Computer Reservation System“ (CRS)/Globai Distribution System (GDS) There is difference of opinion between Member (Judicial) and Member (Technical) – The Registry is directed to place this matter before Larger bench in accordance with the Provisions of Section 129 C(5) of Customs Act, 1962, as made applicable to service tax matters by section 35D(1) of Central Excise Act, 1944 read with section 86(7) of the Finance Act, 1994, for constituting a bench for deciding the following points of difference. 1. Whether on the facts and in the circumstances of the case, the appellant permitted by Reserve Bank of India (RBI) to carry out air transport activity in India was a branch in India and was recipient of "online Database Access or retrieval Service" from CRS service provider abroad and liable to service tax in terms of section 65(105)(zh) read with section 65(75) of Finance Act, 1994 on reverse charge mechanism basis u/s 66A of the said Act w.e.f.18.4.2006 or exempt in terms of section 66A(2) thereof. 2. If service tax is payable by the appellant in respect of the service provided by the CRS companies, whether longer limitation period under provision to section 73(1) finance Act, 1994 would be available to the Department for recovery of tax and whether penalty on the appellant u/s 78 ibid would be attracted?

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• 2013 (8) TMI 48
  Online Database Access or retrieval Service - Computer Reservation System" (CRS)/Globai Distribution System (GDS) - Such service received by the appellant M/s Thai Airways International Public Company Limited (hereinafter referred to as "TAIPCL") from foreign based CRS service provider and liable to service tax in terms of section 66A of the Finance Act, 1994 (herein after referred to as "the Act") w.e.f. 18.4.2006 on reverse charge mechanism basis. Since there is difference of opinion between Member (Judicial) and Member (Technical), the Registry is directed to place this matter before Hon'ble President in accordance with the Provisions of Section 129 C(5) of Custom Act, 1962, as made applicable to service tax matters by Section 35D(1) of Central Excise Act, 1944 read with Section 86(7) of the Finance Act, 1994, for deciding the following points of difference: 1. Whether on the facts and in the circumstances of the case, the appellant permitted by Reserve Bank of India (RBI) to carry out air transport activity in India was a branch in India and was recipient of "online Database Access or retrieval Service" from CRS service provider abroad and liable to service tax in terms of section 65(105)(zh) read with section 65(75) of Finance Act, 1994 on reverse charge mechanism basis u/s 66A of the said Act w.e.f. 18.4.2006 or exempt in terms of section 66A(2) thereof. 2. If service tax is payable by the appellant in respect of the service provided by the CRS companies, whether longer limitation period under provision to section 73(1) finance Act, 1994 would be available to the Department for recovery of tax and whether penalty on the appellant u/s 78 ibid would be attracted?

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• Central Excise

• 2013 (8) TMI 30
  Stay Application – Waiver of pre-deposit - Appellant had availed cenvat credit of the central excise duty paid on capital goods and also claimed exemption of the final products manufactured by them under specific notification - Appellant has reversed the entire cenvat credit taken on the capital goods – Held that:- Submissions raised by the appellant needs to be considered vis-a-vis the factual matrix and the clauses of the notification which was claimed by the appellant - Amounts reversed by the appellant are enough deposits to hear and dispose the appeals.

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• 2013 (8) TMI 29
  Pre-deposit for demand of Interest – Held that:- Since there is no amount indicated in the order in original, in my view, the appellant should be directed to deposit an amount of Rs.5,000/- as pre-deposit for hearing and disposing the appeal as he has not contested the cenvat credit confirmed as ineligible by the lower authorities.

