Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
August 29, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Exemption u/s 11 denied – Be it a construction of temple which is a religious activity or construction of institute for higher Buddhist learning which is for the object of general public utility, both qualifies for exemption u/s 11 of the Act - AT
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Nature of receipt – Entertainment tax – Revenue or capital receipt - the subsidy in respect of Multiplex located at Jaipur to be capital in nature. - AT
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Transfer pricing adjustment - Offshore activities – The fabrication and supplies are made by the third parties outside India to the assessee and the revenue is not taxing the profits of these third parties - matter remanded back for verification of facts - AT
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Additions u/s 68 - As the explanation offered by the assessee about the nature and source of the sums found credited in the books was not satisfactory there was, prima facie, evidence against the assessee, viz., the receipt of money. - AT
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Merely because the assessee has wrongly declared the long term capital gain on account of sale of these 4 flats the authorities are not justified in taxing the long term capital gain in the hands of the assessee when he is not the owner of the flats - AT
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Rejection of application of registration u/s 12A – DIT(E) at the time of grant of registration u/s 12A cannot step into the shoes of the AO to examine whether the assessee has carried out any activity with profit motive or there is violation of conditions laid down u/s 11 - AT
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Transfer of property – Application of section 2(47)(ii), (v) and (vi) - it was not only the money which has been received by the assessee which was required to be taxed but the consideration which had accrued to the assessee was also required to be taxed. - AT
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Validity of assessments u/s 153A – when nothing incriminating material was found in the course of search, completed / finalized assessments for such years could not be disturbed - AT
Customs
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Suspension of CHA licence under Regulation 20(2) / 20(3) of CHAR 2004 -Withdrawal or denial of such right is construed to be penal in character. Therefore law of limitation enacted in both the sub-regulations is mandatory. - AT
Service Tax
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Cenvat Credit - Exempted services - Even though prior to the period March 2007, the inter-connectivity services were not taxable but the same have to be treated as 'exempted services', in the light of definition given in Rule 2(e) of the Cenvat credit Rules, 2004 - AT
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GTA Services - where admittedly no consignment notes were issued by the 24 transporters for transportation of the appellants coal, the Goods Transport Agency service cannot be held to have been rendered - AT
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Extended period of limitation - bonafide belief - marketing agent service - Business Auxiliary Service - demand and penalty both set aside - AT
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Refund - export of goods - Terminal handling service - the service tax paid by their CHA for providing the CHA service can not be treated as service tax paid under Port Service - AT
Central Excise
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Clandestine removal and under valuation - private records - presumption - The Revenue has miserably failed to produce corroboration evidence on records so as to substantiate the charges of clandestine removal - AT
VAT
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Computation of Deferred tax - the amount of tax payable according to the returns is the amount of tax calculated on the sales of the goods manufactured minus the input tax credit. - HC
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Export - penultimate sales - There was an inextricable link between the local sale by the Petitioner to M/s Crown, and the export of those very goods thereafter to the Algerian Navy - exempt from sales tax / vat - HC
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Classification of goods - Colour world machine comprising of tinting machine, computer and UPS - all three together deserve to be treated as one single unit and liable to be taxed at 12.5% - HC
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Classification of goods - Road marking points/material (RMP) - Apcomark and Thermoline - RMP cannot be classified as petroleum resins and it cannot be stated that the said petroleum resin gives its essentiality character to RMP. - HC
Case Laws:
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Income Tax
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2014 (8) TMI 843
Reopening of assessment u/s 148 - Rectification of order u/s 154 – Held that:- The information was not in the possession of the AO prior to the passing of the order of rectification u/s 154 - the assessee neither opted for allotment of shares nor was allotted shares but has only sold rights ESOP, the AO has come to conclusion that income chargeable to tax has escaped assessment - the material has nexus with the reason to believe that income chargeable to tax has escaped assessment - there is no change of opinion as the original R.O.I. was processed u/s 143(3)(a) - The order passed u/s 154 of the Act cannot be a case of formation of an opinion. If it has to be held that the AO formed an opinion while passing an order u/s 154, Only mistakes apparent on record can be corrected u/s 154 of the Act - when the documents were not with the AO in any of the proceedings, prior to issue of notice u/s 148, the question of exercising one’s mind on these documents and forming of opinion does not arise - there was fresh material and as it has been held that there is no change in opinion – Decided against Assessee. Treatment of LTCG on sale of equity shares – Employee stock option scheme – Held that:- On the date of grant the assessee has acquired certain rights i.e. the right to purchase shares in Adobe System Inc., at a particular rate by exercising the option - This right to acquire shares is a capital asset - The date of acquisition of the right is the date of grant - The assessee has exercised the option to purchase the shares only on the date on which he choose to sell the shares - what was acquired by the assessee on the date of grant was a right, which was held by him until he exercised his option to purchase share - The period of holding of the capital amount would be the period of holding of the ESOP right, which is a capital assets, is from the date of grant to the date of exercising the option - The fact as to whether the capital gain in question is a short term or long term capital gain or not has to be decided based on the period of holding of this right - If the period of holding is more than 36 months then it is a long term capital gain - The right in question is not a share held by the assessee and hence the period of 12 months does not apply - the assessee has sold the shares on the date of exercising the option itself - the transaction of sale of shares is a short term capital gain. The assessee acquired certain rights on the date of grant, which is a capital assets and he transferred these rights on the date of exercise of option to purchase share and the date of sale, which is the same date in this case, and the period of holding of these rights being less than 36 months, the gain is to be assessed as short term capital gain - the contention of the assessee that the appeal against the order passed u/s 147 and the appeal against the order passed u/s 154 are separate proceedings and there is no question of merger - the AO has passed an ex-parte order, the issue of AO is set aside for fresh adjudication – Decided in favour of assessee.
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2014 (8) TMI 842
Bond issue expenses incurred for raising capital – Held that:- The matter has been decided by the High Court in assessee’s own case for the earlier assessment year in the judgment of Commissioner of Income Tax-4 Versus M/s. Hindustan Organics Chemicals Ltd. [2014 (7) TMI 477 - BOMBAY HIGH COURT] – Tribunal has rightly came to the finding that the expenditure was a revenue expenditure and allowable u/s 37(i) of the Act - the finding of the Tribunal cannot be in any way said to be vitiated on the ground of perversity or any error apparent on the face of the record – Decided against Revenue. Closing stock of raw materials on ad-hoc basis @ 2% made u/s 145A – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that no details of the direct expenses were furnished, the AO estimated the direct expenses at 2% of the total value of closing stock of raw materials and stores, which resulted in to the addition to the closing stock in accordance with the provisions of section 145A of the Act - CIT(A) gave a finding that the assessee has been valuing its closing stock of raw material inclusive of freight charges as reflected from the purchase day book and general ledger of item and there is no change in the valuation of the stock - CIT(A) held that the closing stock of previous year would be the opening is stock of the year and therefore estimation of the stock is not justified – Decided against Revenue.
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2014 (8) TMI 841
Interest income to be treated as business income or income from other sources – Business of letting out property - Held that:- The borrowed amount has been lended to its sister concern - The amount was borrowed at the rate of 8.25% interest and the same was given at the rate of 11.03% interest - The intention is clear, the assessee was engaged in money lending business - the main object of the assessee company may not be money lending business but ancillary object clearly show that the assessee is engaged in financial activities - the income from interest should be taxed under the head profits and gains of business or profession - the AO is directed to treat the interest income under the head “Profits and Gains of Business or Profession – Decided in favour of assessee. Taxability of income from amenities under the head “Income from other sources” – Held that:- The assessee has entered into two separate agreements one relating to the rent of the leased premises and the other relating to the amenities - Relying upon CIT Vs. J.K. Investors [2012 (11) TMI 186 - BOMBAY HIGH COURT] - the service agreement is totally dependent upon the rent agreement considering the amenities to be provided by the assessee, which includes lift facility, security, common area facility, car parking etc. - all the amenities are part and parcel of the building which are necessary for the enjoyment of the building by the tenant and otherwise no tenant will occupy the building on lease and such amenities not only increase the cost of the building but also the rental income - the AO is directed to treat the income from amenities under the head “Income from House property and compute the income as per the provisions of law under the head “Income from House property – Decided in favour of Assessee.
