TMI Tax Updates - e-Newsletter
August 24, 2012

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise Wealth tax

Articles

1. NOTIFICATIONS RESCINDED RECENTLY

   By: DR.MARIAPPAN GOVINDARAJAN

2. THRESHOLD LIMIT FOR EXEMPTION OF SERVICE TAX

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. 10 FDI Proposals Amounting to Rs. 1259.92 Crore Approved

2. Foreign and Domestic DEBTs

3. Tax on Film Artists Services

4. Vacancies in Nationalized Banks

5. Field Trial of Plastic Notes

6. 67500 Cases Pending in DRTs

7. Steps to Recover NPAs

8. Proposal to Sell 10.82 Percent Stake in Sail

9. Insurers Surpass Targets for Rural Areas in 2010-11

10. Measures to Check Inflation

11. CCI Order against Chemist and Druggist Association

12. Institutional linkages for the gems & jewellery sector to be strengthened Measures to boost SEZ exports soon: Anand Sharma

13. Government Takes Several Policy Measures to Increase Availability of Institutional Credit to Farmers, Sets an Annual; Target of Rs.5,75,000 Crore for Credit to Agriculture Sector in 2012-13

14. Funds to NABARD

15. Rs.52,275.55 Crore Released Under Agriculture Debt Waiver & Debt Relief Scheme to Give Benefit to 3.45 Crore Farmers

16. Assessment of Agricultural Loan Burden

17. Notices Issued by Enforcement Directorate to BCCI and its Officials for Contravention of FEMA

18. Farm Credit to Uncovered Farmers

19. High Level Committee on External Commercial Borrowings (HLCECB) takes Various Decisions; Permits Sidbi for Accessing ECB for on-lending to MSME Sector Subject to Certain Conditions

20. Delay in Banning Import of Chinese Milk Products

21. Trade Through FDI from Pakistan

22. Breakthrough in Trade Relations with Pakistan

23. Additional items under Special Focus Market Schemes

24. Services Agreement with Asean Countries

25. Manufacturing Sector Performance

26. DMIC Project: Concept Note Ready for Eastern Corridor

27. Notices under BIPA

28. Pending List for Trademark Registration

Notifications

DGFT

1. 12 (RE-2012)/2009-2014 - dated 22-8-2012 - FTP

Policy for issue of import licenses of Rough Marble and Travertine Blocks for the Financial year 2012-13.

2. 11(RE-2012) /2009-2014 - dated 22-8-2012 - FTP

Amendment in para 4A.2.1 of FTP (RE-2012) / 2009-14 regarding Export of Cut & Polished Diamonds sent abroad for Certification/ Grading & re-import.

FEMA

3. 232/2012-RB - dated 30-5-2012 - FEMA

FEMA (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2012 - Amendment in Schedules I and II

4. 231/2012-RB - dated 30-5-2012 - FEMA

FEMA (Transfer or issue of any Foreign Security) (Second Amendment) Regulations, 2012 - Amendment in regulation 21

Circulars / Instructions / Orders

FEMA

1. 16 - dated 22-8-2012

Foreign Direct Investment by citizen / entity incorporated in Pakistan

2. 15 - dated 21-8-2012

Overseas Direct Investments – Rationalisation of Form ODI

Highlights / Catch Notes

Income Tax

• Assessment Additions Based on Under-Invoicing Claims Unjustifiable Without More Than Just a Show Cause Notice by Commissioner.

  Case-Laws - AT : Alleged Under invoicing and suppression of additional turnover - merely on the basis of SCN issued by the Commsisioner, of Central Excise, additions made by the AO cannot be sustained - AT
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• Dispute Over TDS Deduction on Wheeling and Transmission Charges: Section 194J vs. Section 194C Interpretation.

  Case-Laws - AT : Dis-allowance u/s 40(a)(ia) - non-deduction of TDS from wheeling and transmission charges - applicability of Section 194J or 194C - No TDS - AT
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• Section 80-IA Deduction: Clarification on Loss Carry Forward Limits to Initial Assessment Year Onward Only.

  Case-Laws - AT : Denial of deduction u/s 80-IA - When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assesseec - AT
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• Joint Venture's Books Rejected, Profit Estimated at 10% of Gross Receipts Due to Best Judgment Assessment.

  Case-Laws - AT : Best judgement assessment - rejection of books of account - joint venture is making profit without executing any work. - Estimation of profit at 10% of the gross receipts directed. - AT
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• Annual Value of House Property Income Uses Municipal Rateable Value per Section 23(a) of the Income Tax Act.

  Case-Laws - AT : Income from house property - determination of annual value - the rateable value under the Municipal law has to be adopted as annual value u/s. 23(a) - Held - AT
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• High Court confirms companies can deduct anticipated leave salary expenses, aiding financial planning and tax compliance.

  Case-Laws - HC : Provision made for leave salary allowed as deduction - HC
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• Capital gains deductions denied for REC bond investments u/s 54EC; maturity proceeds don't determine ownership.