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• 2013 (8) TMI 28
  Stay - Interest under Rule 14 of the Cenvat Credit Rules, 2004 of cenvat credit and reversal of the same on their own as ineligible – Held that:- Rule 14 as has been substituted by new Rule 14 which talks about cenvat credit has been ‘taken and utilised’ - Appellant has not utilised the cenvat credit – Also, as per judgment of the Hon’ble High Court of Gujarat in the case of Dynaflex Pvt. Ltd. [ 2010 (12) TMI 389 - GUJARAT HIGH COURT], has specifically held that if the credit is taken but not utilised, interest liability does not arise - Issue needs to be gone into detail. Limitation – Waiver of pre-deposit – Held that:- Show cause notice has been issued on 28.07.11 demanding interest from the appellant for the cenvat credit reversed by them during the period 2006-07 and 2009-10 - Show cause notice does not invoke any suppression or mis-statement on the part of the appellant and hence for demand of interest also, the extended period needs to be considered - Appellant has made out a case for the waiver of the pre-deposit – Stay granted.

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• 2013 (8) TMI 27
  Fictitious purchase - Modvat credit - No manufacturing activity started - Caveat emptor - Held that:- Once it is held and established that no manufacturing activity was indulged and undertaken by M/s Kejriwal Enterprises and M/s Priyanka Metals, then the alleged supplies and Modvat credit claim have to be rejected - The maxim caveat emptor is clearly applicable to a case of this nature - It was for the buyer to establish that he had no knowledge about the genuineness or otherwise of the SIL in question - Following decision of Commissioner of Customs versus A.A. Float Textiles (I) P. Ltd. [2009 (2) TMI 75 - SUPREME COURT] - Decided against assessee.

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• 2013 (8) TMI 26
  Extended period of limitation – Show-cause Notice issued on 06.9.2011 seeking to reverse the cenvat credit for the period October 2006 to July 2011 – Held that:- Extended period of limitation, prima-facie unsustainable for the reason that the Revenue authorities, on an identical issue has issued a show cause notice on 08.09.2009 invoking the extended period, in that case also for reversing the amount of cenvat credit taken during the period 2005-06. Cenvat Credit on GTA services – For demand within the limitation period – Held that:- Liability arises for which the issue needs to be gone into detail as to what would be place of removal in the contract and whether the appellant was responsible for the goods cleared and delivered to their purchasers - Appellant has not made out a case of complete waiver of pre-deposit of the amounts involved inasmuch as the same is within the limitation period – Directed to make deposit of Rs. 20,00,000/-(Rupee Twenty Lakhs only)

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• 2013 (8) TMI 25
  Waiver of pre-deposit – Clandestine removal - Entire demand is based upon various evidences like statements of the partners of M/s PMC, proprietor of M/s Patel Electric Co., suppliers of raw material, transporters and purchasers - The adjudicating authority has gone on record to state that the Revenue authorities have reconciled the entire figures and worked out the demand based upon the diary recovered from the Shri Jaswantbhai O. Santoki, who is a brother of partner of M/s PMC - Suppliers of raw material and purchasers of finished goods of the main appellant M/s PMC had categorically stated that there was supply and purchases of the goods in cash and unaccounted, - The main appellant M/s PMC has not made out any case for complete waiver of pre-deposit of the amounts involved - M/s PMC(main appellant) has deposited an amount of Rs.50 lakhs –Directed the main appellant M/s Patel Manufacturing Company to deposit further an amount of Rs.50 lakhs (Rupees Fifty Lakhs only) within a period of sixteen weeks

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• 2013 (8) TMI 24
  Waiver of pre-deposit – Stay applications - Issue involved in this case is regarding availment of cenvat credit of the service tax paid to the Clearing and Forwarding Agent service and the Commission Agents by way of reverse charge mechanism – Held that:- Commission has been paid to the Commission Agents and Clearing and Forwarding Agents for the services rendered by them for clearances and sale of the goods, manufactured by the appellant. Issue seems to be settled in favour of the assessee in view of the decisions in the cases MTR Foods Limited [2011 (1) TMI 143 - CESTAT, BANGALORE]; Godfrey Philips India Limited [ 2008 (12) TMI 90 - CESTAT, AHMEDABAD]; Mileen Engineers [2010 (8) TMI 200 - CESTAT, MUMBAI ] – Waiver of pre-deposit allowed – Decided in favor of Assessee.