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2014 (8) TMI 840
Exemption u/s 11 denied – Assessee charitable trust and fulfilled all conditions – Settlor of trust himself Buddhist scholar - Held that:- The AO made detailed enquiries and conducted hearings on several dates and made detailed noting in the order sheet entries - the assets acquired by the assessee trust out of the capital outlay must be with the objects of charitable or religious purposes and in such circumstances, even the construction of temple or construction of institute for higher Buddhist studies and research, if accepted, at its on face value, even then the AO could not have denied exemption u/s. 11 of the Act because such an application of income for construction of temple as well as institute for Buddhist higher studies amounted to application of income for charitable purposes as well as religious purposes - the building which the assessee constructed was a temple even then the AO could not have denied exemption u/s 11 of the Act because exemption u/s 11 is permissible to religious as well as charitable trust. Relying upon Commissioner of Income-Tax Versus Rajneesh Foundation [2005 (7) TMI 37 - BOMBAY High Court] - the meaning of words advancement of any other object of general public utility has been subject of discussion and adjudication - the definition of chartable purpose u/s.2(15) of the Act includes the words advancement of any other object of general public utility and the objects claims the activities of the trust are for the advancement of objects like the teachings of Buddha to spread and for that purpose the assessee has claimed application of income towards construction of study and research centre for higher Buddhist study including construction of Buddhist temple - Since inception the assessee trust is pursuing the activities connected or associated with preaching, spreading and disseminating the ideas, ideals and the teachings of Lord Buddha. It is also a temple and assessee trust is performing religious functions and it is established for charitable purposes - The present trust was for the higher Buddhist study and research centre to propagate the Buddha thought and philosophy which would admittedly be an object of general public utility - Be it a construction of temple which is a religious activity or construction of institute for higher Buddhist learning which is for the object of general public utility, both qualifies for exemption u/s 11 of the Act – the exemption u/s. 11 of the Act is allowed to the assessee trust - Decided in favour of Assessee.
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2014 (8) TMI 839
Nature of receipt – Entertainment tax – Revenue or capital receipt - Incentive given to assessee for assisting him in carrying out the business operations – Held that:- The State Government proceeded to exempt entertainment tax for a period of 5 years payable by a "new" cinema hall constructed, subject to the condition that commercial exhibition of films in such cinema hall was required to be started by 31.03.2000 - In the scheme of the Act of 1957, where entertainment tax is determined and recoverable from the proprietor of the entertainment and is levied with reference to the number of admissions to the entertainment, when the State Government had exempted such proprietor of new cinema hall from payment of entertainment tax on the given condition, the object was clearly to promote the construction of new cinema halls - following the decision in [ITA No. 1984, 2299, 2300/AHD/2009 order dated 09.09.2011] - Merely because the amount was not directly meant for repaying the amount taken for construction of the cinema hall, its purpose could not be considered to be other than that of promoting construction of new cinema hall - the source of funds for construction of cinema hall is irrelevant; and it would also not matter if the grant would be available after the business has been set up - the assistance cannot be said to be an operational subsidy so as to be taken as a revenue receipt - the remission had been granted by way of incentive of capital receipts in the construction of cinema building - the subsidy in respect of Multiplex located at Jaipur to be capital in nature. Applicability of Explanation 10 to sec. 43(1) – Held that:- E. Tax subsidy was not given to meet the cost of any specific asset - the department itself proposed that there was no obligation on assessee to utilize it for any specific purpose will not be hit by Explanation 10 to Sec. 43(1) - entertainment subsidy being for the promotion of cinema/ multiplex industry, only because the methodology adopted is to cap it to capital cost of assets will not mean to reduce the cost of asset directly or indirectly in terms of Explanation 10 to Sec. 43(1) - the subsidy received by the Assessee cannot be received from the written down value for the purpose of computing depreciation - the alternate contention of the Revenue of reducing the amount of subsidy from the block of assets cannot be accepted – Decided against Revenue. Expenses in respect of abandoned project disallowed – Held that:- Following the decision in CIT vs. Priya Village Roadshows Ltd. [2009 (8) TMI 765 - Delhi High Court] – the assessee was also involved in the business of running cinemas - Revenue could not bring any material to distinguish the facts with that of earlier years nor has brought any binding decision in its support - the expenses is held to be allowable – Decided in favour of Assessee. Claim of deduction u/s. 80IB – Held that:- As decided in assessee’s own case it has been held that the capacity of cinema theatre should be atleast 900 seats and cinema theatre should not have less than 100 seats - Commercial shops should not be less than 3000 sq. ft, however, the minimum built-up area of each shop should not be less than 250 sq.ft. A multiplex is required to be centrally air-conditioned - The cinema theatre should use seat-batch not less than 20 inches - the lay out plan was in-conformity with the prescribed IT Rules – the matter is remitted back to the AO for fresh adjudication – Decided in favour of revenue.
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2014 (8) TMI 838
Depreciation of wagons – Assets leased to Western Railways - Held that:- Lease deed that the equipments leased will be returned back to the lessor after the expiry of the lease - Following the decision in Gujarat Narmada Valley Fertilizers Co. Ltd. Versus The ACIT Bharuch Range, Bharuch [2013 (8) TMI 628 - ITAT AHMEDABAD] - Nothing has been brought to disapprove the said clauses of the lease deed by any of the authorities below - It is not proved that assessee is only a financer and is not interested in the assets and therefore, it cannot be said as full payout lease - the Assessee is eligible for claim of depreciation – Decided in favour of assessee. Admission of additional ground - Depreciation on goodwill u/s 32(1)(iii) – Held that:- The ground of depreciation on goodwill was not raised before AO or CIT(A) but is raised before Tribunal for the first time - the matter needs to be decided at the end of CIT(A) –thus, the matter is remitted back to the CIT(A) – Decided in favour of Assessee. Interest u/s 36(1)(iii) disallowed - Borrowings utilized for non-business purpose or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that Revenue could not controvert by bringing any contrary material on record – CIT(A) rightly was of the view that the manufacturing units of the assesses company are situated at a distance from nearest urban area and therefore adequate educational facilities are not available - The interest free advance given to the trust i.e. NE&SRS is to support the college - the financial support to the trust and 'thereby to college is motivated out of the commercial expediency - there was no reason to interfere with the order of CIT(A) – Decided against Revenue. Expenses on maintenance on assets of Gujarat Narmda Auto Ltd. – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the AO made a disallowance being the expenditure incurred on protecting the assets of wholly owned subsidiary i.e. M/s Gujarat Narmada Auto Ltd. - CIT(A) has rightly allowed the claim of the assessee – Decided against Revenue. Repairs and maintenance expenses – Held that:- Following the decision in Gujarat Narmada Valley Fertilizers Co. Ltd. Versus The ACIT Bharuch Range, Bharuch [2013 (8) TMI 628 - ITAT AHMEDABAD] – the replacement of stores and spares can be sued independently and its of replacement of plant and machinery - it has endorsing benefit to the assessee - The matter is required to re-examine with reference to addition confirmed by the CIT(A) – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of Revenue.