  Case-Laws - AT : Capital gains - Denial of Deduction u/s. 54EC of the Act – investment in REC bonds - payment of the maturity proceeds to any one of the bond holders is not a material factor for deciding the ownership of the bonds - AT
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• Penalty for Non-Deduction of Tax Overturned Due to Genuine Belief in Tax Obligation, Says Appellate Tribunal.

  Case-Laws - AT : Penalty for non deduction of tax at source - bona fide belief proved - penalty set aside - AT
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• Commission Payment Discharges Obligation Post-Income Receipt, Not by Overriding Title, Per Franchisee Receipt.

  Case-Laws - AT : TDS u/s 194H - The payment of commission though mentioned in receipt issued by the franchisee/commission agent does not amount to discharge an obligation by an overriding title rather the said payment amounts to discharge an obligation after such income reaches to the assessee. - AT
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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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
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• 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
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DGFT

• Import License Policy for Rough Marble & Travertine: Eligibility, Application Process, and Allocation Limits for 2012-13.

  Notifications : Policy for issue of import licenses of Rough Marble and Travertine Blocks for the Financial year 2012-13. - Notification
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• Foreign Trade Policy Update: Streamlining Export and Re-import of Certified Cut and Polished Diamonds Under Paragraph 4A.2.1.

  Notifications : Amendment in para 4A.2.1 of FTP (RE-2012) / 2009-14 regarding Export of Cut & Polished Diamonds sent abroad for Certification/ Grading & re-import. - Notification
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FEMA

• 2012 Amendment to FEMA Regulations Updates Schedules I and II for Better Compliance with Economic Policies.

  Notifications : FEMA (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2012 - Amendment in Schedules I and II - Notification
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• 2012 Amendment to FEMA Regulations Alters Foreign Security Transfer Procedures Under Regulation 21.

  Notifications : FEMA (Transfer or issue of any Foreign Security) (Second Amendment) Regulations, 2012 - Amendment in regulation 21 - Notification
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• FEMA 2012 Amendment Updates Schedule II for Foreign Exchange Derivative Contracts, Aims to Enhance Compliance and Streamline Processes.

  Notifications : FEMA (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2012 - Amendment in Schedule II - Notification
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• FEMA 2012 Amendment Alters Regulations 2 and 22 on Foreign Security Transfers, Affecting Tax and Compliance for Entities.

  Notifications : FEMA (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2012 - Amendment in regulations 2 and 22 - Notification
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• FEMA 2012 Amendment Updates Regulations on Securities Issuance by Non-Residents, Adds Regulation 13 for Compliance Clarity.

  Notifications : FEMA (Transfer or issue of security by a person resident outside India) (Second Amendment) Regulations, 2012 - Amendment in regulations 2 & 5 and insertion of regulation 13 - Notification
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• New Guidelines for Pakistani Investors on Foreign Direct Investment Under FEMA: Compliance, Approvals, and Transparency Emphasized.

  Circulars : Foreign Direct Investment by citizen / entity incorporated in Pakistan - Circular
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• FEMA Circular Updates Form ODI to Simplify Overseas Direct Investments, Enhance Transparency and Compliance for International Entities.

  Circulars : Overseas Direct Investments – Rationalisation of Form ODI - Circular
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Wealth-tax

• Residential House Deemed Exempt Under Wealth Tax Despite Owner's Long Absence, Meeting Rule 3 Proviso Conditions.

  Case-Laws - AT : Valuation - exempted asset under wealth tax - residential house - even though the assessee did not stay in the house so long, this house is exclusively for residential purpose, the condition as enumerated in the third proviso to Rule 3 are satisfied - AT
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• 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
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Service Tax

• Service Tax Demand Confirmed for Money Transfers; Delivery Complete Only Upon Recipient's Receipt in India.

  Case-Laws - AT : Demand of Service Tax was confirmed on account of money transfer services - delivery in the instant case, is complete only when it is received by the recipient in India. - AT
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• Service Tax Non-Payment Penalty Waived After Prompt Payment Before Show Cause Notice Issued.

  Case-Laws - AT : Penalty - non-payment of service tax – Appellants paid the Service Tax promptly as soon as it was pointed out before issue of show cause notice and taking registration also - penalty waived - AT
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• SIM Card Sale Value Excluded from Service Tax; No Mala Fide Intent, Extended Limitation Period Not Applicable.

  Case-Laws - AT : Non-incaution of value of the sale of SIM card in gross taxable value – no mala fide can be attributable to the appellant so as to invoke the extended period of limitation - AT
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• 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
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Central Excise

• EOU misses 90-day deadline for re-warehousing certificate, duty demand confirmed but penalty dismissed.

  Case-Laws - AT : Failure to furnish the re-warehousing certificate within stipulated period of 90 days - 100% EOU - demand of duty confirmed - penalty set aside - AT
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• Appellant's Non-Compliance with Central Excise Rules: Failed to Opt for SSI Exemption at Financial Year Start.

