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Newsletter: Where Service Meets Reader Approval. TMI Tax Updates - e-Newsletter August 23, 2012 Case Laws in this Newsletter: Income Tax Customs Service Tax Central Excise Wealth tax Articles 1. THRESHOLD LIMIT FOR EXEMPTION OF SERVICE TAX By: DR.MARIAPPAN GOVINDARAJAN Summary: Service tax, introduced in 1994, initially covered three services. Over the years, the number of taxable services increased, leading to the establishment of a threshold exemption limit in 2005. Initially set at Rs. 4 lakhs, this limit rose to Rs. 8 lakhs in 2007 and Rs. 10 lakhs in 2008. A 2012 notification further refined the definition of 'aggregate value' and maintained the Rs. 10 lakh exemption. This exemption does not apply to services under another's brand name or where tax is paid under specific rules. Providers opting for exemption must comply with conditions regarding CENVAT credit and service aggregation. 2. NO SERVICE TAX ON SELLING OF SPACE OR TIME SLOTS FOR ADVERTISEMENTS By: Dr. Sanjiv Agarwal Summary: The Finance Act, 1994, specifies that selling space or time slots for advertisements, except those broadcast by radio or television, is not subject to service tax as they are in the negative list. This includes print media and other platforms like billboards and the internet. However, broadcasting and related services are taxable. Services provided by advertising agencies for creating advertisements are also taxable. In cases of bundled services, taxability depends on the dominant nature of the service. Questions arise regarding the tax obligations of companies and agents involved in advertising contracts and commissions. Highlights / Catch Notes Income Tax Change in Shareholding Denies Loss Set-Off, But Section 2(18)(b)(B)(c) Allows Claim Despite Section 79 Restrictions. Case-Laws - AT : Brought forward business loss - benefit denied applying provisions of S79 - change in shareholding - facts of the case are covered by provisions of Sec. 2(18)(b)(B)(c) and therefore the claim of set off of brought forward losses are not hit by provisions of Sec. 79 - AT Visit to Get Source Court Rules on Tax Treatment of Statutory Reserve Transfers u/s 115JB, Impacting Book Profits and Taxable Income Calculations. Case-Laws - AT : Dis-allowance of amount transferred to Statutory Reserve and amount transferred to Reserve Fund while computing normal provisions and also while computing the book profits u/s 115JB - AT Visit to Get Source Tax Exemption Denied: Entity's Religious Spending and Business Activities Breach Section 80G Requirements. Case-Laws - AT : Exemption u/s 80G - refusal on account of expenditure on religious activities, expenditure incurred on jewellery meant for dressing up of Goddess, engagement in business activities - AT Visit to Get Source Income Tax Act Section 54G: No Need for Land and Building to be Business-Specific for Deduction. Case-Laws - AT : Disallowance of deduction u/s 54G - there is no requirement that the land and building should be used for the purpose of the business of industrial undertaking - AT Visit to Get Source Court Reviews Tax Exemption Claims for Unspent Travel Allowances u/ss 10(17) and 10(14)(i) of the Income Tax Act. Case-Laws - AT : Disallowance of traveling allowance as exempt u/s 10 (17) - also exemption u/s 10 (14) (i) being unspent amount of traveling allowance - AT Visit to Get Source Eligibility for Section 54F Benefits: Constructing a Home on Agricultural Land Allowed for LTCG Tax Benefits. Case-Laws - AT : LTCG - Purchase of agriculture land – benefit of section 54F of the Act – There is no prohibition regarding construction of a residential house on agriculture land - AT Visit to Get Source Section 142(2A) Audits Require Strict Adherence to Legal Prerequisites for Bogus Purchase Investigations. Case-Laws - HC : Special audit under section 142(2A) – bogus purchases – A recourse cannot be taken to the provisions contained there lightly and without due fulfilment of the statutory requirements - HC Visit to Get Source Revenue Must Automatically Process TDS Refunds Without Claims, Easing Taxpayer Burden and Streamlining Procedures. Case-Laws - HC : Refund - Recovery of TDS from employer and Tax from the Employee both - it is an obligation cast on the Revenue to effect the refund, without calling upon the assessees to apply for refund the claim. - HC Visit to Get Source High Court Enforces Tax Recovery: Creditors Temporarily Barred from Payments Under Income Tax Act Section 220(1. Case-Laws - HC : Prohibitory order - Order prohibiting creditors to make payment - Recovery of tax u/s 220(1) - HC Visit to Get Source Section 281: Notice Required for Pending Income Tax Proceedings to Secure Tax Recovery and Safeguard Government Interests. Case-Laws - HC : Recovery of tax - creation of charge - section 281 of Income Tax Act - a notice relating to pendency of the income-tax proceeding or payment of tax payable by the assessee is required - HC Visit to Get Source DVO's Opinion Insufficient for Reopening Assessment; Independent Evaluation by Assessing Officer Required for Validity. Case-Laws - HC : Reopening of assessment – The opinion of the DVO per se is not an information - Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon - HC Visit to Get Source Taxpayer Challenges Deduction Timeline for Long-Term Capital Gains u/s 54EC with REC Bond Investment. Case-Laws - HC : Deduction u/s 54EC - long term capital gain on sale of factory building on 22.03.2006 - investment in REC bonds on 31.01.07 - period of limitation - HC Visit to Get Source Vegetarianism as a Charitable Objective Recognized for Promoting Lifestyle Changes and Societal Benefits Under Tax Laws. Case-Laws - AT : Promoting the vegetarianism among the people so that they can change their living habits and take the necessary steps for the betterment of humanity, which is undoubtedly a charitable object - AT Visit to Get Source Are Transmission Charges "Rent" u/s 194-I of Income Tax Act? Key Implications for Withholding Tax Compliance. Case-Laws - AT : Whether or not the payment for transmission charges can be termed as "rent" for the purposes of section 194-I - AT Visit to Get Source Revenue Appeals Halted Due to Improper Service of Hearing Notices, Affecting Case Outcomes and Proceedings. Case-Laws - AT : Non serving of notices of hearing to assessee - appeals of the Revenue could not be heard on merit in absence of proper service of notice upon assessee - AT Visit to Get Source Customs Accused Must Receive Forged DEEC Documents and Forgery Details for Rebuttal in License Cases. Case-Laws - AT : DEEC licence - When, there is an offence of forgery of the documents, the documents which have been forged and how it has been forged is to be supplied to the person against whom the allegation has been made for rebuttal. - AT Visit to Get Source Petitioner Denied Access to Directorate of Revenue Intelligence Documents During Show Cause Notice Stage in Investigation. Case-Laws - HC : Request made by petitioner for copies of letters of the Directorate of Revenue Intelligence, copies of internal references, which relate to investigation carried out by DRI - not allowed at show cause notice stage - HC Visit to Get Source Wealth-tax Office Space Not a Commercial Establishment u/s 2(ea)(i)(5), Subject to Wealth Tax Assessment. Case-Laws - AT : Premises in question being an office let out would not fall in the category of commercial establishment or complex as per the provisions of sec. 2(ea)(i)(5) and consequently the same is assessable to wealth tax - AT Visit to Get Source Court Rules Leased Property Exempt from Wealth Tax Due to Business Use in Leasing Industry. Case-Laws - HC : Whether property leased out is not assessable to wealth-tax - certainly the assessee is entitled to the exemption, because the same is used in leasing business - HC Visit to Get Source Service Tax Reverse Charge Mechanism: Service Receiver Must Pay Service Tax on Imported Services Without Using Cenvat Credit. Case-Laws - AT : Import of service - payment of service tax under reverse charge - service tax payment by a service receiver cannot be made by utilising the Cenvat credit - AT Visit to Get Source Revenue Challenges Appellants' Job Work u/r 4(5)(A), Classifying Activities as Business Auxiliary Services for Tax. Case-Laws - AT : Business Auxiliary Services - Job work - appellants working under job work, under the provisions of Rule 4(5)(A) - Revenue contending the same to be under BAS - AT Visit to Get Source Windmills Remain Captive Power Plants; Electricity Supply Doesn't Affect Cenvat Credit Eligibility for Input Services. Case-Laws - AT : Just because the electricity has not been directly supplied, but has been supplied through M.P. Electricity grid, it cannot be said that the wind mills are not captive power plant - services, in question, received by the appellants have to be treated as input services eligible for Cenvat credit - AT Visit to Get Source Central Excise Assessees no longer need RG 23A registers for CENVAT credit; must use private records for justification. Case-Laws - AT : cenvat credit - necessity or the statutory requirement of maintaining RG 23A Part-1 & Part 2 registers have been done away with and it is for the assessee to justify his claim for the cenvat credit with the help of the private records maintained by him. - AT Visit to Get Source E.O.U. Cleared Goods to DTA: Duty Demand Deemed Unsustainable, Pre-Deposit Waiver Granted with Development Commissioner's Approval. Case-Laws - AT : Waiver of pre-deposit - 100% E.O.U. - clearance of goods to DTA in pursuance of permission granted by the Development Commissioner - demand of duty including SAD component in the “aggregate of duty” is not sustainable - AT Visit to Get Source Omission of Manufacturer Payments in Tax Returns Not Suppression, Assessee Held Bona Fide Belief of No Tax Liability. Case-Laws - AT : Information regarding commission received and also about payments received from the manufacturer was not disclosed in the service tax returns. This cannot considered as suppression with intent to evade tax, because the Assessee had a bona fide belief that they were not liable to pay tax - AT Visit to Get Source Penalty Imposed for Incorrect Cenvat Credit u/s 11AC Set Aside for July 2008 Period. Case-Laws - AT : Penalty u/s 11AC on account of wrong availment of 100% Cenvat Credit on capital goods during the period July, 2008 - Penalty set aside. - AT Visit to Get Source Case Laws: Income Tax 2012 (8) TMI 558 Addition to the closing stock on an adhoc basis - low gross profit margin - non-maintenance of stock register - Held that:- It is observed that AO simply made addition to the closing stock valuation without rejecting the books of account and non verification of valuation adopted by assessee for the closing stock. Also, there was no increase in the royalty expenditure and also turnover. Therefore, there is no basis for making an addition. Salary expenses - part time employees - dis-allowance of 50% - CIT(A) restricted addition to 15% - non-maintenance of salary register etc - Held that:- CIT (A) after considering the explanation of assessee that part-time employees were engaged to supervise sales at various exhibitions and since they are continuously changing, they are not on pay roll but assessee produced the vouchers to support the expenditure paid to them, restricted the addition to 15%. No infirmity in the order Payment made to BMC for