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2014 (8) TMI 837
Transfer pricing adjustment - Offshore activities – whether there are separate out of India activity or not – Held that:- There are so many disputed facts which need further verification by the AO to arrive at the just and proper conclusion to make a just assessment - The claim of the assessee is that contract is in two parts which has been disputed by the CIT(DR) - As per him, there is only one contract in case of the assessee and there is no such division “inside India” and outside India” activities - CIT(DR) has also disputed the contentions of the assessee that there are activities outside of India that can be considered as separate, identifiable and distinct activity - the activities of procurement of material from third party are for executing the contract in India - no separate project have been developed out of India - the issue is not that how the outside India activities and it revenue was attributable to the PE of the assessee in the form of offices and construction of PE but the issue is that there are no separate out of India activity - Against the claim of the assessee that there is absolutely no material to even remotely suggest that Indian offices had any role to play in the offshore activities of designing, fabricating, procurement of equipment and supply - The project has been managed and executed from Indian offices of the assessee - The procurement, fabrication, designing, services, if any, rendered from outside India have been compensated by Indian PEs - The body and sale of the ONGC project lies in India and it had role in all the activities, if any, carried outside India. Burden to prove – Fabrication and designing services were rendered from outside India or not - Held that:- The primary burden of proof is on the assessee to justify that fabrication and designing services were rendered from outside India - It should have submitted the details of all the expenses and location and incurring the expenses against the so called receipts on account of “imported components” - This receipt has gone in the hands of the assessee without justifying the expenses against the same and profits earned - in absence of providing the basic information of activities, the assessee could not claimed that revenue should prove what role the Indian offices had in regard to those unproved activities outside India. The fabrication and supplies are made by the third parties outside India to the assessee and the revenue is not taxing the profits of these third parties. Profits out of price “imported components “ is receipts minus expenses on purchases for which information is not filed to the authorities in India and AO has made a reasonable estimation on income chargeable to tax in India – thus, the matter is remitted back to the AO for examination of the related facts based on the material made available on record to arrive at a definite conclusion as to whether the assessee has carried out any distinct and identifiable business operation in respect of the project outside India, after affording adequate opportunity of being heard to the assessee and make the afresh assessment accordingly – Decided in favour of Assessee.
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2014 (8) TMI 836
Transfer pricing - selection of comparable - Jurisdiction of TPO – Held that:- The assessee is a distributor whose remuneration model necessarily is different from a licensed manufacturer as has been held in BMW India Pvt. Ltd. - the transaction to be an international transaction - the applicability of the bright line as a methodology for calculating the AMP is also decided in Revenue’s favour - as far as calculation of “bright line” is concerned the TPO is directed to correctly calculate the “bright line” keeping in mind that a fresh search of comparables be done following the directions of the Special Bench - the TPO needs to carry out a fresh search for selecting the comparables after a proper FAR analysis making adjustments which are warranted on facts - the TPO is directed to correctly calculate the AMP expenses by excluding the selling expenses as they do not from part of AMP basket of expenses – the matter is remitted back to the TPO for application of mark-up by way of a speaking order in accordance with law – Decided partly in favour of assessee. Provision for warranty based on actuarial or scientific method or not - Advertisement charges to be treated as deferred revenue expenditure or not - Advance service charges – Held that:- The calculation is based on neither actuarial valuation nor any other scientific method - the material available on record and the peculiar facts and circumstances of the case and the orders of the Tribunal in the assessee’s own case, it is not clear as to on what basis the AO has held the expenditure to be deferred Revenue expense - The factum of incurring the expenditure has not been doubted by the Revenue - the AO is directed to allow the expense as a Revenue expenditure - For income to accrue, it is necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise, and a debt must have come into existence and he must have acquired a right to receive the payment - there is nothing to suggest that the assessee has fully contributed to its accruing by rendering services so as to entitle him to receive the entire amount – Decided in favour of Assessee.
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2014 (8) TMI 835
Disallowance u/s 14A r.w. Rule 8D – Held that:- The assessee is having net interest income as is apparent from the figures of the P & L - assessee had received a net interest income against which he has incurred an expenditure - the assessee had a net positive income of bank interest - the investment in associated companies is never made with the purpose of earning dividend but these investments are made for strategic purpose and similarly, investments in mutual funds also do not involve much cost as compared to making investment in direct equity shares – relying upon Commissioner of Income Tax-II Versus M/s Hero Cycles Ltd. [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT] - both the AO and CIT(A) have held that some amount must have been incurred for earning exempt income, ignoring the important fact that no new investment was made and significant part of investment was in associate companies and moreover there is no nexus between the borrowed funds and investments - the assessee has earned net interest income meaning thereby that no net interest expenditure was incurred - the disallowance u/s 14A is not sustainable – Decided in favour of assessee. Unexplained cash credit u/s 68 – Held that:- The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record - The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assess1e that it was receipt of an income nature - assessees received foreign gifts from one common donor - The payments were made to them by instruments issued by foreign banks and credited to the respective account of the essessees by negotiation through a bank in India – assessee has been unable to explain the creditworthiness of the persons who have made this investment - As the explanation offered by the assessee about the nature and source of the sums found credited in the books was not satisfactory there was, prima facie, evidence against the assessee, viz., the receipt of money. The burden was on the assessee to rebut the same, and, it failed to rebut it, it can therefore be held against the assessee that it was a receipt of an income nature - assessee has failed to discharge its onus to produce legal acceptable evidence of creditworthiness of the persons - The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee - the appellant has offered no creditable explanation about the amounts credited in his books, the receipt of ₹ 12,00,000/- therefore, cannot be treated as explained - CIT(A) has elaborately dealt with the issue and also rightly upheld the addition – there was no infirmity in the same - the AO had not lawfully reopened the assessment by not supplying the copy of reasons recorded, no specific ground has been taken by the assessee in the grounds of appeal and neither the assessee had filed any application for admission of additional ground and moreover – Decided against Assessee.
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2014 (8) TMI 834
Validity of cancellation of registration granted u/s 12A – Held that:- The assessee trust was granted registration u/s.12A of the I.T. Act - CIT cancelled the registration granted earlier on the ground that the assessee trust is running the hospital on commercial basis with profit motive and is taking undue advantage of tax concession given by the statute to the institutions engaged in genuine charitable activities - once registration is granted to the trust/institution and if subsequently the AO finds during the assessment proceedings that the income of the charitable trust is applied directly or indirectly for the benefit of the persons referred to in section 13(3), then he has ample power to deny exemption to that extent u/s.13(1)(c) of the I.T. Act – relying upon Modern Defence Shikshan Sansthan Vs. CIT [2007 (2) TMI 255 - ITAT JODHPUR] - CIT is not justified in cancelling the registration granted earlier to the assessee trust u/s.12A of the I.T. Act, 1961 – Decided in favour of Assessee. Award of cost u/s 254(2B) – Held that:- CIT has passed an order u/s.12AA(3) of the Act during the course of discharge of her duty as CIT - While discharging her duty, her action might have caused some hardship to the assessee due to error of judgement but it does not warrant levy of cost on the department – relying upon Pooran Mal Vs. Director of Inspection (Investigation), Income Tax, New Delhi and others [1973 (12) TMI 2 - SUPREME Court] - even though the innocent is likely to be harassed by a raid for the purpose of search and seizure that cannot be helped - there is no such action of search and seizure which causes serious invasion in the privacy of the person - Commissioner was discharging her quasi-judicial duty - there is nothing on record to suggest that the action of the CIT was malafide. Approval u/s 80G(5)(vi) – Held that:- The trust was granted approval u/s.80G(5)(vi) of the I.T. Act. on 30-12-2009 for the period from 23-02-2009 to 31-03-2011 and valid in perpetuity unless specifically withdrawn in view of Board’s Circular No.07/2010 order dated 27-10-2010 - CIT subsequently withdrew the approval granted u/s. 80G(5)(vi) of the I.T. Act on the ground that the registration granted earlier u/s.12AA has been cancelled by her – as the matter relating to the registration u/s.12A of the I.T. Act is already remitted back to the CIT, the approval granted earlier u/s. 80G(5)(vi) of the I.T. Act to the assessee trust is also remitted back – Decided in favour of Assessee.
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2014 (8) TMI 833
Determination of LTCG – Sale of flats and claim of exemption u/s 54 - Held that:- The flats sold do not belong to the assessee and they belong to his father Shri Purushottam Bhagwani and the assessee has erroneously and on wrong advice by the Chartered Accountant, declared the long term capital gain in his hands and claimed exemption u/s.54 - it was clearly brought on record that the flats do not belong to the assessee and the flats belong to the father of the assessee - the AO is duty bound to determine the taxability of a particular income in the hands of the assessee as per relevant tax provision irrespective of the fact that the assessee has offered the same in the return of income - Merely because the assessee has wrongly declared the long term capital gain on account of sale of these 4 flats the authorities are not justified in taxing the long term capital gain in the hands of the assessee when he is not the owner of the flats – thus, the order of the CIT(A) is set aside – Decided in favour of assessee.