  Case-Laws - AT : SSI Exemption - The appellant did not opt for availing the benefit of Notification No. 8/2003-CE dated 01.3.2003 at the beginning of the financial year thus option for the availment is not in accordance with the Central Excise Rules - AT
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• 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
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• 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
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• 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
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Case Laws:

• Income Tax

• 2012 (8) TMI 594
  Interest expenditure on borrowed funds - assessee engaged in the business of construction and development following “completed contract method” - Revenue contended that interest identifiable with the project should be allowed only in the year when the project is completed and the income from that project is offered for taxation - Held that:- Since the assessee follows project completion method and recognises revenue on completion of contract method and all costs relatable to individual project is shown as work in progress, therefore, interest attributable to the project should be allowed only in that year when the project is completed and the income from that project is offered for taxation. In present case, since only 1 project is completed, matter is restored to the file of the AO to determine and allow the proportionate interest attributable to the said project completed. Dis-allowance of development charges and extra payments - Revenue contended that same will be allowable only against the particular project in respect of which the same has been incurred and not as overhead expenses - AY 08-09 - Held that:- It is undisputed that plot in question for which the expenditure has been incurred was sold during AY 2006- 07 and no provision what so ever has been provided for future obligation on account of sale of the said property. Transaction has been completed and profit has already been booked during AY 2006-07. Hence, in absence of any legal or contractual obligation to incur any further expenditure the said expenses cannot be allowed as a revenue expenditure during the impugned assessment year. Dis-allowance u/s 40(a)(ia) on account of non-deduction of TDS from Audit fees - Held that:- Though assessee contended that TDS on audit fees was made on the basis of the bills issued by the Auditors subsequently, however, no proof for this has been produced by the assessee either before the AO or before the CIT(A) and even before us. Hence, dis-allowance upheld.

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• 2012 (8) TMI 593
  Alleged Under invoicing and suppression of additional turnover - assessee contended that Revenue assumed under invoicing on the basis of SCN issued by the Commissioner of Customs & Central Excise and order passed by Settlement Commission for Customs and Central Excise - AY 02-03, 03-04, 04-05 - Held that:- There is no case of additional turnover warranting any addition to the turnover disclosed. As such, the allegation of under-invoicing is also not fully supported by the orders of the Excise authorities. Prima facie, we are not agreeing with the CIT(A)‘s decision in relying on the order of the Settlement Commission, as merely on the basis of SCN issued by the Commsisioner, of Central Excise, additions made by the AO cannot be sustained. There is requirement of going into factual calculations. Further, proceedings under Central Excise laws do not have a direct bearing on the proceedings under the Income-tax Act, inasmuch as the proceedings under the Excise laws determine the correct duty leviable to goods of the traded, whereas the objective of the proceedings under the Income-tax Act is to arrive at the correct income of the assessee. Therefore, matter restored to the file of the AO, for fresh examination Estimation of G.P. without rejection of books of accounts - alleged low G.P. - AY 05-06 - Held that:- It is not permissible to resort to estimation of the income of the assessee in terms of S.145(3), without rejecting the books of account maintained, a decision that follows the discovery of incompleteness, inaccuracy, etc. in the said books. Further, AO has not pointed out any defects in the books. Also, material seized at the time of search in the case of the assessee, has no bearing or relevance to the determination of the income of the assessee for the year under appeal. There is no scope for estimated additions in matters of search assessment s made u/s 153A of the Act. Addition made is deleted - Decided in favor of assessee.

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• 2012 (8) TMI 592
  Assessment framed u/s 153A - search or requisition - addition u/s 68 of long term capital gain on sale of shares on ground of them being sham transactions - Held that:- After perusing the orders of Lucknow bench in the cases of Members of Arora group, we have held that order of the FAA in deleting the addition made u/s. 68 needs no interference. Since orders passed by the AO and FAA for the AYs under consideration are same as in the case of Smt. Pooja Arora and Sh. Praveen Kumar (Individual). Therefore, following the said orders we uphold the order of the FAA. Same is held in respect of addition made on ground of low withdrawals for house-hold expenses and gift received by Assessee HUF since additions made on aforesaid ground has been restricted or deleted by Lucknow bench while assessment of group - Decided against Revenue