property tax - dis-allowance on ground of inability to substantiate the amount - Held that:- Requirement of proof of payment to the BMC authorities to allow in the year of payment was required while computing the income from house property but not allowing the expenditure under section 37(1) as business expenditure. Moreover, assessee has already furnished the evidence regarding the dispute with the owner and payment by way of deposit to the Court. No need for any dis-allowance. Dis-allowance u/s 40(a)(ia) - royalty payments made to Authors - AO disallowed amount on the reason that assessee did not file details of the authors to whom royalty was paid and basis on which royalty was paid - non-deduction of TDS - Held that:- Provisions of Section 194J cannot be made applicable to the payment made to the authors. Without establishing that the amounts are covered by any TDS provisions, there is no need for invoking the provisions of section 40(a)(ia). Deletion of dis-allowance confirmed - Decided against Revenue 2012 (8) TMI 557 Brought forward business loss - benefit denied applying provisions of S79 - change in shareholding - Held that:- Perusal of records shows that the shares of the Tata Industries Ltd. have been transferred to Tata Power Co. Ltd. Both the companies are companies in which public are substantially interested as both the company’s shares are traded in the stock market. Hence, facts of the case are covered by provisions of Sec. 2(18)(b)(B)(c) and therefore the claim of set off of brought forward losses are not hit by provisions of Sec. 79 Exclusion of depletion of Producing properties while computation of book profit u/s 115JB - Revenue contended that depletion of Producing properties cannot be treated as depreciation - Held that:- As per Guidance Note of the ICAI, depreciation also includes depletion of natural resources through the process of extraction or use. After considering the finding of the Tribunal and the guidance note issued by ICAI, we are of the considered view that the assessee is entitled to claim depletion alongwith depreciation for calculating the Book Profit u/s. 115JB Foreign exchange loss resulting in the enhancement of loan liability taken to acquire assets in earlier year - revenue or capital expenditure - Held that:- Since Tribunal in earlier year allowed the claim u/s 43A. Hence, the same is allowed. Foreign exchange loss allocated to development expenses - revenue or capital expenditure - Held that:- Starting of the commercial production is not the only condition as provided u/s 42(1)(b) but it is one of the conditions, as the assessee has satisfied that this condition has been fulfilled , we restore this matter back to the files of the AO with the direction to verify whether the assessee complies/fulfills other conditions as provided u/s. 42(1)(b) 2012 (8) TMI 556 Rectification petition filed u/s 154 seeking rectification of intimation u/s 143(1) and re-computation of income taking into consideration the method of accounting settled in the case of the assessee in earlier year by High Court affirmed by Supreme Court - Revenue contesting the same - Held that:- It is not clear from the decision of the CIT(A) that how the alleged mistake was apparent from record. It is a well settled position of law that when for application of a subsequent decision of the Jurisdictional High Court or Supreme Court further investigation into the facts is required then it cannot be held to be an apparent mistake. Also, both the parties before us have not filed the copy of rectification petition filed by the assessee before the AO. Moreover, AO has held that the mistakes sought to be rectified by the assessee are not apparent mistakes but he has given no reasons for arriving at this conclusion. Such an unreasoned and non-speaking order cannot be appreciated. Thus, orders of both the lower authorities are not in order. In these circumstances, we restore the issue back to the file of the AO for adjudication afresh by passing a speaking order. 2012 (8) TMI 555 Dis-allowance of amount transferred to Statutory Reserve and amount transferred to Reserve Fund while computing normal provisions and also while computing the book profits u/s 115JB - Held that:- Tribunal in assessment of earlier year held that the amount involved is only an appropriation out of company's own profits, which have not yet been specified, before declaration of dividend. The amount has very much reached and is in the business of the assessee. No obligation is attached and even if some obligation is subsequently attached for specific appropriation of the fund, it will only be an application of income. It cannot be said that there was any diversion of income by overriding title nor can the amount set apart be claimed as expenditure and it also cannot be stated that it was a loss. Dis-allowance both under regular computation and while computing the book profit u/s 115JB is upheld - Decided against assessee Dis-allowance u/s 14A under the normal provisions as well as while computing book profit u/s 115JB - Held that:- It is a condition precedent for the AO while determining amount of expenditure incurred in relation to exempt income to record his dissatisfaction with the correctness of the claim of the assessee in respect of the expenditure incurred in relation to exempt income. See Maxopp Investment Ltd (2011 (11) TMI 267 - DELHI HIGH COURT ). In present case, AO has not given any finding as to how the calculation was made by the assessee and disallowing the same in its computation of income towards expenditure incurred in relation to income, which does not form part of total income is incorrect. Therefore, we delete the dis-allowance made u/s 14A while computing income both under normal provisions as well as under the provisions of section 115JB - Decided in favor of assessee 2012 (8) TMI 554 Depreciation on electrical fittings - Held that:- CIT(A) rightly pointed that items in the list are not like furniture and fittings but they are integral part of plant and machinery as the items listed are insulators, LT panel, CT coils, electrodes, MCC panels, generator set etc., which form an integral part in operation of the plant and machinery. We do not find any infirmity in the order of the CIT(A) and uphold the same. Depreciation allowed. Deduction u/s 80HHC - Revenue contended exclusion of total interest income, credit balances written back, sales tax refund and processing charges, etc., from eligible business profits on ground of being not directly derived from the industrial undertaking - Held that:- Tribunal in assessment of earlier year held that 90% of the gross amount of interest was liable to be deducted from the business profit of the assessee for the purpose of deduction u/s. 80HHC and the amount of interest paid by the assessee could not be deducted from gross interest. What has been said about interest is clearly applicable to the other items of income included in the computation under the head profits and gains of business or profession. Same has been held for current year Reduction of 80IA relief from the eligible business profits for computing relief u/s. 80HHC - Held that:- Deduction u/s. 80HHC is to be allowed on profit and gain as reduced by the deduction claimed and allowed u/s. 80IB/80IA. See ACIT vs. Hindustan Mint and Agro Products (P) Ltd.(2009 (6) TMI 124 - ITAT DELHI-C). Matter set aside to the file of the CIT(A) to adjudicate this issue in the light aforesaid decision Deduction u/s 80HHC - exclusion of excise duty and sales tax from total turnover for the purpose of deduction - Held that:- Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. See CIT vs. Lakshmi Machine Works (2007 (4) TMI 202 - SUPREME COURT) - Decided in favour of the assessee 2012 (8) TMI 553 Exemption u/s 80G - refusal on account of expenditure on religious activities, expenditure incurred on jewellery meant for dressing up of Goddess, engagement in business activities - alleged violation of section 13 by giving Trust premises on rent to Dr. Sharma, without charging adequate compensation - Held that:- On objections of DIT (Exemption), assessee contended that temple in question is very small in size and the same was not constructed by the Trust - amount spend on jewellery is less than 5% of the capital of the Trust - Dr Sharma, Chairman of the Trust, is mainly engaged in conducting Memory Classes for the objects of the Trust and is rendering services to the Trust without charging any fee - Services rendered by Dr.Sharma should be deemed as ‘other compensation’ - sale of CDs, medicines, etc. are intrinsically linked connected with the trust activity of teaching and conducting memory classes. In view of aforesaid, matters are set aside to the file of the DIT (Exemption) for fresh examination of the arguments and counter arguments - Decided in favor of assessee for statistical purposes. 2012 (8) TMI 552 Disallowance of deduction u/s 54G - CIT(A) deleted it - Held that:- As the plant and machinery was very old, assessee sold them immediately but, for surrendering the tenancy rights it took sometime as it was engaged in negotiations with the lessor and after protracted negotiations, it cannot be said that the industrial undertaking ceased to exist on sale of the plant and machinery. The process of shifting commenced with the sale of plant ad machinery and continued till the rights in the leasehold premises were surrendered on which capital gains accrued to the appellant. The requirement of section 54G is that where u/s 54G(1)(a), the requirement is that the new machinery or plant has to be purchased for the purposes of the business of the industrial undertaking, section 54G(1)(b) merely requires that the acquisition of building or land or construction of building should be for the purposes of its business in such non urban area - thus section 54G permits the use of capital gains for acquiring land or building or constructing building for the purposes of (any) business in the non-urban area therefore, it can be interpreted that assessee should carry on any business in non urban area and if the amounts are utilized for acquisition of assets for the purpose of its business, this should qualify for the purpose of exemption u/s 54G as there is no requirement that the land and building should be used for the purpose of the business of industrial undertaking - in favour of assessee. 2012 (8) TMI 551 Exemption u/s 10(10C) - receipt of ex gratia payment under VRS floated by SBI - denial on ground that scheme in question does not conform to the guidelines of Rule 2BA of Income-tax Rules, 1962 - Held that:- It is observed that assessee has been all along contending that the facts of the instant scheme are exactly similar to the scheme considered in the case of Koodathil Kallyatan Ambujakshan (2008 (7) TMI 259 - BOMBAY HIGH COURT). In this view of the matter, Income-tax authorities ought to have considered the attendant factual scenario and thereafter examine as to whether Guideline No. (iii) and (iv) prescribed under Rule 2BA of the Rules have been complied with or not, as per the parity of reasoning laid down by aforesaid decision. Matter restored back to file of AO 2012 (8) TMI 550 Disallowance of traveling allowance as exempt u/s 10 (17) - also exemption u/s 10 (14) (i) being unspent amount of traveling allowance - Held that:- The plea raised by the assessee is not borne out of the bare provisions of section 10 (17) which exempts only daily allowance received by a Member of the State Legislative Assembly or Member of the Parliament - alternative claim u/s 10 (14) (i) being unspent amount is also untenable as the same is relatable to allowances received in performance of the duties of an office or employment of profit which is not the case with the instant assessee - against assessee. Addition on account of unexplained cash credits - Held that:- In terms of section 68 the onus is on the assessee to establish the nature and source of the credits appearing in his financial statements - CIT (A) has recorded a finding that there was no documentary evidence produced in support of the amount in question and even the explanation furnished to the effect that the sum represented advance against proposed sale of land has also been doubted, inasmuch as that even after expiry of 11 years after the proposed sale, the transaction does not appear to have fructified - against assessee. 