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2014 (8) TMI 832
Rejection of application of registration u/s 12A – Approval u/s 80G – Charitable purpose u/s 2(15) - Held that:- Medical relief, education, relief to the poor and advancement of any other object of general public utility will come within the ambit of ‘charitable purpose’ - the DIT(E) cannot lay stress upon the objects incidental or ancillary to main objects to assume that the intention of the assessee is commercial in nature – Relying upon ICAI Accounting Research Foundation Vs. DCIT [2009 (8) TMI 61 - HIGH COURT OF DELHI] - for achieving the main charitable object if an institution carries on some commercial activity and generate profit there from, such activities cannot be considered to be the business activity with profit motive so long as the profit earned is utilized for the purpose of achieving the charitable object - the DIT(E) cannot come to a conclusion merely on assumptions and presumptions that the assessee has violated or will violate the provisions contained in section 11 of the Act. DIT(E) at the time of grant of registration u/s 12A cannot step into the shoes of the AO to examine whether the assessee has carried out any activity with profit motive or there is violation of conditions laid down u/s 11 of the Act - DIT(E) has not found any adverse material to show that the main objects of the assessee are not of charitable nature or its activities are not genuine - the question of exemptions under section 11 and 12 would only come at the time when the trust/institution is assessed to tax –thus, DIT(E) was not correct in rejecting assessee’s application u/s 12A of the Act - DIT(E) is directed to grant registration u/s 12A of the Act to the appellant institution and also consider granting approval u/s 80G(5) of the Act subject to fulfillment of conditions laid down under clause (i) to (v) of section 80G(5) of the Act – Decided in favour of Assessee.
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2014 (8) TMI 831
Computation of income from House Property – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the gross annual ratable value of the property for the purposes of computation of house property income is to be determined at the annual value determined by Municipal Corporation - the AO is directed to determine ALV at the value determined by Municipal Corporation – Decided in favour of Assessee. Addition u/s 92 – Purchases of Cefotaxime Sodium & Roxythromycin – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the transaction between the assessee and the non-resident company was not an "arranged transaction" - The certificates produced by the assessee from various parties establish that the assessee did not buy the product cefoaxime sodium at a price higher than the price at which the same product was sold to others – AO failed to establish a case where provisions of section 92 could be applied to disown the loss incurred by the assessee – Decided in favour of Assessee. Full revenue deduction of VRS & early retirement incentives – Held that:- Various manufacturing unit of assessee at Mulund, Ankleshwar and Goa and under loan licence agreement part of the corporate business and many of the projects which were being maintained at Mulund were continued to be produced under loan licence agreement - the expenditure incurred on VRS was wholly and exclusively for the purpose of business – there was no merit in the action of the lower authorities for declining the assessee’s claim for deduction of VRS and early retirement incentives paid to the workers – Decided against Revenue. Sales-tax set off and refund to be included in the total turnover - Computing of deduction u/s 80HHC – Reduction of Processing charges – Held that:- Following the decision in ACG Associated Capsules Vs. CIT [2012 (2) TMI 101 - SUPREME COURT OF INDIA] - sales tax refund and set off will be considered for reduction as per Explanation (baa) to Section 80HHC -the AO that only net receipts after deducting expenditure incurred for earning such income will be considered for reduction from eligible business profit as per Explanation (baa) – thus, the Matter is remitted back to the AO for adjudication – Decided in favour of Assessee. Indirect cost of trading exports – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that expenditure incurred at branch office at Hyderabad which had no connection or link with export could not be considered as part of indirect cost - the indirect cost to be considered for the purpose of Section 80HHC would be the total indirect cost incurred for the total turnover and not only relating to the export turnover - the expenses incurred at Hyderabad Branch is not directly related to domestic sales which have to be considered as part of indirect cost. Bad debts disallowed – Held that:- Following the decision in TRF Ltd. Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] - After April 1, 1989, 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 - since the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee - thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of Assessee. Levy of interest u/s 234D – Held that:- Relying upon CIT Vs. Indian Oil Corporation Ltd. [2012 (9) TMI 517 - BOMBAY HIGH COURT] - the proceeding in regard to refund which has been granted u/s 143(1) of the Act are concluded and final - The refund which has been granted u/s 143(1) of the Act is provisional, to be finally determined when final assessment order is passed under section 143(3) of the Act - Explanation-2 to section 234D of the Act makes it clear that it would be applicable to pending proceedings i. e. where assessment in respect of such assessment year is not completed on 1/6/2003 - the order of the CIT(A) is upheld – Decided against Assessee. Computation of deduction u/s 80HHC - Exclusion of processing charges and bad debts from turnover – Held that:- Following the decision in CIT Vs. Ravindranathan Nair [2007 (11) TMI 10 - Supreme Court of India] - the processing charges were included in the gross total income from cashew business - even according to assessee the charges constituted an important component of gross total income from cashew business - in terms of clause (baa), 90% of the "independent income" had to be deducted from gross total income to arrive at Business Profits to which the fraction had to be applied - the processing charges constituted independent income similar to rent, commission, etc., which formed part of the gross total income, the same had to be reduced by 90% as contemplated in clause (baa) to arrive at Business Profits - the processing charges were includible in the total turnover in the formula under Section 80HHC(3) of the I.T. Act - the AO is directed to re-compute the deduction u/s.80HHC after excluding the net income from processing charges - bad debts recovered is neither part of total turnover nor export turnover for the purpose of Section 80HHC. Re-computation of indirect cost attributable to export of trading goods – Held that:- Following the decision in AVENTIS PHARMA LTD. Versus DEPUTY COMMISSIONER OF IN COME TAX, RANGE-8(1), MUMBAI [2013 (1) TMI 257 - ITAT MUMBAI] - for the purpose of sec. 80HHC(3)(b) r.w.clause (e) of Explanation, the indirect cost to be allocated in the ratio of export turnover of trading goods to the total turnover has to be taken as the total figure of the indirect cost incurred for the total turnover and not the indirect cost directly related to the export turnover as held by the CIT(A) - the AO has reduced from the total cost of business, cost of goods as well as the other items – Decided in favour of Revenue. Calculation of deduction u/s.80HHC without reducing 90% of the DEPB license sold – Held that:- Following the decision in Topman Exports Vs. CIT [2012 (2) TMI 100 - SUPREME COURT OF INDIA] - a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to section 80HHC read with the words used in clauses (iiid) and (iiie) of section 28, the assessee was entitled to a deduction under section 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee – the AO is directed to compute the deduction u/s 80HHC – Decided partly in favour of Revenue.
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2014 (8) TMI 830
Disallowance of purchases – Held that:- Assessee failed to furnish the relevant details/ bills and vouchers – the two types of purchases forms major portion of the total amount of purchases claim - purchases made through credit card, establishes the fact of purchases also to some extent - the disallowance of purchases claim to the tune of 30% appears to be on higher side - the assesse has failed to furnish the primary evidences and other circumstances of the issue, the disallowance is restricted to ₹ 50,000 – the order of the CIT(A) is modified – Decided partly in favour of Assessee. Disallowance of administrative and selling expenses – Held that:- The assessee has incurred the expenses toward purchases of books and periodicals, car repairs, telephone expenses, salaries, repairs and maintenance, printing and stationery and professional fees - most of the expenses were incurred through cheque payment/credit card payment - the Assessee has failed to furnish the relevant vouchers and bills disallowance of part of the claim is justified to take care of deficiency if any in the claim - the disallowance is restricted to 10% of the amount claimed by the Assessee - the order of the CIT(A) is modified – Decided partly in favour of Assessee.