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• 2012 (8) TMI 591
  Dis-allowance u/s 40(a)(ia) - non-deduction of TDS from wheeling and transmission charges - applicability of Section 194J or 194C - Held that:- Applicability of Section 194J and also Section 194C was examined in the case of Jaipur Vidyut Vitaran Nigam Ltd (2009 (4) TMI 489 - ITAT JAIPUR-A) wherein it was held that such payments by the assessee are not liable for deduction of tax either u/s 194J or 194C. It is clear that all the parties involved with generation, transmission and distribution of electricity are to comply with the direction of State Load Dispatch Centre and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise. Since there are no major difference between the terms of the agreement and facts considered in that case and the terms of contract in the present case and there being no contrary decision brought on record, contentions of the department that these charges should be held liable for deduction of tax under either of the sections 194C/194J are rejected - Decided in favor of assessee Depreciation - reduction - receipt of contribution/grant subsidies towards cost of capital asset - Revenue contended that contribution should be reduced from the cost of the assets for the purpose of computing allowable depreciation in accordance with the provisions of Explanation 10 to sec. 43(1) - Held that:- Applying the provisions of Explanation 10 to Section 43(1), we decline to interfere in the dis-allowance sustained by the CIT(A) - Decided against assessee. Alleged Understatement of revenue - income offered on estimated basis pertaining to the remaining days of March for which the bills were issued in April - Held that:- CIT(A) rightly observed that there was no case that the revenue pertaining to the electricity supplied in March 2007, was not accounted for by the appellant in the year under consideration or in subsequent year. In absence of the issue of bills, the appellant offered the revenue on estimate basis in accounts for the electricity supplied in March 2007. Also, this practice was being followed by the appellant regularly and prior period income / expenses were being accounted for regularly. Such estimation was based on scientific basis i.e. based on actual bill/ consumption of power by the consumer in the past. Appellant has also explained that as per binding nature of accounting policies and principals under ESSAR 1985, it was mandatory to recognize revenue only when the right to collect the revenue arose. Thus, the estimation of revenue was not arbitrary - Decided in favor of assessee assessee remained liable to refund the security deposit of Rs.50.60 lakhs to its customers and hence the AO was not justified in considering the unpaid security deposit of Rs.50.60 lakhs the

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• 2012 (8) TMI 590
  Transfer pricing - adjustment to international transaction in the nature of marketing support services, consultancy services and low end services to group companies - assessee contesting adjustment on various grounds - assessee contended exclusion of companies who are earning extraordinary profits - objection to arbitrary rejection of comparable - objection to inclusion of certain companies viz CMC Ltd. for having 58.82% related party transactions, ICC International Agriculture Ltd. & TSR Darashaw for having significantly higher operating margin than the average margin - Held that:- It is observed that specific issues raised by the assessee before DRP have not been addressed and decided by way of a speaking order. It can be seen from the list of comparables selected by TPO that none of the other parties except ICC, TSR and CMC Ltd. have margin of more than 26.67%. If out of 13 comparables except three comparables do not have margin of the magnitude which ICC & TSR have then there is a merit in the contention of the assessee that these comparables should not be taken as comparable on account of their having super normal profits. Nothing contrary to this has been demonstrated by Revenue Further, contention of the assessee that the loss making companies which have been excluded being not persistent loss making companies should be excluded is also required to be examined in detail. Hence, matter should be restored back to the file of DRP with a direction to pass a speaking order. It is also held that appropriate relief should be given to assessee for safe harbour of 5% as per laws. Dis-allowance of marketing expenses incurred in foreign currency - business expediency - Held that:- It is observed that assessee has furnished chart to show that all these expenses have been recovered as cost has also been able to show that most part of the cost is incurred on the media covering Indian territory. Since DRP has passed non-speaking order hence matter restored back to the file of DRP with a direction to bring all these facts on record and re-decide this issue. Dis-allowance of travelling expenses incurred in respect of travel to countries like USA, UK, Hong Kong , Sri Lanka etc, except Singapore where AE of the assessee is situated - Held that:- When complete details are filed, dis-allowances cannot be made on adhoc basis as it has to be brought out that a particular expenditure was not incurred for the purpose of business of the assessee. Matter restored back - Decided in favor of assessee for statistical purposes

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• 2012 (8) TMI 589
  Denial of deduction u/s 80-IA - Held that:- As it is only during the assessment year under consideration, i.e. 2007-08 that the assessee company exercised the option of claiming deduction under section 80-IA and, therefore, losses suffered in the earlier years cannot be considered by wrongly interpreting section 80-IA(5) as application of section 80-IA(5) is canvassed to be applicable only after the option is exercised by the assessee in terms whereof losses of the period prior to the exercise of option are not liable to be set off while computing deduction under section 80-IA. As decided in Velayudhaswamy Spinning Mills P. Ltd. & Others Versus ACIT (2010 (3) TMI 860 - MADRAS HIGH COURT) holding that as per Sub-section (5) of Section 80IA, profits are to be computed as if such eligible business is the only source of income of the assessee. When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee - there is no question of setting off notionally carried forward loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on the current assessment year on the current year profit - in favour of the assessee

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• 2012 (8) TMI 588
  Rejecting the claim of agricultural income - Held that:- Exactly for this reason the ITAT earlier has set aside the assessment specifically directing the AO to examine the MRO and the person responsible for maintaining the Adangal register and thereafter decide the issue after giving an opportunity of cross examination to the assessee but the ITAT’s direction has not been complied - AO ignored the assessee's submission of certified true copy of the revenue records (pahani) which clearly proves ownership of land in the name of assessee - also the copy of sale deed reveals that the assessee had purchased the land with standing crop and mandava evidencing that the assessee was having some income from agriculture - restore the assessment back to the file of the AO to examine the MRO or the person maintaining Adangal register - in favour of assessee for statistical purpose.