2012 (8) TMI 549 Disallowance of Loss on sale of worn-out machinery - Held that:- Provisions of section 32(1)(iii) relates to depreciation in case of Building, Machinery, Plant or Furniture in respect of which depreciation as claimed and allowed under Clause (1) and which is sold, discarded, demolished or destroyed in the previous year and that in every case the discarded/obsolete machineries need not be sold and can be used in the business of the assessee as a raw material - the matter is restored to the file of the AO for verification - in favour of assessee. Disallowance u/s. 14A - Held that:- From the copy of the balance sheet the investment during the impugned assessment year has gone down as against that was on 31-03-2004 and the share capital and free reserves of the assessee company has gone upto Rs. 12.68 Crores as on 31-03-2005. There is no finding given by the AO or the learned CIT(A) that any part of the borrowed fund has been utilised for acquiring shares and bonds the income of which is exempt from tax - the provisions of Rule 8D are not applicable to the impugned assessment year as would apply with effect from AY 2008-09 and since the free reserves and share capital of the assessee company is substantially high as against the amount of investment in shares, therefore no disallowance u/s. 14A is required - in favour of assessee. Disallowance of depreciation on windmill - Held that:- AO following the order of his predecessor for AY 2004 - 05 has disallowed the claim of higher depreciation and made the addition which was reversed by the Tribunal and the CIT(A) while adjudicating the issue for Assessment Year 2005-06 has followed the order of the Tribunal in assessee’s own case for Assessment Year 2004-05 - no infirmity in the order of CIT(A) for allowance of claim - in favour of assessee. Disallowance towards amounts receivable from PCMC and Cenvat - Held that:- CIT(A) upheld the disallowance on the ground that Octroi and Central Excise/CENVAT which are sums payable by the assessee by way of tax, duty, cess or fee within the meaning of section 43B and therefore are allowable only for the previous year in which the same is actually paid irrespective of the previous year in which the liability to pay such sum was actually incurred by the assessee according to the method of accounting regularly employed by them.Since the assessee in the instant case has admitted that these amounts pertain to earlier years, therefore, he disallowed the claim of the assessee - against assessee. 2012 (8) TMI 548 Period of limitation - regular assessment – Held that:- Return of income was filed on February 24, 2006, and, therefore, notice under section 143(2) was to be served on or before February 28, 2007 - It is not the case of the assessee that an affidavit of Shri Rajeev Goyal has been filed to show that the entries in the order sheet, which is the Government record have been manipulated. There is no evidence to show that Smt. Anita has not accepted the notice on behalf of the firm vakalatnama in the name of Shri Rajeev Goyal and J. N. Goyal it is also available on record - notice has been served within the limitation 2012 (8) TMI 547 Long term capital gain – purchase of agriculture land – denial of benefit of section 54F of the Act – Held that:- There is no prohibition regarding construction of a residential house on agriculture land - house constructed on agricultural land or on other land does not matter, but the fact that house should be constructed and from the report it is very much clear that a residential house was constructed – CBDT Cir. No. 667 has clarified that for the purpose of computing exemption u/s. 54 or 54F, the cost of the plot together with cost of the building will be considered as cost of new asset, provided the acquisition of the plot and also the construction thereon are completed within the period specified in these sections. Therefore, AO is not justified to disallow deduction u/s 54F - CIT was justified in allowing the claim of the house - appeal of the department is dismissed. 2012 (8) TMI 546 Special audit under section 142(2A) – bogus purchases – Held that:- There has been a violation of the principles of natural justice on the part of the Assessing Officer in issuing a direction for a special audit under section 142(2A) without considering the objections of the assessee - Assessing Officer must do so before he orders a special audit under section 142(2A). A recourse cannot be taken to the provisions contained there lightly and without due fulfilment of the statutory requirements - Assessing Officer shall reconsider the issue as to whether a direction should be issued under section 142(2A) after considering the objections which the assessee has raised and upon affording to the assessee a reasonable opportunity of being heard in terms of section 142(2A). 2012 (8) TMI 545 Whether income earned from sale of tradeable warrants was not taxable on the ground that the asset transferred had no cost of acquisition – Held that:- According to Clause (aa) of section 55(2) of the Income-tax Act, cost of acquisition attributable to the trading warrants shall be statutorily deemed to be nil with effect from April 1, 1996 - income earned from sale of tradeable warrants was not taxable 2012 (8) TMI 544 Condonation of delay in seeking refund - based on the demand raised, for the failure to deduct tax at source, his employer had paid the tax under section 201(1) of the Income-tax Act along with interest under section 201(1A) of the Income-tax Act, which was subsequently recovered by the employer from the respective employees – employees seeking refund of the TDS amount with admissible interest - Held that:- Once the deduction of tax at source was held to be not in accordance with law, the amount of tax recovered should have been refunded - it is an obligation cast on the Revenue to effect the refund, without calling upon the assessees to apply for refund the claim. Moreover, the contention of the learned standing counsel that the Chief Commissioner has no power to condone the delay and the assessees should have approached the Board cannot be sustained in view of the decision of the hon'ble Supreme Court in the earlier round of litigation. Order of the Karnataka High Court in S. Thigarajan's case (2009 (8) TMI 531 - KARNATAKA HIGH COURT) followed. 2012 (8) TMI 543 Prohibitory order - Order prohibiting creditors to make payment – Held that:- Revenue was compelled to issue the impugned prohibitory order since there was a default on the part of the petitioner in complying with its agreed obligation to discharge the outstanding at the rate of Rs. 10 lakhs per month - petitioner directed to make payment 2012 (8) TMI 542 Whether assessee was a dealer in shares and profits arising on the sale of shares should be assessed as business income – Held that:- Right from the beginning of the incorporation of the company, it had held shares only as an investment and 90 per cent. of its investment were only in the group companies. The assessee never intended to keep them as stock-in- trade and the Revenue also accepted the contention of the assessee for the preceding years and in the two following assessment years too - when the investment originally made in the group concern and holding of shares therein are not by way of stock-in-trade, the result following therein, cannot be held as business to result in business income - sale during the year was of the shares of the Bank of Madura and was only on account of reorganising the business - profit that the assessee made on the sale of shares are assessable to capital gains and not as business income - in favour of the assessee 2012 (8) TMI 541 Whether in view of sub-section (1) of section 281 of the Income-tax Act, 1961, the charge created against the property in question by mortgaging the property by the second respondent-assessee borrower in favour of the first respondent-financial institution during pendency of any of the proceedings under the Income-tax Act, 1961, is void as against any claim in respect of income-tax and other sum payable by the second respondent-assessee in favour of the petitioner- Revenue. As the proviso to sub-section (1) of section 281 stipulates a notice relating to such pendency of the income-tax proceeding or payment of tax payable by the assessee, the Revenue cannot take the plea that the first respondent had knowledge of the pendency of the proceeding and thereby it is open to the first respondent to derive advantage of clause (i) of the proviso to sub-section (1) of section 281 of the Income-tax Act, 1961, so far as it relates to charge created by the second respondent in favour of the first respondent-financial institution by equitable mortgage of the immovable property in question, as against any claim in respect of any tax or any other sum payable by the assessee as a result of completion of any proceeding or otherwise by the petitioner-Revenue. 2012 (8) TMI 540 Reopening of assessment – Held that:- Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income-tax Act, 1961 - Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon - Department was not entitled to reopen the assessment - notice under section 148 of the Income-tax Act is unsustainable and, therefore, the petition is allowed. 