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2014 (8) TMI 829
Unexplained expenditure u/s 69C - Deletion of addition on the basis of loose sheets seized from premises – Contents of the documents not appreciated – Figures written were cash payments made to staff – Held that:- CIT(A) was rightly of the view that the AO cannot blow hot & cold at the same time whereby he cannot rely partly on the statement given by Shri Ashok Kumar Dokania. Either the statement is fully acceptable to the AO or not acceptable to him - He cannot be permitted to substitute figures of payment and the dates of payment without giving any cogent reasons - the assessee has not been given sufficient opportunity to cross-examine Shri Ashok Kumar Dokania during the course of assessment proceedings - the loose sheet is neither found nor seized from the premises of the assessee - CIT(A) has correctly taken cognizance of all the relevant facts and materials for deleting the addition on the basis of loose sheet found and seized from third party’s premises – Decided against Revenue.
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2014 (8) TMI 828
Jurisdiction of CIT(A) u/s 148 – Reopening of assessment – Held that:- Following the decision in Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited [2007 (5) TMI 197 - SUPREME Court] - So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) - the assessee had not disclosed full capital gain, therefore notice u/s 148 was validly issued - the reopening of the assessment is upheld – Decided against Assessee. Addition made by AO – Assessee being a member of society – Capital gain to be assessed in the hands of society or not – Held that:- Following the decision in Charanjit Singh Atwal Versus Income-tax Officer, Ward -VI (1), Ludhiana [2013 (8) TMI 364 - ITAT CHANDIGARH] - It is the members who are owning the plots and the Society was only a facilitator - payment for consideration was to be made to an individual plot holder and in fact consideration was mentioned in terms of per Member - assessee has filed a return declaring capital gain against part money received against his plot - it is the individual member who are liable to tax in respect of transfer to plots and the Society being only a facilitator or Post office - Decided against Assessee. Transfer of property – Application of section 2(47)(ii), (v) and (vi) – Estimation of value of flat – Held that:- Following the decision in Charanjit Singh Atwal Versus Income-tax Officer, Ward -VI (1), Ludhiana 2013 (8) TMI 364 - ITAT CHANDIGARH] - As per Section 45 of IT Act, income-tax was to be charged under the head "capital gain" on transfer of a capital asset and shall be deemed to be the income of the previous year in which transfer took place - The year of transfer was the crucial year and not the time of the receipt - 'Accrue' means 'to arise or spring as a natural growth or result', to come by way of increase' - 'Arising' means 'coming into existence or notice or presenting itself' – both the words were used in contradistinction to the word 'receive' and indicate a right to receive - They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income, which was more or less inchoate and which was something less than a receipt - An unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual - it was not only the money which has been received by the assessee which was required to be taxed but the consideration which had accrued to the assessee was also required to be taxed. section 2(47)(v) r.w. section 45 indicates that capital gains was taxable in the year in which such transactions were entered into even if the transfer of immovable property was not effective or complete under the general law – Charging an item of income under the head 'Capital gains" require that there should be some profit, Such profit must be arising on account of transfer and there should be capital asset which has been transferred - There was no dispute that a capital asset was involved and there was some profit also – Capital gain would be computed by considering the full value of consideration whether received or accruing as a result of the transfer - relying upon Mysore Minerals Ltd. v. CIT [1999 (9) TMI 1 - SUPREME Court] it was not only the consideration received which was relevant but the consideration which had accrued was also relevant - irrevocable general power of attorney which leads to over all control of the property in the hands of the Developer, even if that means no exclusive possession by the Developer would constitute transfer - It can be said that it had to be construed as 'possession' u/s 2(47) – Decided against Assessee.
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2014 (8) TMI 827
Validity of assessments u/s 153A – Held that:- For the AYs 2004-05 to 2007-08, the assessee has already filed returns of income within time before the search - assessee produced books of account and relevant details before the AO, which is evident from the copies of the order sheet placed on record and the AO after examining the books of account and the details furnished by the assessee accepted the returned income – as per second proviso to section 153A(1)(b) of the IT Act, no assessment would be deemed to be pending in the year under appeal on the date of initiation of search and as such, the same could not be said to have abated – relying upon CIT vs. Smt. Shaila Agarwal [2011 (11) TMI 213 - ALLAHABAD HIGH COURT] - no assessment proceedings were pending against the assessee for the AYs under appeals on date of search so as to abate any assessment or re-assessment - second proviso to section 153A would clearly apply - when nothing incriminating material was found in the course of search relating to AYs 2004-05 to 2007-08, completed / finalized assessments for such years could not be disturbed and as such invoking of the provisions of section 153A against the assessee in these years would not be valid and no addition could be made against the assessee - Decided in favour of Assessee. Addition on account of suppressed production – Low yield ratio - Held that:- Zarda is excisable item/goods and subjected to inspection and control by the Excise Authorities and it is admitted fact that the Excise Department accepted the manufactured goods and cleared the goods manufactured on duty paid. Such a circumstance also supports the explanation of the assessee that there is no suppression of the yield – following the decision in CIT vs. Mascot (India) Tools and Forgings Pvt. Ltd. [2009 (7) TMI 675 - ALLAHABAD HIGH COURT] - there is no question of any suppression of sales in the case of assessee as no material was found during the course of search of any sales made by the assessee outside the books of account - CIT(A) has invoked his powers u/s. 251 of the IT Act for the purpose of rejection of books of account u/s 145(3), which have not been rejected by the AO, but there is no observation in the appellate order if the CIT(A) while using such powers, issued any show cause notice to the assessee for taking any adverse inference which has not been taken by the AO in the assessment order - such powers should not have been used against the assessee without affording opportunity of being heard to the assessee. CIT(A) also noted that the AO had worked out the value of suppressed production on the average cost price, but the same is not correct as concealed production would result in sale to fetch unaccounted income - The findings of the CIT(A) also suggest that even part addition sustained by the CIT(A) and the addition made by the AO was wholly unjustified - on mere comparison of cases without bringing adequate material on record, the CIT(A) should not have sustained part addition without considering the principle of law that the entire sales would not be profit of the assessee - the authorities below were not justified in making or confirming any addition against the assessee – Decided in favour of assessee. Bogus Liabilities – Held that:- The details would clearly reveal that the sundry creditors are coming up from earlier years except in one case which was a new party - there is no question of making any addition against the assessee in assessment year under appeal in respect of old balances - total liabilities most of the times have reduced, therefore, in assessment year 2004-05, the matter requires reconsideration at the level of CIT(A) to verify the old balances, which if coming from earlier years should have been deleted and for the new parties, the assessee would be required to furnish evidences to prove the genuineness of the same - the AO has not done any exercise in this matter and old liabilities coming up from earlier years have been added without any just cause – thus, the matter is remitted back to the CIT(A) with a direction to re-decide the issue after verifying the old balances coming up from earlier years and in case the balances are coming up from earlier years, no addition should be made against the assessee and for new items appearing for the first time under sundry creditors, the assessee shall have to furnish the evidences before the CIT(A) for verification of the same – Decided in favour of Assessee. Addition of construction of building on the basis of DVO’s report – Held that:- CIT(A) followed his order in the case of M/s. Kesarwani Sheetalaya for the AY 2005-06 and confirmed the addition - Since the issue is restored for re-consideration, CIT(A) is bound to pass reasoned order - assessee contended that the books of account have not been rejected and following the decision in Sargam Cinema Versus. Commissioner of Income-tax [2009 (10) TMI 569 - Supreme Court of India] - when books of account of the assessee are not rejected, the AO cannot refer the matter to the DVO - difference may be around 10% or so as per valuation shown by the assessee and the report given by the DVO, which should have been ignored for the purpose of making addition – the matter is to be remitted back for reconsideration – Decided in favour of Assessee. Various expenses disallowed – Held that:- The nature of business of assessee is manufacturing of tobacco and must have the dust and other ingredients while working of labourers - assessee has filed chart showing history of expenditure incurred on these heads - some vouchers have not been produced or that personal user are not ruled out, it would not be proper to delete the entire additions - it is excessive in nature and needs reduction to a reasonable extent because most of the expenses are incurred for business purposes - the disallowance of expenses on all the heads is reduced to 5% of the total claim on different heads of expenses – Decided partly in favour of Assessee. Bogus Purchases – Held that:- The assessee contended that genuine purchases have been made from M/s. Cosmos Elmek and the purchases are entered into the books of accounts - The payments are made through bank drafts, which are also entered into the books of account - No material was found during the course of search to prove that it was bogus purchase - The sales made by M/s. Cosmo Elmek have been accepted by the Sales Tax Authorities and was genuine party - The AO merely on the basis of test check and statement of the driver of the vehicle, who was not subjected to cross examination, held the purchases to be suspicious, as the transportation by other vehicle was found doubtful - This itself is no ground to consider the purchases to be bogus - CIT(A) was justified in deleting the addition – Decided against Revenue.