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• 2012 (8) TMI 587
  Best judgement assessment - rejection of books of account - low profits - assessee being Joint Venture executing major portion of work awarded to it by NHAI through sub-contractor - deduction of 10 to 20% from the gross value of work and paying the remaining amount to the sub-contractor at the stage of awarding work to the sub-contractors - Held that:- It is evident that joint venture is making profit without executing any work. Therefore, considering such modus operendi, profit disclosed at 4.68% is abnormally low compared to the actual profit derived from such type of work. It is also a fact found on record that the assessee’s final accounts were qualified by a report of an Auditor which raises a doubt regarding correctness of the accounts. Hence, AO was justified in rejecting the books of account. Estimation of profit at 10% of the gross receipts without allowing any further deduction towards depreciation and interest is directed. Status of the joint venture held as an AOP charging tax at the maximum marginal rate - Held that:- Assessee has failed to produce any evidence to show the existence of partnership between the members of the joint venture. Therefore, treating the joint venture as AOP cannot be faulted. However, it is seen from the Article25(4) of DTAA between India and Korea that the foreign company should not be subjected to tax which is more burdensome than tax imposed on similar entities of the concerned State. Thus, sole issue of determining whether such nature of income is within the purview of DTAA between India and Korea is restored to the file of CIT(A)

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• 2012 (8) TMI 585
  50% disallowance of depreciation - Held that:- The facts are not clear in the period for which the machinery had been used by the assessee. The discussion in assessment order and date of acquisition of machines is non-speaking - remitted back to A.O. to work out the period eligible for depreciation. Disallowance made under section.40 (a) (ia) - Held that:- Considering assessee' s submission that question of TDS arise only to that payment made against ‘service’ of labour and he is making payments regarding ‘conversion charges’ as well as payments against supply of ‘material’ and ‘labour’ the issue of deciding the nature of payments is remitted back to AO for afresh consideration & disallowance to the amount ‘payable’ by the end of previous year need to be warranted & there cannot be a disallowance in the case of amounts already paid by assessee before 31st of March of previous year - in favour of assessee for statistical purposes. Disallowance of foreign exchange fluctuation loss, partial disallowance of foreign travel and sales promotion expenses, disallowance of partners’ remuneration - Held that:- All the grounds involving question of facts are not maintainable as they were not raised by assessee before CIT(A)as the grounds not raised and adjudicated before CIT (A) are not maintainable before Tribunal.

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• 2012 (8) TMI 584
  Revising the estimated cost of construction by CIT(A) - cost of construction assessed by Departmental Valuation Officer (DVO) - revenue contested against CIT(A) in allowing further relief over and above the ‘in toto’ relief allowed - Held that:- CIT(A)has not made any fundamental interference in the valuation made by the DVO and accepted by the assessing authority as modifications granted is in valuation of swimming pool were not on any technical ground, but on an accounting ground as the assessee had constructed the swimming pool and other structures in the subsequent year, and this modification worked out to Rs. 9,89,425/-. Modification in granting 3% reduction towards direct purchase of materials as direct and bulk purchase of materials normally yield a reasonable discount in the procurement price. Therefore, relief of 3% granted by CIT(A) is justifiable. Modification granted by reduction of 15% from CPWD rates which have been adopted by the DVO is not unreasonable as comparing it to CPWD rates, State PWD rates are less. On the basis of this difference, reliefs have been granted to the assessees in a number of cases both by the Tribunal as well as by the High Courts. Therefore the reduction of 15% is only just and proper - contention of the assessee that CIT(A) has not considered the entire amount spent by the assessee on the construction of the swimming pool is not acceptable as the CIT(A) has considered the same in his rectification proceedings - against revenue & assessee.

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• 2012 (8) TMI 583
  Assuming jurisdiction u/s. 263 by CIT(A) - deduction u/s.10A allowed by AO which includes deduction on unrealised export proceeds - Held that:- As decided in Morgan Stanley Advantage Services (P.) Ltd. Versus Income-tax Officer, 15(3)(2), Mumbai [2009 (3) TMI 640 - ITAT MUMBAI ]the case in favour of the assessee in which the assessee had applied for extension of time for remittance of foreign exchange but no formal approval from RBI was received for the purpose of section 10A - As no dispute to the fact that the assessee had applied to the RBI vide letter dated 11-09- 2006 requesting for extension of time for realisation of export proceeds and after receiving a reply from the RBI directing the assessee to approach the authorised dealer in this regard the assessee vide letter dated 06-11-2006 applied to ICICI Bank Ltd. for extension of time for realisation of export proceeds - Since in the instant case the AO has allowed deduction u/s.10A on the basis of the report of the Auditors as well as the various documents furnished before him, therefore the same is a possible view and cannot be termed as erroneous for invoking jurisdiction u/s. 263 by CIT(A)- in favour of assessee.