2012 (8) TMI 528 Validity of reopening of assessment - AY 81-82, 82-83 and 83-84 - income from house property - arrears of compensation received under Requisition Act not offered to tax by assessee - assessee contested reopening on ground that same was within knowledge of AO since receipt of such arrears were mentioned in its Notes of Account for AY 83-84 and that it would be accounted for in AY 84-85 - Held that:- Once the absence of the relevant material before the AO is established, the burden is on the assessee to establish that the AO in some manner and for some reason had knowledge of such material and considered it while making the assessment orders. An AO is not concerned with only one assessee or three assessment orders. The exigencies and the burden of the work may well result in his inability to correlate the material between various assessment proceedings even though made only within a few days of each other. The burden would rest heavily upon the assessee to establish otherwise. There is nothing on record that persuades us to come to a conclusion that the AO while making the assessment orders for the A.Ys. 1981-1982 and 1982-1983 recollected Note 16 to its Accounts for year ending 31.12.1982 included in the return of income for the A.Y. 1983-1984. Thus, reassessment proceedings for the AYs 1981-1982 and 1982-1983 are upheld. AY 83-84 - Held that:- It is not even suggested that the AO was aware of the provisions of the Requisition Act, 1952 when he made the original assessment orders. In any event, Note 16 of the Accounts did not state that the payment was made pursuant to the provisions of the Requisition Act, 1952. It merely referred to the fact of the enhancement of compensation. This was therefore, further material which the AO was informed about only subsequently. The possession of such information subsequently justified the AO to have reason to believe that the income chargeable to tax had escaped assessment. Reopening of AY 83-84 upheld - Decided against assessee 2012 (8) TMI 527 Deduction u/s 54EC - long term capital gain on sale of factory building on 22.03.2006 - investment in REC bonds on 31.01.07 - denial on ground that investment was not made within specified time of six months expiring on 21.09.06 which was however extended upto 31.12.06 by CBDT circular - assessee contended non-availability of bonds during the period - Held that:- Lex not cogit impossibila (law does not compel a man to do that which he cannot possibly perform). Contention of the revenue that assessee should have purchased the bonds before 3/8/2006 when they were available is not sustainable as the time given by the statue is six months from the date of sale and, therefore, the respondent was entitled in law to wait till 21/9/2006 to invest in the bonds. In present case, bonds were not available from 4/8/2006 to 22/1/2007. Last date for investment had been 21/9/2006 which was extended upto 31/12/2006. The respondents admittedly invested in the bonds on 31/1/2007 i.e. within nine days of their being available once again from 22/1/2007. Considering that the bonds were not available for such a long period, an extension of merely nine days is extremely reasonable. Further, contention of Revenue that assessee should have invested in bonds of National Highway Authority is also not sustainable since choice of investing in one of the two organizations is with the respondent and the appellant revenue contrary to the statue cannot force the respondent to invest only in the bonds of one in preference to the other. Deduction allowed - Decided in favor of assessee Legal and professional charges - dis-allowance - non furnishing of details of expenses - Held that:- It is found that respondent has not submitted the details of the legal and professional expenses allegedly incurred by it viz, reasons for consultation, the dates of consultation and names of the Consultants. Hence, dis-allowance directed - Decided in favor of Revenue Depreciation - dis-allowance - Held that:- same is answered in favor of assessee by decision in case of CIT vs G. R. Shipping Ltd 2012 (8) TMI 526 Validity of reopening of assessment subsequent to intimation received u/s 143(1)(a) - AY 94-95 - Held that:- Intimation u/s 143(1)(a) could not be treated as an order u/s 143(2) and there was no change of opinion in initiating proceedings u/s 147 r.w.s. 143(2). See CIT Vs Ideal Garden Complex P.Ltd (2011 (9) TMI 731 - MADRAS HIGH COURT) - Decided against assessee. Amount received under restrictive covenant - Revenue receipt vs Capital receipt - Held that:- It is observed that agreement of sale between the purchaser company and seller company, in which the assessee was the Director dated back to 1.4.93. Assessee was offered employment vide letter dated 8.10.93, to which assessee submitted acceptance vide letter dated 19.10.93 indicating the acceptance to join the services effective from 1.11.1993 and non-compete agreement was entered into on 15.10.93. Thus, non compete agreement and the employment agreement formed part of the same transactions. Going by the fact that the assessee was offered employment as early as 8.10.93, the restrictive covenant entered into on 15.10.1993 would not be called as independent agreement. Therefore, any amount received under the so called non compete agreement, would only be treated as salary for the purpose of assessment and thus revenue in nature - Decided against assessee. 2012 (8) TMI 525 TDS on rent - demand and interest being raised u/s 201(1) and 201(1A) determining TDS remitted by the assessee on lease rent of Rs. 9 Crores p.a. as against the lease rent of Rs. 6 Crores p.a. paid by the assessee - assessee made provision for 9 crores in books of ccount for lease rentals on ground of non determination of rent at 6 crores or 9 crores in view of differences amongst the members of the land lord's family - added back entire sum of Rs. 9 crores debited to its P/L A/c for year ended 31.03.07 and offered the same to tax - lease agreement dt.1.12.2007, agreed for 6 crores p.a. - assessee reversed the provision for lease rent to the extent of Rs. 3 Crores and remitted the TDS applicable on the actual lease rent of Rs. 6 Crores with interest for delayed remittance Held that:- It is the income which determines the extent or amount of tax to be deducted at source. Income sought to be taxed by taxing statutes is always the real income. In the instant case, it is clear that the lease rent for the relevant period was fixed at Rs. 6 Crores p.a.. Assessee has only claimed Rs. 6 Crores as an expenditure and that too in the period relevant to AY 08-09 when the rent payable was agreed upon. Land lord was also entitled to receive only Rs. 6 Crores as lease rent for the period relevant to AY 2007-08. Contention that TDS ought to be made on Rs. 9 Crores and not on Rs. 6 Crores, is both absurd and untenable. Difference of Rs. 3 Crores on which Revenue is seeking TDS and also interest thereon is not anybody's expenditure or income. Further, contention that following the Mercantile System of Accounting, the lease rent falls due every month by virtue of a contractual obligation and hence the period of delay should be reckoned from the date on which the rent falls due for each of the months, does not hold good as the provision of section 194-I very clearly state that the liability to deduct TDS arises only and only when an assessee makes payment of rent or when the assessee debits rent as an expenditure in the books of accounts, whichever is earlier - Decided in favor of assessee. 2012 (8) TMI 524 Exemption u/s 11 - charitable Trust established with the objects for providing relief to the poor, promotion of vegetarianism, distribution of Prasad, and advancement of any other objective in furtherance of ethical and philosophical principles of Krishna Consciousness - denial on ground that entire character and focus of assessee has become totally commercial and there is generation of huge profits year after year a part of which is diverted to the related concern - Held that:- Preparation of vegetarian food items and selling the same was mainly for popularising the vegetarian food habits and in this way the assessee is engaged in promoting the vegetarianism among the people so that they can change their living habits and take the necessary steps for the betterment of humanity, which is undoubtedly a charitable object of the assessee. Deduction u/s 80G - denial - Held that:- The major portion of the income received by the assessee was donated to ISKCON which is a Public Charitable Trust of worldwide recognition and reputation and any donation from one charitable trust to another charitable trust constitute application of income for the charitable purposes - Decided in favor of assessee. 2012 (8) TMI 523 Validity of reassessment proceedings made in absence of any notice issued u/s 143(2) - notice issued u/s 142(1) to which assessee responded - subsequently no notice issued u/s 143(2) - Held that:- On the reply to the notice u/s 142(1), reiterating the original return which was found incorrect, the AO should have follow up by a notice u/s 143(2). Merely because the matter was discussed with the assessee and the signature is affixed, it does not mean the rest of the procedure of notice u/s 143(3) stood complied with. In completing the assessment u/s 148, compliance of the procedure laid down u/s 142 and 143(2) is mandatory. On the admitted fact that beyond notice u/s 142(1), there was no notice issued u/s 143(2), and in the light of the fact that the very basis of the reassessment was the failure on the part of the assessee in not disclosing the capital gains arising on the transfer of property for assessment and that admittedly the assessee had requested the officer to accept the original return as a return filed in response to Section 148, we hold that there was total failure on the part of the Revenue from complying with the procedure laid down u/s 143(2), which is mandatory. Although on merits, contention of the assesee that the capital gains would not be assessable at the hands of the firm is not acceptable, yet for the reasons that in the absence of notice u/s 143(2) reassessment could not be held to be validly made - Decided in favor of assessee 2012 (8) TMI 522 Determination of arms' length price - assessee had purchased at a higher price from its AE than the cost at which it purchased similar items from non-AEs - assessee contested that there were minimum order quantity restrictions for purchases from non-AEs which were not there for purchases from AEs - Held that:- DRP has specifically mentioned that rate of purchase from AEs had crossed the tolerance limit only in 6 items of 35 item code material purchased by the assessee from the same AE - AEs of the assessee was giving the designs, placing orders supplying raw materials substantially and finally purchasing its products, thus if assessee had an intention to price its products and purchases so as to give undue benefits to the AEs outside India then it could have done so in other voluminous transactions it entered with the AEs - Out of Rs. 227.244 crores worth transactions with AEs, TPO found that in all cases other than 6 items coded purchases of materials nothing warranting a revision of ALP was there in such a scenario, it will be difficult to believe that assessee had indulged in a pricing methodology to benefit its AEs with regard to purchase of material falling in six item codes - to take 6 items from a pack of 35 and consider only these six items for making a revision of ALP will not give a fair result at all - TPO and AO stepped into the shoes of the assessee to decide on which of the items, it should pay more and in which items it had paid more, ignoring those items on which it had paid less - since number of items on which revision of ALP has been done is insignificant when compared to the total number of purchases and total volume of international transactions addition on account of revision in ALP was not called for and addition stand deleted - in favour of assessee. Exclusion of telecommunication and foreign currency expenses from export turnover - Held that:- As decided in Income-Tax Officer Versus Sak Soft Limited [2009 (3) TMI 243 - ITAT MADRAS-D] calculation of deduction u/s 10B calls for excluding from export turnover, freight, telecommunication charges and expenses incurred in foreign exchange - in favour of assessee. 