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Customs
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2014 (8) TMI 847
Suspension of CHA licence under Regulation 20(2) / 20(3) of CHAR 2004 - Report from investigating Authority came to record on 11.01.2013 - The order of suspension dated 30.01.2013, crossed limitation of 15 days prescribed under Regulation 20(2) - Held that:- limitation for proceeding under regulation 20(3) ought to have started from 27.01.2013 since fifteen from 11.01.2013 expired on 26.01.2013. Notice initiating proceeding under regulation 20(3) was issued on 01.02.2013 and the impugned order dated 07.11.2013 confirming suspension was passed under regulation 20(3) of CHALR 2004. The order so passed also suffered from legal infirmity on different count apart from limitation stated above. Law of limitation is not casually enacted in the statute book. When right to profession is taken away by law, that is to be done in accordance with law following due process and within the time frame prescribed there under. Law of limitation is construed in the manner that is designed in the enactment. Its object should not be frustrated. In the absence of power on the Tribunal to condone the delay prayed by Revenue, that is not entertainable. Suspension of CHA licence takes away right to profession by a CHA. Withdrawal or denial of such right is construed to be penal in character. Therefore law of limitation enacted in both the sub-regulations is mandatory. Non-compliance thereto makes the orders of suspension unsustainable. - Decided in favour of appellant.
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2014 (8) TMI 846
Interpretation of para 197(2) of the Import-Export Policy 1985-88 - import of rapeseeds, which was a canalised item - need to seek licence - Imposition of penalty - Held that:- since as on date, the order of the CEGAT has not been upset, we are of the opinion that the impugned order taking a view different from that adopted by the CEGAT cannot be sustained. Further, we are also of the opinion that since the decision of the CEGAT is under challenge, the appropriate course would be to grant liberty to the respondent authorities to take appropriate action, if necessary, having regard to any final orders made in the reference proceedings, by the CEGAT or the High Court, as the case may be, that may be adverse to the petitioner. - Decided in favour of assessee.
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2014 (8) TMI 845
Waiver of pre deposit - Undue hardship - Held that:- Hardship is not merely confined to financial hardship. The hardship caused by the inconsistent stand taken by the very same authority, due to the change of officers, is also a hardship that should be taken into account. Assessees are obliged to take note of how a particular point of fact or law is viewed by an authority and they will be justified in seeking consistency of views - Relying upon the decision of the Supreme Court in Vijay Prakash D.Mehta v. Collector of Customs [1988 (8) TMI 109 - SUPREME COURT OF INDIA], the respondents have taken a stand in a detailed counter affidavit filed by them that in the absence of financial hardships for the petitioner, he is not entitled to the waiver of the pre-condition deposit. But, as I have stated earlier, hardship need not necessarily arise out of financial hardship. Each officer treating the very same material of import in a different manner, will certainly cause hardship to the assessee and it is this hardship that should have waived the mind of the respondents - Decided in favour of assessee.
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2014 (8) TMI 844
Seizure of goods - Reassessment of goods - Maintainability of appeal - Alternative remedy - Held that:- Petitioners on their own have stated that the Respondent No.1 has referred to some Standing Order but has not yet passed any order. The attempt of the Respondent No.1, according to the Petitioner, is to assess or reassess the goods. If that is so, the concerned authorities will have to pass a speaking order and thereafter the same is capable of being challenged in terms of the legal provisions viz. under the Customs Act, 1962. We cannot entertain writ petitions only on the premise that the Respondent No.1 may prefer to rely on the Standing Order and not the Customs Act 1962. In the attempt that the Respondent No.1 is allegedly making, the Petitioner is not prevented from pointing out not only section 14 of the Customs Act but the judgment of the Hon'ble Supreme Court which has been relied upon by the learned Sr. Counsel. When such course is open and once the matter has been brought before us at a stage when there is no adjudication, then we are afraid, writ jurisdiction cannot be exercised. We refrain from entertaining these petitions simply because the Petitioner has alternate and efficacious remedy in terms of the Customs Act 1962. Once there are disputed questions of fact, writ petitions under Article 226 of the Constitution of India cannot be entertained. We cannot preempt any adjudication - Decided against assessee.
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Service Tax
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2014 (8) TMI 858
Benefit of Cenvat Credit Scheme - utilization of excess Cenvat credit - Held that:- expression 'exempted services' covers not only the services taxable under Section 66 of the Act, which are fully exempt from service tax by some exemption notification issued under Section 93, but also those services which are not taxable under Section 66 of the Act. In view of the wordings of Rule 2(e) of Cenvat Credit Rules, 2004, the services, in question, have to be treated as 'exempted services'. Accordingly, the Tribunal has held that inasmuch as the assessee was providing taxable as also 'exempted services' of Interconnection usage service they are entitled to use 20% of the Cenvat credit of service tax availed in respect of inputs and input services. Extended period of limitation - Held that:- Even though prior to the period March 2007, the inter-connectivity services were not taxable but the same have to be treated as 'exempted services', in the light of definition given in Rule 2(e) of the Cenvat credit Rules, 2004, and the provisions of Rule 6(3)(c) of Cenvat credit Rules, 2004 would get attracted. demand in the present case relates to the period 01.10.05 to 31.05.07 and the show cause notice stands issued on 05.03.09, by invocation of the longer period of limitation. In the decision of the Idea Cellular [2009 (2) TMI 91 - CESTAT NEW DELHI], relied upon by the revenue the benefit of limitation was extended to the assessee, on the ground that the dispute in the case related to a bonafide interpretation of law and the Department can not claim that they were not aware that the appellant were providing non-taxable services of inter-connectivity. As such in view of the same order, which stands adopted for holding against the assessee, on merits, the benefit of limitation is required to be extended. In as much as, the demand in the present appeal is wholly barred by limitation - Decided in favour of assessee.
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2014 (8) TMI 857
GTA Services - Appellant entered into agreement with 24 transporters for transportation of the mined coal to the railway siding - None of the 24 transporters however issued a consignment note by whatever name called, whether falling within ambit of the definition of consignment note in Rule 4(B) of the Service Tax Rules, 1994 or otherwise for rendition of the service of transportation of coal to the railway siding - Held that:- Unambiguously enunciated the principle that qua the definition of Goods Transport Agencyenacted in Section 65 (50b) of the Act, to fall within the ambit of the defined expression issuance of a consignment note is non-derogable ingredient - factual matrix of this appeal since where admittedly no consignment notes were issued by the 24 transporters for transportation of the appellants coal, the Goods Transport Agency service cannot be held to have been rendered. That being the position the appellant is not liable to tax - Decided in favour of assessee.
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2014 (8) TMI 856
Extended period of limitation - bonafide belief - marketing agent service - Business Auxiliary Service - Held that:- The order of the appellate authority is equally misconceived as there is no provision for an assessee to seek advisory opinion from departmental officers nor is any statutory provision brought to our notice which authorises departmental officers to provide advice on interpretation of provisions of the Act; assessment of transactional facts qua the provisions of the Finance Act, 1994 and provide guidance on taxability or otherwise. The perception of the learned appellate Commissioner that every departmental officer is a sui generis advance ruling authority is a misconception that has no legislative basis. Since the primary authority had clearly recorded the finding that the appellant was under bonafide misconception as to the liability to tax and had dropped penalty under Section 77 for that reason, that finding equally covers the case in favour of the assessee both with regard to imposition of penalty under Section 78 as well initiation of proceedings by invoking the extended period of limitation. Revenue has not preferred any appeal against the order of the primary authority against dropping of penalty under Section 77 of the Act. impugned order of learned appellate Commissioner is unsustainable and is quashed - Decided in favour of assessee.