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• 2012 (8) TMI 582
  Addition of income from house property - AO stated that Annual Value as offered by the assessee was understated - CIT (A) deleted the addition - Held that:- As decided in DCIT Versus Reclamation Realty India (P) Ltd. [2010 (11) TMI 477 - ITAT, MUMBAI] the rateable value under the Municipal law has to be adopted as annual value u/s. 23(a) & that the A.O. has grossly erred by calculating the annual let out value by estimating the market value of the property at Rs. 1,20,00,000/- ignoring the fact that the Municipal Rateable Value given by the Government Authority i.e Mumbai Municipal Corporation at Rs. 1,58,372/- - against revenue. Treating the monies advanced to assessee as deemed dividends - Held that:- Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than shareholder & the expression ‘shareholder’ referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder - It is not in dispute that the assessee company is not holding any share in the company who provided advances i.e. neither the assessee company is a registered share holder nor beneficial share holder in the said company the provisions of section 2(22)(e) are not applicable - inclined to uphold the findings of the ld. CIT (A) in deleting the addition made by the A.O - against revenue.

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• 2012 (8) TMI 581
  Disallowance of dividend income u/s 14A r.w.r. 8D - CIT(A) curtailed the disallowance - Held that:- As decided in GODREJ AND BOYCE MFG. CO. LTD. Versus DCIT AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] the provisions of rule 8D would apply with effect from assessment year 2008-09 and prior to assessment year 2008-09, when rule 8D was not applicable AO must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record - thus the matter is remitted back to the file of the AO with a direction decide the issue afresh in the light of the said judgment after providing reasonable opportunity of being heard to the assessee - in favour of assessee.

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• 2012 (8) TMI 580
  Disallowance on account of provision made for leave salary – Held that:- Provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability – In favor of assessee Decision of apex court in Bharat Earth Movers's case [2000 (8) TMI 4 - SUPREME COURT] followed.

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• 2012 (8) TMI 579
  Disallowance was also made on account of claim of loss in the paddy account – unexplained sundry creditors - Held that:- Certain statements of certain farmers were recorded by the Inspector of Income-tax, but it were recorded behind the back of the assessee - appellant had submitted bills and necessary documents to the Assessing Officer - transactions were made through the mandi system, an independent market mechanism to ensure that all transactions are conducted at fair market prices - in a situation where the appellant had discharged its responsibility by furnishing necessary details - onus was on the Assessing Officer to bring on record the evidence to show that motive behind the two transactions was evasion of income-tax – in the absence of such evidence – disallowance is deleted – in favor of assessee

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• 2012 (8) TMI 578
  Capital gains - Denial of Deduction u/s. 54EC of the Act – investment in REC bonds, out of the amount received - wife of the assessee, was the main-holder of the certificate and the assessee alongwith his son are only the nominees of the first beneficial owner – Held that:- Requirement for claiming deduction u/s. 54EC of the Act was fulfilled in the instant case by virtue of the fact that the funds invested emanated from the sum received out of the transfer of long term capital asset and that it was invested within a specified time - payment of the maturity proceeds to any one of the bond holders is not a material factor for deciding the ownership of the bonds - Assessing Officer was directed to allow claim of deduction u/s. 54EC of the Act. Denial of Deduction under section 54F of the Act – on the ground that assessee called for the municipal approved plan and the assessee could not furnish the same - claimed to have purchased two flats – Held that:- Assessing Officer directed to give the assessee one more opportunity to prove that the sale deeds with reference to which assessee claims to have purchased the property was the same which was occupied by the assessee and it is legally permitted to be constructed by the municipal authorities - assessee is at liberty to show that he is legally entitled to claim deduction under section 54F - claim of deduction under section 54F of the Act is set aside to the file of the Assessing Officer.

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• 2012 (8) TMI 577
  Penalty - Deduction of tax at source - Payment to non-residents - Penalty u/s 271C of the IT Act - lower deduction of tax - assessee contended that it received 'Nil deduction certificate' issued by DDIT (International Taxation), being the Assessing Officer of the Contractor Company - assessee company obtained confirmation letter from the DDIT (International Taxation), confirming the above certificate – Held that:- Assessee acted bona fidely and not deducted tax from payment made to the Contractor Company under the specific contract - section 273B of the Act does not make a levy of penalty under section 271C of the Act mandatory - assessee would not be liable to penalty if he is able to prove that there was a reasonable cause for failing to deduct the tax - certificate earlier issued u/s 194C (4) of the IT Act and clarification thereof issued by DDIT (International Taxation), Chennai, was of the bona fide belief that it was required to deduct TDS u/s 194C of the IT Act and not u/s 195 of the IT Act which is applicable in case of non-resident – penalty set aside - appeal of the assessee is allowed.