2012 (8) TMI 521 Addition u/s 68 on account of share application money and cash creditors - assessee requested for one more opportunity with a promise to furnish the details relating to the identity, creditworthiness and genuineness of the transactions regarding cash creditors as well as share application money - Held that:- In the interest of justice, we set aside all the grounds raised in the appeal to the file of the AO with a direction to adjudicate the same afresh - Decided in favor of assessee for statistical purposes. Valuation of Closing stock - addition - inclusion of Excise Duty in valuation - AO contended that liability to excise duty was an ascertained liability not eligible for deduction u/s 43B - Held that:- CIT(A) rightly observed that even if such excise duty as is payable on the uncleared goods is added under the provisions of section 145A and payment of excise duty in respect of such enhanced value of closing stock is not allowed as per sec. 43B, such unilateral treatment would throw out unrealistic picture of the profits during the year. No infirmity found in the order of the CIT(A) directing the AO to delete the addition - Decided against Revenue 2012 (8) TMI 520 Reassessment order u/s 147 - the assessee has purchased a new software and it does not come under up gradation or for renewal of the existing software - Held that:- CIT (A) has simply affirmed the reassessment order without deciding the issue in its right perspective by only saying that objection of the assessee was raised before the AO only by letter dated 27.12.2010 which is not valid in law and has not considered the issue properly - CIT (A) ignored to note assessee's contention that the original assessment was completed under section 143(3) by considering the same material - remit the matter back to the CIT (A) to decide the matter afresh - in favour of assessee for statistical purposes. 2012 (8) TMI 519 Non deduction of tax at source from rent u/s 194-I - Demand raised u/s 201(1)/201(1A) - whether or not the payment for transmission charges can be termed as "rent" for the purposes of section 194-I - Assessee purchases power from various sources and distributes and sells to the consumers - Held that:- As evident from a plain reading of the agreements under which impugned payments have been made are for the services of transmission of electricity and not the use of transmission wires per se - transmission lines used for transmission of electricity to the assessee and to various other entities effectively in the control of PGCIL, without any involvement of the assessee in actual operations of the same. It is a condition precedent for invoking section 194-I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a case in which the assessee has no control over the operations of the transmission lines, and all that he gets from the arrangements is that he can draw the electrical power purchased from PGCIL's transmission lines in an agreed manner - in a situation in which the payment is made only for the purpose a specific act, i.e. power transmission in this case, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset - section 194-I has no application so far as the impugned payments for transmission of electricity is concerned. The authorities below were thus quite unjustified in brushing aside the assessee's contentions to the effect that since PGCIL has already discharged all his income-tax obligations, demands under section 201(1) cannot be raised at all - as the provisions of section 194-I cannot apply in respect of payments made for transmission of power by the PGCIL , the impugned demands raised under section 201(1) read with sections 194-I and 201(1A) read with section 201(1A) are cancelled - in favour of assessee. 2012 (8) TMI 518 Disallowance of reimbursement of expenses u/s 40A (2) (b) - Held that:- As the assessee is sharing staff, office premises, etc. with its parent company the allocation of the expenses have been identified as per the memorandum of understanding which were to be borne out by the parent company and to be reimbursed by the assessee. Nowhere the AO has spelled out as what were the expenses, which have been reimbursed are unreasonable or excessive looking to the fair market value of the services and expenses reimbursed - nowhere it has been brought on the record as to how the reimbursement of 33.98 crores on salary account for use of parent company’s employees is unreasonable or excessive - no concrete evidence or material to allocate the unreasonable and excessive expenses for the purpose of disallowance under Section 40A (2). Once, the CIT (A) has come to the conclusion that arrangement of expenses is correct and bonafide and is in accordance with the terms of agreement between both the parties, then no ad hoc disallowance of any amount is called for - in favour of assessee. 2012 (8) TMI 517 Claim for the lower rate of tax at 35% in the light of the amendment of section 90 with retrospective effect from 1st April, 1962 - claim for benefit of non-discrimination as per Article 25 of the India Korea DTAA - Held that:- As decided by tribunal in assessee's own case in A.Y. 2002-03 DTAA recognizes the fact that the amendments made in the IT Act are not affected in so far or they are not in conflict with the specific provisions of the DTAA. Therefore the amendment made in section 90 (2) by way of insertion of explanation is applicable in so far as it is not in conflict with the provision of DTAA - in the event of conflict between international law, the Court must follow municipal law - DTAA did not prescribe any separate or specific rate or any particular criteria to be applied on income of Korean companies assessed in India - The word "less favourable" has not been defined either in the DTAA or in IT Act. Therefore, it cannot be constructed to mean that levy of higher rate on the income on non-domestic company would be "less favorable" - against assessee. Addition on account of unrealized profits on revaluation of securities - Held that:- As the assessee has valued its closing stock scrip-wise by following 'cost or market price, whichever is less' method as per which the appreciation in the value due to the higher market value has been ignored but the depreciation in the value of the other items of stock has been reflected. Thus amount on revaluation of securities represents the excess of market price over the cost price in respect of certain scrips and further going by the method of valuation adopted by the assessee the same cannot be added to the total income - in favour of assessee. Addition on account of upfront guarantee commission - Held that:- As decided in Dy. DIT (International Taxation) v. Chohung Bank [2009 (6) TMI 693 - ITAT MUMBAI] the period of guarantee had nothing to do with the assessee's right to receive the commission and accordingly the amount was brought to tax by him in the hands of the assessee for A.Y in question holding that the said income was accrued to the assessee at the time when the corresponding guarantees were issued - accepted the alternative contention of the assessee relating to double taxation of the same amount in two years and accordingly directed the A.O. to exclude from the income of the assessee the amount of upfront guarantee commission offered in the subsequent year on accrual basis which was already taxed on receipt basis - against assessee. Disallowance of interest paid by the Indian Branch of the assessee bank to its Head office - Held that:- As decided in Sumitomo Mitsui Banking Corpn. v. Dy. DIT (IT) [2012 (8) TMI 450 - ITAT, MUMBAI] that although the interest paid to the Head office of the assessee bank by the Indian branch which constitutes its PE in India is not deductible as expenditure in the domestic law being payment to self, the same is deductible while determining the profit attributable to the PE which is taxable in India as per the provisions of article 7(2) and 7(3) of the relevant 'Tax Treaty' read with Paragraph 8 of the Protocol which are more beneficial to the assessee - in favour of assessee. Disallowance of 'salary' paid to expatriate employees from Head Office to the Indian Branch u/s 44C - Held that:- Section 44C includes expenditure that is common in nature & that the benefit of the said expenditure is derived both by the Head Office and the Branch - that payment of salary made in the case of the assessee was to expatriate employees who were working actually with the assessee in India though the payment was made to them by the Head Office outside India the expenditure incurred on such payment thus was incurred exclusively for the branch in India and the same was not covered within the purview of sec. 44C - salary paid to expatriate employees deputed from Head Office to Indian Branch was an expenditure to be allowed in full - in favour of assessee. 2012 (8) TMI 516 Receipts of the service fees - fee for technical services OR business receipt - DTAA between India and Singapore - Held that:- Assessee being a company, and having Permanent Establishment in India, its receipts will be liable to be assessed as per provisions of Article-7 of the above DTAA - The taxability of royalty for fee for technical services in the State in which it arise on the gross amount at the specified rate will not be applicable if these receipts are effectively connected with PE or fixed base. In that case provisions of Article -7 or Article -14 will apply. It has already been mentioned that Article-14 will not be applicable to the facts of the present case and thus these receipts of the assessee are liable to be assessed under Article-7 of the aforementioned DTAA for which the assessee also does not have any objection. Just and proper to restore the issue to the file of AO with a direction to assess the assessee on these receipts under Article-7 of the DTAA after giving the assessee reasonable opportunity of hearing. On taxability of the interest issue it just and proper to restore the said ground also to the file of AO with a direction to readjudicte the issue afresh 2012 (8) TMI 515 Block Assessment framed u/s. 153BC (c) - search and seizure operation - assessee contested against invoking of extended period of limitation - Held that:- Panchnama dated 3.1.2003 is not a panchnama which finds mentioned in Explanation 2 to section 158BE which reveals that except from passing the revocation order u/s 132 (3) of the prohibitory order passed on 21st December, 2002 no other activity had taken place. Hence, the limitation cannot be governed by the said panchnama. The search essentially was concluded and completed vide panchnama dated 21st December, 2002, when order under the second proviso to section 132(1) was passed deemed seizure of stock of goods of Rs. 25,43,500/- statement of one person was recorded and a restrain order u/s 132 was passed. Panchnama dated 21st December, 2002 was the last panchnama as described in Explanation 2 to section 158BE and, therefore, the limitation has to be commenced from the said panchnama which will be 31st December, 2004. As against that, the impugned assessment is passed on 31.1.2005 which is not passed within the limitation described in section 158BE. The assessment, therefore, is bad in law and has to be quashed - ‘Panchnama’ dated 1.11.2002 cannot give extended time to the A.O for further 2 months when in fact, in the case of these assessees, the search was finally concluded on 6.9.2002 - in favour of assessee. 