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2014 (8) TMI 855
Import of servcies - technical assistance agreement - technical knowhow fees - Held that:- In view of the foregoing and having regard to the fact that Section 66A of the Finance Act 1994 giving the authority to charge service tax from the service recipient in case of receipt of service from outside India came into effect from 18.4.2006 and the period involved in this case is prior thereto, the demand confirmed cannot survive. The issue is no longer res integra to warrant elaborate discussion. It is nonetheless dismaying to note that neither the Show Cause Notice nor the order-in-original/order-in-appeal even remotely mention the legal provision under which the recipients of service (i.e. the appellants) were liable to pay the impugned tax; a flaw which by itself could arguably be fatal. - Decided in favour of assessee.
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2014 (8) TMI 854
Rent a cab service – providing buses/mini-buses - transportation of school children, Staff Members & Family from fixed point to other point - Penalty - whether the assessee would be liable for service tax when providing the services of motor cabs/ maxi cabs - Held that:- issue involved in these appeals is squarely covered in favour of Revenue in the CESTAT final order [2013 (7) TMI 816 - CESTAT NEW DELHI] in case of Jai Santoshi Maa Travellers and Ajai Kumar Gupta & Co and also in the CESTAT final order [2014 (1) TMI 44 - CESTAT NEW DELHI] in respect of M/s. Friends Tour & Travels Vs. CCE, Noida. It is also seen that there is no representation from the side of respondents which is indicative of the fact that they have nothing to say in their defence. The fact that they had neither taken registration, nor filed any returns, nor paid service tax in clear evidence of suppression of facts on the part of respondents when no reasons are advanced on their part for the same. - Decided in favour of Revenue.
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2014 (8) TMI 853
Refund - export of goods - Terminal handling service - documentation & CHA charges in terms of Notification No.41/2007-ST dated 06.10.2007 claiming that the service on which service tax was paid fell under the category of Port Service - refund was rejected on the ground that the appellants had availed drawback in respect of goods exported by them and also the service tax in respect of which refund was sought was not paid under any of the services mentioned in Notification No.41/2007-ST dated 06.10.2007 - Held that:- One of the conditions prescribed in the said Notification is that the said goods have been exported without availing drawback of service tax paid on the specified services under Customs, Central Excise Duties and Service Tax Drawback Rules 1995. It is seen that the said condition is unambiguously worded, with only one interpretation that in case the appellants had availed of drawback of service tax paid under the aforesaid Drawback Rules they become in-eligible for the benefit under Notification No. 41/2007-ST and the appellants have conceded that they have availed of such drawback. Custom House Agent service is a taxable service under Section 65 (105) (h) read with Section 65(105) (35) of the Finance Act 1994 and this services is not included in the schedule to Notification No.41/2007-ST. Obviously, therefore, the service tax paid by their CHA for providing the CHA service can not be treated as service tax paid under Port Service and therefore can not be refunded under Notification No.41/2007-ST. CHA service is a distinct service and the service tax is paid by their CHA. Thus there is no classification ambiguity in the present case. So, the said CESTAT judgment does not come to the appellants rescue at all - Decided against assessee.
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Central Excise
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2014 (8) TMI 852
Maintainability of appeal - Delay caused in making pre deposit - Held that:- Appellant submitted that the amount of ₹ 5 lacs as directed by the Tribunal vide order dated 24.2.2012 as pre-deposit for hearing of the appeal was deposited on 13/14.5.2013. According to the learned counsel, the delay had occurred due to the facts and circumstances noticed hereinabove. It was urged that in the interest of justice, delay in deposit of ₹ 5 lacs be condoned as in the case of the company the appeal is fixed for final hearing before the Tribunal - impugned order dated 21.4.2014 is set aside and the delay, if any, in depositing the sum of ₹ 5 lacs as directed by the Tribunal vide order dated 24.2.2012 is condoned - Decided in favour of assessee.
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2014 (8) TMI 851
Clandestine removal and under valuation - private records - presumption - whether the findings of clandestine removal or under valuation can be upheld on the basis of the entries made in such private records. - it is the contention of the Revenue that since the entries in the private records and dispatch section as also in the gate register match with each other, they are corroborative of each other and sufficient to uphold the change of clandestine removal- Held that:- The Revenue has miserably failed to produce corroboration evidence on records so as to substantiate the charges of clandestine removal. Not only that, numbers of statement of various officials/employees of the appellants recorded during the course of investigation are exculpatory and for the reasons best known to the Department have not been referred to in the Show Cause Notice There are various statements explaining the meaning of the word ‘R’ found in the records. Different people have given different meaning to the said word ‘R’. As such, Revenue may not be justified in decoding the meaning of ‘R’ as relatable to clandestine clearance. The statement of Captain Sunil Braria is also important indicating that when the goods were not found to be as per invoice, the same were sent back and unloaded and the word ‘R’ was written on the loading slips. The goods were then cleared subsequently. - Majority of demand set aside - for the remaining demand matter remanded back for verification. Undervaluation of goods - Held that:- in respect of the period prior to 01.07.2000 what has to be examined is as to whether in respect of the goods on which the differential duty has been demanded, the normal price had been declared - for the period w.e.f. 01.07.2000 since the assessable value was the transaction value i.e. the assessable value would be the price actually charged by the assessee including price charged in cash over and above the invoice price. - matter remanded back. Denial of CENVAT Credit - short receipt of inputs - Held that:- notwithstanding the issue of Credit Notes by the suppliers, just on account of difference in the weighment done by the suppliers and the weighment done by the recipient it cannot be alleged that the recipient had short received the material and on this basis, Cenvat Credit in respect of allegedly short received quantity cannot be denied, as the shortage could be on account of variation in weighment by different weighing machine on account of difference in their calibration more so when the suppliers had paid duty on full quantity and there is no evidence that they had sought and received the refund of duty on the alleged short receipt. - In view of decision in the matter of Bhuwalka Steel Industries [2009 (11) TMI 177 - CESTAT, CHENNAI [LB]] - Decided in favor of assessee. Interference in the proceedings by the informer - Held that:- Though, we feel strongly about writing of such letters by the informer Shri Bansal and are of the view that same amounts to pressurizing the Bench to arrive at the conclusion in a particular manner and are of the view that same amounts to contempt of Court, for which action can be taken against Shri Bansal but keeping in view the undertaking given by Shri Bansal that no such further interference would come from his side, we deem it fit to close the matter and to move ahead with proceedings inasmuch as hearing is at the last leg and number of days stand already devoted to the matter.
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2014 (8) TMI 850
Denial of CENVAT credit - rent a cab service - Held that:- major amount of CENVAT Credit (Rs.50,000/-) pertains to rent-a-cab services prior to April 2011. Admissibility of CENVAT Credit of rent-a-cab services prior to April 2011 has been favourably decided by this Bench for granting Stay Orders on this issue. For the remaining amounts, appellant has already reversed an amount of ₹ 8,716/- which can be considered as sufficient compliance of pre-deposit order by first appellate authority for hearing and deciding the issue on merit. In view of the above, order dt.31.12.2013 passed by first appellate authority is set aside and the case is remanded back to him for deciding the issue on merit without insisting for any further deposit - Matter remanded back - Decided in favour of assessee.
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2014 (8) TMI 849
Denial of CENVAT Credit - credit on inputs namely explosives, ammonium nitrate and detonators etc., used in the mines outside the factory premises - Held that:- mines are situated 40 kms away from the factory. He relied upon the decision of the Honble Supreme Court in the case of CCE, Jaipur Vs. J.K. Udaipur Udyog Ltd. [2004 (9) TMI 101 - SUPREME COURT OF INDIA] and the decision of the Tribunal in the case of Mangalam Cement Ltd. Vs. CCE, Jaipur [2003 (8) TMI 140 - CESTAT, NEW DELHI]. The Ld. Counsel appearing on behalf of the respondents submits that in their own case, the Tribunal following the decision of the Honble Supreme Court in the case of Vikram Cement Ltd. Vs. CCE, Indore -[2006 (1) TMI 130 - SUPREME COURT OF INDIA], remanded the matter by Final Order No. 40064/2013 dated 20.02.14. We find the period of dispute is related to November, 1998 to December, 2001. We also notice that the Honble Supreme Court in the applicants own case, Madras Cements Vs. CCE, Chennai [2010 (7) TMI 179 - SUPREME COURT], remanded this matter on the identical issue to verify as to whether it is captive mines - Decided in favour of Revenue.