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• 2013 (8) TMI 23
  Pre-deposit - Cenvat credit on inputs was availed by the assessee and cleared to sister unit who is a registered dealer without reversing credit – assessee submitted that while clearing such inputs, they have paid the duty based on transaction value. He submits that during such clearances, there is excess payment of duty and also there is short payment of duty if compared with the Cenvat credit that needs to be reversed - Inputs cleared by the appellant to one M/s. M.B. Enterprises who is a registered dealer and he has cleared these inputs to another registered dealer and, the second registered dealer has sold the same inputs back to the appellant – Held that:- Entire issue needs to be gone into detail which can be done only at the final disposal of appeal. Keeping in mind that appellant has paid an amount of Rs. 5.38 Lakhs, main appellant to further deposit an amount of Rs. 5,00,000/- (Rupees five lakhs only) within eight weeks.

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• CST, VAT & Sales Tax

• 2013 (8) TMI 54
  Dishonor of the cheques issued during search proceedings - Action u/s 138 of the Negotiable Instrument Act - Search and seizure done u/s 45 - PD cheques issued as security - Held that:- Goods were not seized at time of search, instead the security was taken for safe keeping of the goods in the shape of post dated cheques offered voluntarily - account books were not found at the place of business at the time of search. The petitioner no.1 knows the consequence of search and seizure, and if he signed five post dated cheques and had tendered the cheques along with a letter to the officers carrying out survey, it is difficult to believe that he was put under any pressure or coerced to part with security. The department may have acted in a haste at the instance of complainant but that they cannot be said to have acted arbitrarily or without any authority of law - Now since the Commercial Tax Tribunal has passed the order by which the security has been reduced and that the entire amount has been deposited, no useful purpose will be served in initiating proceedings under Section 138 of Negotiable Instrument Act - Decided in favour of assessee.

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• 2013 (8) TMI 53
  Levy of CST or LST - local sales or interstate sale - It was mentioned in the tender document that the petitioner shall be liable to pay CST @ 4% against Form-C. - Held that:- petitioner has purchase the wood from U.P. Forest Corporation at Sultanpur. Tender was invited in U.P. and payment was made in U.P. Thus, the sale was completed in U.P. After the sale, it is the option of the petitioner to take the goods outside the State against Form-C or use the same in U.P. - movement of goods should be as a result of an integral part of the contract of sale, that the goods should cross the border from one State to another; it is not enough that the buyer takes delivery of the goods from the seller for the purposes of dispatching them to another State, nor it is enough that the seller pursuant to the instructions of the buyer despatches the goods across the border to another State. The contract of sale must itself provide as an integral part of it that the goods shall be transported from one State to another - Following decision of M/s. K.G. Khosla & Co. (P) Ltd., Delhi vs. Deputy Commissioner, Commercial Taxes [1966 (1) TMI 54 - SUPREME COURT OF INDIA] and Ballabh Gass Halashchand vs. State of Orissa [1975 (12) TMI 136 - SUPREME COURT OF INDIA] - Decided against assessee.

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• Wealth tax

• 2013 (8) TMI 55
  Inclusion of asset for wealth tax - Validity of re-assessment – Held that:- Re-assessment proceedings were initiated after the period of four years from the assessment year in question. As per the settled principle of taxation jurisprudence if an assessment is to be re-opened after a period of four years, the first condition is that there should be failure on the part of the assessee to disclose full and true all the necessary facts. Not only this, the AO should mention in the reasons recorded about the alleged failure and has to explain as which material facts were not disclosed by the assessee – Decided in favor of Assessee. Assessee to be owner of land - Held that:- Even on merits, the order of the AO/FAA cannot be endorsed. It is a fact that assessee had sold a plot of land to one developer and except for the conveyance deed all legal formalities were completed. Therefore, the assessee could not be treated as owner of the said plot of land – Therefore, no wealth tax – Decided in favor of Assessee.

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