2012 (8) TMI 514 Penalty u/s 271(1)(c) - concealment of particulars - alleged violation of provision u/s 13(1)(c) by letting-out shops on long lease to the relatives of Directors who are the persons as referred to u/s 13(3) and claiming exemption u/s 11 - Held that:- As CIT(A) noted that AO himself mentioned that it is from facts mentioned in the audit report in Form No.10B filed by the assessee that the possible violation of Section 13, in fact, came to the AO’s notice. In that view, appellant cannot be said to have either concealed or furnished inaccurate particulars of its income, and even the provisions of Explanation-1 to Section 271(1)(c ) are not attracted since there was no concealment or furnishing of inaccurate particulars with regard to factual aspects which had clearly been disclosed by the appellant. Further, AO has not brought on record to show that the contention of the assessee is wrong in respect of the rent charged to others who are not the directors or otherwise interested parties being at par. Therefore, deletion of penalty u/s 271(1)(c) upheld - Decided in favor of assessee. 2012 (8) TMI 513 Non serving of notices of hearing to assessee - Held that:- As no intimation was given by the Departmental Representative whether service of the notice had been effected on the assessee or not the appeals of the Revenue could not be heard on merit in absence of proper service of notice upon assessee - it was obligatory on the part of the Income-tax authority to effect service of notice of hearing on the assessee since the service could not be effected by post at the address given by the revenue in the memorandum of appeal. The practice of getting the service of notice effected on the respondent assessee in a revenue's appeal wherein notices of hearing could not be served on the assessee by post is fully in conformity with the judicial powers and jurisdiction of the Tribunal and does not in any manner run contrary to any provisions of the Statute - The Tribunal was therefore well within its powers to direct the Income-tax department to effect service on the assessee - once revenue is not able to get exact address of assessee, how it will follow the same, in case matter is decided in favour of revenue - against Revenue. 2012 (8) TMI 512 Disallowance of non-deduction of TDS on reimbursement of the salary cost - DTAA between India and UK - Held that:- CIT (A) has allowed the assessee’s claim for reimbursement of the expenses of salary cost considering undisputed fact that these expenses were in the nature of reimbursement. So there is no income element at all. As decided in CIT vs. Siemens Aktiongesellschaft [2008 (11) TMI 74 - BOMBAY HIGH COURT] the amount received by German company under the agreement with three Indian companies was not taxable in India before insertion of an Explanation to section 9 (2) with retrospective effect from 01.06.1976 - As the agreement was entered into before June 1, 1976 the income would not be a Royalty from patent, copy rights or trade mark and like, within the meaning of DTAA but would fall under expression ‘commercial or industrial profit’. In absence of permanent establishment, such income would not be taxable in India for agreement dated March 15, 1969, work was done in Germany and there was no transfer of licence of any existing technical knowhow , thus in view of this the sum claimed to be reimbursement of expenses was held to be not taxable in India - in favour of the assessee 2012 (8) TMI 511 Quantum of addition under the head ‘income from other sources’ - assessee contested that if an amount of Rs. 4 lakhs is disallowed from the agricultural income, the same amount cannot be treated as income from other sources - Held that:- That the assessee himself has disclosed an amount of Rs. 15 lakhs as agricultural income the AO may accept or may not accept that the entire amount is agricultural income - the disallowed portion of agricultural income has always to be treated as taxable income in the hands of an assessee under an appropriate head. If no specific head of income is attributable from the facts of the case, the same should be taxed under the head ‘income from other sources’. As the quantum of addition sustained by the CIT(A) that some modification is called for as the agricultural income offered by the assessee for the subsequent assessment year was Rs. 13.5 lakhs accordingly, the addition of Rs. 4 lakhs made by the Commissioner of Income-tax(Appeals) is reduced to an addition of Rs. 2 lakhs - partly in favour of assessee. 2012 (8) TMI 510 Reduction of tax-free interest income from loss on sale of securities - Held that:- As decided in C.I.T., Mumbai Versus M/s. Walfort Share & Stock Brokers P. Ltd. [2010 (7) TMI 15 - SUPREME COURT] that in cases arising before 1st April, 2002 (A.Y. 2002-03) losses pertaining to exempt income could not be disallowed - in favour of assessee. Allocation of common expenses for the purposes of computing deduction u/s 80I - Held that:- Tribunal referring to the directions given for the assessment year 1993-94 wherein common expenses were directed to be apportioned in the ratio of material consumed by the new 80I undertaking to the total material consumed by the assessee-corporate entity as a whole, instead of on the basis of sales of the respective unit and for this purpose, the issue was restored back to the Commissioner of Income-tax (Appeals) for adjudication afresh who after examining the issue allowed the deduction u/s 80-I relying on working of deduction as directed by Tribunal - find no error in the order of CIT(A)- in favour of assessee. 2012 (8) TMI 509 Non eligibility for deduction u/s 80-IB (10) - CIT (A) allowed the claim - Held that:- As the investment made by the assessee for the project and the source for such investment which have been disputed or rebutted by the Revenue & not also disputed that assessee had purchased the land - assessee had entered into individual agreements with prospective buyers for sale of undivided share in such land and for construction of flats therein. But, this would not mean that assessee was not a developer of the project or that assessee was only a contractor. Assessee had obtained loans in its name and made substantial investment for promotion of the project - the assessee could establish that it was a project developer which satisfied the conditions specified in Section 80- IB (10) as disallowance could not have been done considering the assessee as a mere works contractor The term “works contract” in the Act is an inclusive definition. It does not include merely a works contract as normally understood. It has a wide definition which includes “any agreement” for carrying out building or construction activity for cash, deferred payment or other valuable consideration. The definition as given in that Act does not make any distinction based on as to who carries on the construction activity - in favour of assessee. Customs 2012 (8) TMI 539 Waiver of pre-deposit – alleged that appellant firm has obtained DEEC licence from DGFT by forging the quantity/weight/blend of the fabrics on the shipping bills and obtained that DEEC licence for higher quantity – Held that:- All the relied upon documents/non-relied upon documents have not been supplied to the appellants. When, there is an offence of forgery of the documents, the documents which have been forged and how it has been forged is to be supplied to the person against whom the allegation has been made for rebuttal - there is a violation of principles of natural justice by non-supply of relied upon/non-relied upon documents - matter remanded back to the adjudicating authority to allow the inspection of original records to the appellants or their counsel and give copies of the documents which the appellant may ask after the inspection of the records under his signature and thereafter pass the orders in accordance with the law 2012 (8) TMI 508 Demand of additional customs duty (CVD) - transaction value u/s 4 versus MRP based value u/s 4A - Held that:- As the goods were imported by the appellant in bulk and cleared for further process to party who undertook the process of packing, repacking, labeling and putting stickers of MRP which is process of manufacturing as per Section 2 (f) of the Central Excise Act, 1944 and finally cleared these goods on payment of Central excise duty as per Section 4A, thus the appellants have rightly discharged their duty liability as per Section 4 of the Central Excise Act, 1944 - in favour of assessee. 2012 (8) TMI 507 Revocation of CHA Licence - charges under Article 13(a) of the CHALR 2004 - Held that:- The fact that the authorization from the importer also attested by the bank is fraudulently obtained came to know during the course of investigation when a report from the concerned bank was obtained. Therefore, at the time of clearance of the goods, appellant was under bona fide belief for acceptation the authorization. It is also a fact that at the time of clearance of the goods, the Customs officer has also not objected to the authorization - that the charges under Article 13(a) of the CHALR 2004 stands not proved as the authorization filed by the appellant was not objected by the Customs. While giving the personal hearing to the appellant, the Commissioner has not given notice to the appellant that he is not agreeing with the Inquiry Officer's report and the reasons for not agreeing with the report, thus the remaining charges also stands not proved - in favour of assessee. Service Tax 2012 (8) TMI 562 Proceedings initiated dis-allowing abatement in respect of GTA - Assistant Commissioner while allowing benefit of abatement, confirmed demand rejecting respondent's plea that GTA service provider has already discharged service tax liability - Commissioner(Appeals) during appeal adjudicated on benefit under Notification No. 32/04 - Held that:- Disputed issue was not any reference to claim of abatement which already allowed by the Asstt. Commissioner. Dispute before the Commissioner(Appeals) related to the actual payment of service tax of GTA service provider. Since, disputed issue does not stands considered and decided by the appellant authority, matter remanded back to Commissioner (Appeals) to deal with the appropriate dispute involved in the present appeal. 2012 (8) TMI 561 Waiver of pre-deposit - Service tax demand - amount received on sale of the flats which were in the appellant’s share in terms of their agreement with the land owners – Held that:- Prior to amendment, 16-6-2005, when Explanation to Section 65(105)(zzzh) was not there, the activity of construction of flats by the builder/developer for various prospective buyer against the flat agreement entered into by them could not be called the service of construction of residential complexes - requirement of pre-deposit of Service tax demand, interest and penalty is waived 2012 (8) TMI 560 Whether Payment of service tax can be made through Cenvat credit or in cash – recipient of service from overseas agents for procuring export orders – whether it can be treated as their output service – Held that:- Just because the person receiving a taxable service from an offshore service provider, by virtue of being liable to pay service tax in respect of the same is deemed to be “provider of taxable service” under Rule 2(r) of Cenvat Credit Rules, 2004, there is no justification for invoking another legal fiction to treat the service so received by him as his “output service”, more so when the service received by him from offshore service provider having been used for providing some output service or having been used in or in relation to the manufacture of final product is covered by the definition of “input service” - service tax payment by a service receiver cannot be made by utilising the Cenvat credit - appellant directed to make pre-deposit 2012 (8) TMI 559 Consulting Engineer Service – Held that:- Dispute regarding classification falls within the phrase rate of duty and therefore, this Court has no jurisdiction to go into the same - appeal is rejected as not maintainable 2012 (8) TMI 535 Extended period of limitation - Whether incentive/commission/income received from various finance Co. and Banks would be chargeable to Service Tax as ‘Business Auxiliary service – Held that:- Information regarding commission received and also about payments received from the manufacturer was not disclosed in the service tax returns. This cannot considered as suppression with intent to evade tax, because the Assessee had a bona fide belief that they were not liable to pay tax on the amount received by them out of commission received by Maruti Udyog Ltd. on which Maruti Udyog Ltd. had paid Service tax - not a fit case to invoke the extended period alleging suppression - Appeal fails on account of time bar and also on merits. 