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• 2012 (8) TMI 576
  TDS u/s 194H - payment of commission - Diversion by overriding title - tri-party agreement - held that:- The relationship between the assessee and franchisee/commission agent is of principal and agent. - Where an amount of fees received by an agent, he receives it for and on behalf of his principal. The terminology used by the assessee that it will be a charge for payment of commission to the franchisee/commission, in our view, is against the principles of law of agency and hence the same is immaterial. The payment of commission amounts to discharge an obligation after such income reaches to the assessee. There is no quarrel with the principles enunciated in the aforesaid decisions but keeping in view the law laid down by the Hon'ble Apex Court in the case of Sitaldas Tirathdas (1960 (11) TMI 17 - SUPREME COURT) that the case is one of application of a portion of the income to discharge an obligation, we are of the view that the assessee's case falls outside the rule laid down in Raja Bejoy Singh Dudhuria's case. The payment of commission though mentioned in receipt issued by the franchisee/commission agent does not amount to discharge an obligation by an overriding title rather the said payment amounts to discharge an obligation after such income reaches to the assessee. Since the assessee is liable to deduct TDS on the payment of commission under the provisions of section 194H of the Act and has failed to deduct the same, therefore, the Assessing Officer was justified in disallowing the payment of commission of Rs. 56,30,173 under the provisions of section 40(a)( ia) of the Act

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• 2012 (8) TMI 575
  Disallowance on account of employer’s contribution to ESI – alleged that assessee company had not paid employers’ contribution before the due date prescribed – Held that:- Assessee paid the amount in question in the financial year relevant to the assessment year under appeal - when the liability is crystallized and the amount is paid, deduction shall have to be allowed in favour of the assessee as per the provisions of law and further the claim of the assessee should be allowed even with the help of section 43B of the Income-tax Act – disallowance deleted - appeal of the assessee is allowed Disallowance on account of bad debts written off – Held that:- Amount in question has been written off as bad debt in the profit and loss account of the assessee as irrecoverable - it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable - It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - assessee has satisfied the requirements of section 36(1)(vii ) of the Income-tax Act – addition deleted – In favor of assessee Disallowance of expenses claimed as export commission – Held that:- Assessee explained the reasons for inflating the commission which was due to mainly inflating the prices in the invoices - authorities below merely compared the commission with the preceding assessment year and rejected the claim of the assessee – CIT has not given any finding on the matter in controversy in the light of the submissions of the parties and documentary evidences available on record -commission cannot be disallowed by comparing with the earlier years due to the explanation of the assessee supported by documents – matter remanded to CIT - appeal of the assessee is allowed for statistical purposes

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• 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

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• 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)

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• 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.

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• 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

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• 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

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• 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.

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• 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.

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• 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

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• 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.

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• 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.

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• 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

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• 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.

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• 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).

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• 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

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• 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.

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• 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

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• 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

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• 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.

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• 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.

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• Customs

• 2012 (8) TMI 574
  Import of old and used photocopiers - Once the goods have been released on payment of redemption fine and nothing is left at this stage to consider about the claim of the appellant as to description of the goods disclosed in the bills of entry was proper, there is no scope to discard the order of the authority below except consideration on the quantum of penalty.

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• 2012 (8) TMI 573
  Restoration of CHA licence - Fraudulent export of prohibited narcotics drugs - violation of the provisions of Regulation 13 of CHALR, 1984 read together with Regulations 13(b), 13(e) and 19(8) of CHALR, 2004 - The appellant has suffered for a period of 6 years and is ready to give any undertaking to work diligently in the future years. - Difference of opinion - matter referred to larger bench.

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• 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

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• Service Tax

• 2012 (8) TMI 568
  Waiver of pre-deposit - demand of Service Tax was confirmed on account of money transfer services - contention of assessee is that it is covered under export of services - Held that:- delivery in the instant case, is complete only when it is received by the recipient in India. Therefore, the service provided by the applicant would not be covered under export of services – applicant is directed to make a pre-deposit of 25% of demand

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• 2012 (8) TMI 567
  Penalty - Erection, Commissioning or Installation service – non-payment of service tax – Held that:- Service liability is not shown separately - invoice is simply VAT/S.T. invoice - Appellants paid the Service Tax promptly as soon as it was pointed out before issue of show cause notice and taking registration also - They have not even questioned whether Sales Tax and Service Tax were leviable on the same transaction - lenient view as contemplated under Section 80 of Finance Act, 1994 - penalties under various Sections of Finance Act, 1994 imposed on the appellants are set aside and interest on service tax & service tax demand are upheld as not contested.