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2014 (8) TMI 848
Delay in filing of rebate claims - Bar of limitation - Held that:- As per the provisions contained in Section 35B (1) read with proviso (b) of the Section, appellate Tribunal does not have jurisdiction to hear and decide the appeals against the orders of Commissioner (Appeals) as they pertained to rebate of duty of excise of goods exported to another country outside the territory of India. In view of clear-cut provisions in the Central Excise Act, 1944, miscellaneous applications and appeals cannot be entertained and are required to be dismissed as non-maintainable - COD applications and appeals are disposed of as non-maintainable - Decided against assessee.
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CST, VAT & Sales Tax
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2014 (8) TMI 861
Computation of Deferred tax - Denial of input tax credit - payment of half of deferred tax upfront - HVAT - Whether the tax deferred would be calculated as the amount of tax payable on the taxable turnover of the goods manufactured by the unit without deducting the input tax paid by the unit on the goods used in the manufacture of the goods or after deducting the input tax - Held that:- what is required to be paid by a unit opting for payment of 50% of deferred tax, is the payment of half of the amount of the deferred tax upfront.The provision nowhere provides that deferred tax would be calculated after computation of tax payable is determined according to the returns. It only provides that if half of the deferred tax is paid, then it would be assumed that the tax due according to returns is deemed to have been paid in full. Thus what is required to be paid, is 50% of the deferred tax which would be computed on the basis of tax on sale of the goods manufactured by the industrial unit and the benefit of the payment of tax on the purchase of the goods used in manufacture i.e. input tax shall be allowed as the tax paid in advance. In other words, the amount of tax payable according to the returns is the amount of tax calculated on the sales of the goods manufactured minus the input tax credit. - Decided in favor of assessee. Binding force of Circular / Clarification issued by the department - Held that:- circulars, instructions and clarifications issued by the competent authority granting administrative relief in exercise of power conferred under statutory provision are binding on subordinate officers. It is not open to the subordinate officers to contend that the circulars, instructions and clarifications are erroneous and not binding on them as long as they remain in force. However, they would not be binding on the courts and the assessees. - it will be open for the assessees to plead that the circular, instructions and clarification issued by an authority which is not of beneficient nature to them runs counter to the statutory provision and is ultra vires and bad in law and thus, ineffective qua their rights. - Decided in favor of assessee. On the basis of clarification dated 12.7.2004 issued under Section 56(3) of the HVAT Act which is binding on the authorities for the administration of tax, the state cannot deny the benefit of input tax credit to the dealer for determining the tax payable by it. Thus, viewed from any angle, the dealer is entitled to the benefit of input tax credit while calculating the 50% deferred tax upfront to be paid by it. - the eligibility criteria is to be construed strictly but a liberal approach may be adopted in construing other conditions. - Similar was the position in Creative Handicrafts and M/s Mahabir Vegetable Oils Pvt. Limited's cases (2011 (2) TMI 7 - Supreme Court) - Decided in favor of assessee.
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2014 (8) TMI 860
Exemption from sales tax / VAT - penultimate sales - sale occasioning the export - Petitioner sold and supplied Submarine Navy Batteries to M/s. Crown, who in turn exported the same to the Algerian Navy - 2004 ARE -1 was prepared by the Petitioner showing the Petitioner as the seller, M/s. Crown as the purchaser, and the Algerian Navy as the consignee - Held that:- The petitioner contended that its case was covered by the judgment of the Supreme Court in the case of Consolidated Coffee (1980 (4) TMI 278 - SUPREME COURT OF INDIA). - the sale of the Submarine Navy Batteries by the Petitioner to M/s Crown was the "last sale preceding the sale occasioning the export" as contemplated under section 5(3) and the same took place after, and for the purpose of complying with the purchase order dated 25th May 2004, placed by the Algerian Navy on M/s Crown. In view thereof, the sale of Submarine Navy Batteries by the Petitioner to M/s Crown on 14th September 2004 were deemed to be in the course of export as contemplated under section 5(3) of the CST Act and therefore, could not be taxed as a local sale under the provisions of the BST Act. Section 5 was amended by the Central Sales Tax (Amendment Bill, 1976) by inserting sub-section (3) therein to provide that the last sale or purchase of any goods preceding the sale or purchase occasioning export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for, or in relation to, such export. When the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer are inextricably connected with each other, in our view, the "same goods" theory has no application. The clauses in the purchase order / agreement dated 5th March, 2004 between the Petitioner and M/s Crown also indicate that the Submarine Navy Batteries were for the purposes of export to the Algerian Navy. Furthermore, the ARE-1 showed the Petitioner as the seller, M/s Crown as the buyer and the Algerian Navy as the consignee. These facts are undisputed. In this view of the matter, it can hardly be argued that there was no inextricable link between the local sale by the Petitioner to M/s Crown and the export of those very goods thereafter to the Algerian Navy. There was an inextricable link between the local sale by the Petitioner to M/s Crown, and the export of those very goods thereafter to the Algerian Navy. - Decided in favour of assessee.
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2014 (8) TMI 859
Classification of goods - Road marking points/material (RMP) - Apcomark and Thermoline - Rate of tax 4% or 12.5% - Period April, 2005 to March, 2006 - Held that:- It is not in dispute that Aliphatic Petroleum Hydrocarbon Resin chemical occupies 20% of the RMP and the other four components/chemicals including glass beads occupy major portion of the fluid paste. The test report shows what are the characteristics of each of the chemicals and for what purpose they are used in making the final product RMP. The report also shows that RMP cannot be made or given desired effect in the absence of any of the chemicals. It is, in this backdrop, if we apply Rule 3(b) of the Rules and go by the test of essentiality, the RMP, in our opinion, cannot be classified as petroleum resins and it cannot be stated that the said petroleum resin gives its essentiality character to RMP. - decision of assessee own previous case [1988 (3) TMI 61 - SUPREME COURT OF INDIA] followed - Decided against the assessee. Classification of goods - Colour world machine comprising of tinting machine, computer and UPS - Period April, 2005 to March, 2006 - Held that:- The Tribunal has not taken into consideration that the Department levied tax @ 12.5% only when all three machines, which are inseparable or indispensable, are sold as one single unit. As observed earlier, Computer (CPU) cannot be separated from the machine and it is inbuilt and therefore, it cannot be treated as different from the tinting machine. It is not in dispute that the tinting machine cannot be operated without computer and UPS, and that they are indispensible parts of tinting machine and, therefore, all three together deserve to be treated as one single unit and liable to be taxed at 12.5%, as unclassified item under Section 4(1)(b) of the KVAT Act. - Decided against the assessee. Taxable turnover - inclusion of Freight charges collected - Period April, 2005 to March, 2006 - Held that:- it may be true, the freight incurred by the assessee, becomes a part of the amount for which the goods are sold to the buying dealer/distributor. The assessing authority overlooked that the freight charges were not separately collected by the assessee and they were a part of the price of the goods. The Tribunal, in our opinion, has rightly held that the assessee has included freight charges with the consideration amount of goods. We do not find any reason to interfere with the finding of fact. - Decided against the revenue. Disallowance of assessee's claim towards "sales returns" - Whether since assessee had properly maintained all documents insofar as sales returns were concerned and produced same on record, assessee's claim deserved to be allowed - Held that:- It may be difficult for the department to cross verify every entry but, it was possible for the department to cross-check atleast one or two entries so as to find out whether the material placed on record by the assessees in support of their case of return of goods was genuine. On the other hand, the Tribunal has, after assessing the entire material on record, recorded a categoric finding that all the documents insofar as sales returns are concerned have been properly maintained by the assessee as provided for in law and answered this question in favour of the assessee. The department has not made out any case so as to interfere with this finding of fact and we are not inclined to interfere with the same - Decided against the Revenue.
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