2012 (8) TMI 534 Whether transfer of technology, technical know-how and Technical Assistance, received by the respondent, would not come within the scope of taxable service, viz., ‘Consulting Engineer Service”, as defined under Section 65(31) of the Finance Act, 1994 – Held that:- Question falls squarely within the exception carved out in Section 35G, ‘an order relating among other things, to the determination of any question having a relating to the rate of duty of excise or to the value of goods for purpose of assessment’, and the High Court has no jurisdiction to adjudicate the said issue - appeal lies to the Apex Court under Section 35L of the Central Excise Act, 1944, which alone has exclusive jurisdiction to decide the said question - appeal is rejected as not maintainable 2012 (8) TMI 531 Business Auxiliary Services - Job work - appellants working under job work, under the provisions of Rule 4(5)(A) of the Cenvat Credit Rules, 2004, converting the steel plates supplied by M/s S Ltd into steel shells, agitators, baffles etc. and sending the goods back to the said M/s S - Revenue contending the same to be under BAS - period prior to 16.06.2005 - Held that:- There is no dispute that the appellants were producing goods for the clients and not on behalf of the clients as can be understood from the fact that the appellants are manufacturing goods as job workers. Scope of Business Auxiliary Services as defined u/s 65(19) of the Finance Act, 1994 was expanded to include the production of goods on behalf of the clients which does not amount to manufacture u/s 2(f) of the Central Excise Act, 1944 w.e.f 16.05.2005. Since, services undertaken by the appellants is not covered by the definition, no service tax is attracted. Accordingly, impugned order is set-aside. See Sonic Watches Limited (2010 (9) TMI 397 - CESTAT, AHMEDABAD) and Auto coats Vs CCE(ST),COIMBATORE [2009 (4) TMI 112 - CESTAT, CHENNAI] - Decided in favor of assessee. 2012 (8) TMI 530 Input service credit on after sales service – Held that:- Service of repair and maintenance of transformers during warranty period is a service covered by definition of input service and the assessees are entitled to take Cenvat Credit of service tax paid on such services - if after sale service expenses are included in the assessable value, the assessee is entitled for input service credit on the expenses incurred on after sales charges - appeal filed by the assessee is remanded to the adjudicating authority for verification whether after sales service charges are included in the assessable value or not as the assessee did not produce the Chartered Accountant's certificate before the adjudicating authority 2012 (8) TMI 504 Whether the assessee is liable to pay service tax under licence and technical assistance agreements for the overhaul and installation & commissioning of the gas turbines with a foreign company – Held that:- question relates to payment of rate of duty/tax - said question falls squarely within the exception carved out in Section 35G, ‘an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment - appeal lies to the Apex Court under Section 35L of the Central Excise Act, 1944 which alone has exclusive jurisdiction to decide the question - appeal is rejected as not maintainable Central Excise 2012 (8) TMI 537 Ineligible claim of cenvat credit - appellant has not recorded the receipt of the inputs in RG 23A Part-1 register - Held that:- The material period involved in this case is August 2003 & from the year 2000, the necessity or the statutory requirement of maintaining RG 23A Part-1 & Part 2 registers have been done away with and it is for the assessee to justify his claim for the cenvat credit with the help of the private records maintained by him. The appellant had produced records of inward register maintained at security specifically recorded the receipt of copper tube from supplier at various dates and on perusal of the entries in the stock register there is no overwriting of any sort in respect of most of the entries made in said inward register as disputed by AO - the appellants have produced certificates issued by the said supplier indicating that the inputs were delivered to the appellant factory in the suppliers own truck/tempo, hence they have not issued any LR, as against these evidences the Revenue has not putforth any contrary evidence in the form of any inculpatory statement of the appellant's functionaries, the driver of tempo or of the supplier of inputs - in favour of assessee. 2012 (8) TMI 536 Waiver of pre-deposit - 100% E.O.U. - clearance of goods to DTA in pursuance of permission granted by the Development Commissioner - whether they are required to pay component of SAD or not – Held that:- Applicant claimed the benefit of Notification No. 23/2003-C.E. - SAD is levied under Section 3(5) of the Customs Tariff Act on the imported goods to counter-balance of the sales tax, value added tax, local tax, etc - demand of duty including SAD component in the “aggregate of duty” is not sustainable 2012 (8) TMI 533 Denial of benefit of Notification No.74/93-CE dated 28.02.93 - Held that:- The benefit of Notification 74/93-CE is not available to the goods manufactured by the State Electricity Board as the benefit of Notification is available to the goods manufactured in the factory belonging to the State Government intended for use for the Govt. Department - the matter required reconsideration by the adjudicating authority afresh in view of decision of ASSTT. ENGINEER (CIVIL) Versus COMMISSIONER OF CENTRAL EXCISE, RAIPUR [2008 (9) TMI 105 - CESTAT NEW DELHI]the State Electricity Board is not a Govt.Department. 2012 (8) TMI 529 Denial of cenvat credit - appellant in respect of their wind mills in Dewas availed the services of erection, installation and commissioning, repair and maintenance and also insurance and took Cenvat credit of the Service tax paid on these services - department was of the view since the wind mills are located far away from the factory and the power generated by the wind mill is not directly received in the factories of the appellants, the appellants would not be eligible for Cenvat credit – Held that:- there is nexus as the electricity generated by the wind mills has been used for running of the factories of the appellant and just because the electricity has not been directly supplied, but has been supplied through M.P. Electricity grid, it cannot be said that the wind mills are not captive power plant - services, in question, received by the appellants have to be treated as input services eligible for Cenvat credit 2012 (8) TMI 506 Cenvat credit on inputs received from 100% EOU - appellants availing full Cenvat credit of CVD, Education Cess, Secondary and Higher Education Cess - Revenue contending inadmissibility in view of in view of Rule 3 of the Cenvat Credit Rules - Held that:- Issue is no more res integra. Availment of credit of Education Cess over goods supplied to them by 100% EOU is correct. See Shreya Pets Pvt.Ltd. vs. CCE, Hyderabad (2008 (9) TMI 351 - CESTAT, BANGLORE), Emcure Pharmaceuticals Limited vsl CCE Pune (2008 (1) TMI 147 - CESTAT, MUMBAI) Order set aside - Decided in favor of assessee. 2012 (8) TMI 505 Penalty u/s 11AC on account of wrong availment of 100% Cenvat Credit on capital goods during the period July, 2008 - appellants reversed the entire cenvat credit availed wrongly along with interest before the issue of Show cause notice - Held that:- As in the show cause notice itself, it has been stated that the appellants have availed cenvat credit wrongly, therefore the provisions of Section 11AC are not attracted although, they have violated the provisions of Section 11AC, but not with intention to evade payment of duty. There was no intention to evade duty can also be ascertained by verification of their cenvat credit account, as the appellants are having sufficient cenvat credit balance in their account. Penalty set aside. 2012 (8) TMI 503 Consulting Engineer Service – Held that:- Dispute regarding classification falls within the phrase “rate of duty” - It is only the Apex Court under Section 35L of the Act which is competent to decide the aforesaid question of law - appeal is rejected as not maintainable Wealth tax 2012 (8) TMI 563 Validity of the issuance of notice u/s 17 of the Wealth Tax Act – reopening of assessment – income escape assessment – Held that:- Information and material found during course of assessment proceedings under section 143(3) of Income-tax Act, 1961 constitute a tangible material for forming a belief that net wealth of assessee assessable to tax has escaped assessment - reopening of the assessment by issuing notice us/ 17 of W T Act is valid and as per law Addition of net wealth in respect of office premises – Held that:- assessee in the instant case has let out a part of its business premises and since the assessee is not in the business of letting out properties, therefore, the said property, in our opinion, is not exempt either u/s. 2(ea)(i)(3) or 2(ea)(i)(5) of the Wealth Tax Act - premises in question being an office let out by the assessee would not fall in the category of commercial establishment or complex as per the provisions of sec. 2(ea)(i)(5) of the W T Act and consequently the same is assessable to wealth tax - appeal filed by the assessee is dismissed. 2012 (8) TMI 532 Whether property leased out is not assessable to wealth-tax and excludible from the operation of section 40 of the Finance Act, 1983 - as per section 40(3)(vi) of the Finance Act, there is an additional requirement that the building should be used by the assessee as godown or warehouse for the purpose of its business – Held that:- Let out assets are used by the assessee in its leasing business. If the leased out assets such as, godown, warehouse, hospital or other assets, come within the specified assets in section 40(3)(vi) of the Finance Act, certainly the assessee is entitled to the exemption, because the same is used in leasing business - assessee has leased out the property as a hotel and the lessee also used the same property as a hotel and there is no dispute and, therefore, the assessee comes within the specified assets as contemplated under section 40(3)(vi) of the Finance Act, 1983, and, therefore, the assessee is entitled to exemption from the Wealth-tax Act - in favour of the assessee
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Newsletter: Where Service Meets Reader Approval.