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• 2012 (8) TMI 565
  Extended period of limitation - Demand of duty – non-incaution of value of the sale of SIM card in gross taxable value – Held that:- Since the earlier decisions of the Tribunal were in favour of the assessee, it has to be held that there was bona fide doubt about the non inclusion of the cost of SIM card in the value of services. If that be so, no mala fide can be attributable to the appellant so as to invoke the extended period of limitation - demand raised beyond the period of limitation is barred by limitation - no penalty is imposable upon the appellants

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• 2012 (8) TMI 564
  Waiver of pre-deposit – denial of Cenvat credit of Service tax paid on stock brokers services - appellant is a promoter of Airtel JT Mobiles. They had held shares for a long time and finally they sold them and got out of the tag of promoters – Held that:- whether disinvest is business activity or not has to be considered in detail by examining the activities of the appellant over a period of time, its memorandum and articles of association and other relevant facts before coming to a conclusion – matter remanded - pre-deposit is to be waived

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• 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.

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• 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

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• 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

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• 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

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• 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.

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• 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

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• Central Excise

• 2012 (8) TMI 572
  Failure to furnish the re-warehousing certificate within stipulated period of 90 days in terms of Rule 173 of Central Excise Rules, 1944 - 100% EOU - goods cleared without payment of duty - demand of duty and penalty imposed - assessee contended furnishing copy of letter issued by the consignor M/s.FACOR in lieu of certificate - Held that:- Commissioner(Appeals) has rightly observed that AR-3A duly countersigned by the officer in charge of the warehouse at destination only being the authentic document as prescribed in the statute, the certificate of the consignee produced by the appellant will be of no avail. Also, appellant could not produce anything contrary or new to the above. balance of duty confirmed, however, taking into consideration all the facts and circumstances of the case, penalty imposed under Rule 173Q is set aside.

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• 2012 (8) TMI 571
  SSI Exemption - Contravention of provisions of Rule 8 of the Central Excise Rules, 2002 read with Notification No.08/03-CE dated 01.03.2003 - Held that:- The appellant did not opt for availing the benefit of Notification No. 8/2003-CE dated 01.3.2003 at the beginning of the financial year thus option for the availment is not in accordance with the Central Excise Rules - The duty and the Education Cess which they did not pay for not determining the value of Rs. 25,44,255/- in computation with the aggregate value for home consumption, is computable with the aggregate clearance value in terms of the Notification No.08/2003-CE dated 01.3.2003. Penalty under Rule 27 is not sustainable as it was not invoked in the impugned SCN.

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• 2012 (8) TMI 570
  Disallownace of CENVAT credit - job-work charges for grooving - Held that:- As it is not disputed that the service provider has paid the service tax and once the service tax has been paid and service has been used in or in relation to the manufacture of the final products of the appellant, the appellant is rightly entitled to avail CENVAT credit - in favour of assessee. Manpower supply services - Held that:- As affidavit along with a copy of the muster roll in support of assessee's claim that they have used the labour in or in relation to the manufacture of the final products were not shown or produced before the lower authorities and, therefore, it will be appropriate to remand this matter back to the original adjudicating authority to consider the claim - in favour of assessee by way of remand.

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• 2012 (8) TMI 569
  Alleged suppression of sales and wrong availment of benefit of Notification 64/95 dated 16.3.1995 - invokation of extended period of limitation - assessee engaged in the manufacture of IC engines, cleared goods manufactured to M/s. Goa Shipyard Ltd. by availing the benefit of Notification 64/95 - Held that:- It is found that respondents filed classification declaration before clearance of the goods. Also, necessary monthly returns alongwith invoices showing clearance of goods to M/s. Goa Shipyards Ltd. by claiming the benefit of Notification. In addition to this, also produced certificate from the competent authority that the goods in question are for use on board of naval ship. In these circumstances, the allegation of suppression with intent to evade duty is not sustainable. Demand beyond the normal period is held to be time barred - Decided against Revenue.

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• 2012 (8) TMI 566
  CENVAT credit – Held that:- Appellant has not registered with the department as input service tax credit distributor, he cannot distribute service tax credit in respect of services availed elsewhere than in the unit where manufacturing activity is taking place and duty liability is discharged - appellant directed to make a pre-deposit

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• 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.

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• 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

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• Wealth tax

• 2012 (8) TMI 595
  Valuation - exempted asset under wealth tax - Assessing Officer noticed that the assessee has not occupied the property in question for residential purpose for the period of 12 months - Assessing Officer valued the property as per 2nd proviso to Rule 3 of Schedule III of WT Rules – Held that:- What is required is that the house should have been exclusively used by the assessee for residential purpose and should not have been let out for rent or used for any commercial or non-residential purpose - property in question is residential house which has not been let out or used for the purpose other than residential; therefore, even though the assessee did not stay in the house so long, this house is exclusively for residential purpose, the condition as enumerated in the third proviso to Rule 3 are satisfied - conditions as enumerated in third proviso to rule 3 of Schedule III were satisfied by assessee

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• 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.

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