TMI Tax Updates - e-Newsletter August 23, 2012

Articles

1. THRESHOLD LIMIT FOR EXEMPTION OF SERVICE TAX

2. NO SERVICE TAX ON SELLING OF SPACE OR TIME SLOTS FOR ADVERTISEMENTS

Highlights / Catch Notes

Income Tax

Change in Shareholding Denies Loss Set-Off, But Section 2(18)(b)(B)(c) Allows Claim Despite Section 79 Restrictions.

Court Rules on Tax Treatment of Statutory Reserve Transfers u/s 115JB, Impacting Book Profits and Taxable Income Calculations.

Tax Exemption Denied: Entity's Religious Spending and Business Activities Breach Section 80G Requirements.

Income Tax Act Section 54G: No Need for Land and Building to be Business-Specific for Deduction.

Court Reviews Tax Exemption Claims for Unspent Travel Allowances u/ss 10(17) and 10(14)(i) of the Income Tax Act.

Eligibility for Section 54F Benefits: Constructing a Home on Agricultural Land Allowed for LTCG Tax Benefits.

Section 142(2A) Audits Require Strict Adherence to Legal Prerequisites for Bogus Purchase Investigations.

Revenue Must Automatically Process TDS Refunds Without Claims, Easing Taxpayer Burden and Streamlining Procedures.

High Court Enforces Tax Recovery: Creditors Temporarily Barred from Payments Under Income Tax Act Section 220(1.

Section 281: Notice Required for Pending Income Tax Proceedings to Secure Tax Recovery and Safeguard Government Interests.

DVO's Opinion Insufficient for Reopening Assessment; Independent Evaluation by Assessing Officer Required for Validity.

Taxpayer Challenges Deduction Timeline for Long-Term Capital Gains u/s 54EC with REC Bond Investment.

Vegetarianism as a Charitable Objective Recognized for Promoting Lifestyle Changes and Societal Benefits Under Tax Laws.

Are Transmission Charges "Rent" u/s 194-I of Income Tax Act? Key Implications for Withholding Tax Compliance.

Revenue Appeals Halted Due to Improper Service of Hearing Notices, Affecting Case Outcomes and Proceedings.

Customs

Accused Must Receive Forged DEEC Documents and Forgery Details for Rebuttal in License Cases.

Petitioner Denied Access to Directorate of Revenue Intelligence Documents During Show Cause Notice Stage in Investigation.

Wealth-tax

Office Space Not a Commercial Establishment u/s 2(ea)(i)(5), Subject to Wealth Tax Assessment.

Court Rules Leased Property Exempt from Wealth Tax Due to Business Use in Leasing Industry.

Service Tax

Reverse Charge Mechanism: Service Receiver Must Pay Service Tax on Imported Services Without Using Cenvat Credit.

Revenue Challenges Appellants' Job Work u/r 4(5)(A), Classifying Activities as Business Auxiliary Services for Tax.

Windmills Remain Captive Power Plants; Electricity Supply Doesn't Affect Cenvat Credit Eligibility for Input Services.

Central Excise

Assessees no longer need RG 23A registers for CENVAT credit; must use private records for justification.

E.O.U. Cleared Goods to DTA: Duty Demand Deemed Unsustainable, Pre-Deposit Waiver Granted with Development Commissioner's Approval.

Omission of Manufacturer Payments in Tax Returns Not Suppression, Assessee Held Bona Fide Belief of No Tax Liability.

Penalty Imposed for Incorrect Cenvat Credit u/s 11AC Set Aside for July 2008 Period.

Case Laws:

Income Tax

Customs

Service Tax

Central Excise

Wealth tax

Quick Updates:

TMI Tax Updates - e-Newsletter
August 23, 2012