TMI Tax Updates - e-Newsletter
August 30, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise Indian Laws

Articles

1. Service Tax on Construction activity- Part-I

   By: RadheyShyam Mangal

2. DEDUCTION FROM GRATUITY, TOWARDS DISCHARGE OF A BANK LOAN GIVEN TO AN EMPLOYEE, IS ILLEGAL

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. First ASEAN-FTA Partners meet to discuss Regional Comprehensive Economic Partnership Anand Sharma Leaves for Siem Reap.

Notifications

Customs

1. 39/2012 - dated 24-8-2012 - ADD

Amends Notification No.094/2007-Customs - Anti-dumping on import of nonylphenol.

2. Corrigendum - dated 24-8-2012 - Cus

Corrigendum of Notification No. 47/2012-Customs.

DGFT

3. 15 (RE-2012)/2009-2014 - dated 29-8-2012 - FTP

Amends Schedule-I (Imports) of the ITC(HS) Classifications of Export and Import Items, 2009-14,Chapter-90.

4. 14 (RE-2012)/2009-2014 - dated 28-8-2012 - FTP

Amendment in Notification No. 5 dated 02.07.2012 regarding conditions for export of Carpets, Handicraft items and Silk items.

5. 13 (RE-2012)/2009-2014 - dated 28-8-2012 - FTP

Amendment in ITC (HS) 2012 Schedule 1 – Import Policy.

Income Tax

6. 33/2012 - dated 24-8-2012 - IT

Income-tax (Dispute Resolution Panel)(first amendment) Rules, 2012 - Amendment in Rule 3.

Circulars / Instructions / Orders

Service Tax

1. 164/15/2012-ST - dated 28-8-2012

Service tax – vocational education/training course -- regarding.

FEMA

2. 19 - dated 28-8-2012

Issue of Indian Depository Receipts (IDRs) - Limited two way fungibilty.

Highlights / Catch Notes

Income Tax

• Swiss Partnership Not Resident Under India-Switzerland DTAC, Legal Fees Taxable in India.

  Case-Laws - AAR : Swiss Partnership will not be treated as a resident under the India Switzerland DTAC. - legal fees received by the Swiss Partnership will be taxable in India - AAR
  Visit to Get Source

  ---

• Tax Withholding Required on Technical Service Fees Under Income Tax Act Section 194J for Transmission Charges.

  Case-Laws - AAR : Transmission involves the rendering of technical services and the consideration paid towards transmission charges partakes the applicant is obliged to withhold tax thereon under section 194J of the Act - AAR
  Visit to Get Source

  ---

• India-Saudi Arabia DTAC: AAR Rules O&M Charges Not Technical Fees, Altering Tax Treatment Between Nations.

  Case-Laws - AAR : India and Saudi Arabia DTAC - share of the annual operations and maintenance charges - cannot be treated as fees for technical services - AAR
  Visit to Get Source

  ---

• Section 214: No Obligation for Revenue to Compensate Assessee with Refund Order Issued.

  Case-Laws - SC : Section 214 does not provide for payment of compensation by the Revenue to the assessee in whose favour a refund order has been passed - SC
  Visit to Get Source

  ---

• AAR Rightly Rejects Application; Past Practices Not Grounded in Law Cannot Override Statutory Authority.

  Case-Laws - HC : The argument that the AAR erred in not following a so called past practice is unpersuasive as no practice, without its roots in the law, but based on an unchallenged understanding can be pursued, holding otherwise would be creating an estoppel against a statute - thus AAR was correct in rejecting the application for ruling. - HC
  Visit to Get Source

  ---

• Amendment to Rule 3 of Income-tax Dispute Resolution Panel Rules 2012 to Streamline Tax Dispute Processes.

  Notifications : Income-tax (Dispute Resolution Panel)(first amendment) Rules, 2012 - Amendment in Rule 3. - Notification
  Visit to Get Source

  ---

• Loan to Society Complies with Income Tax Act: No Violation of Sections 13(1)(d) and 11(5) Found.

  Case-Laws - AT : Assessee while giving the loan to another society did not violate the provisions of section 13(1)(d) read with section 11(5) as the loan was neither an investment nor a deposit - AT
  Visit to Get Source

  ---

• Unabsorbed depreciation from 1997-98 can be carried forward beyond eight years under amended Section 32, Finance Act 2001.

  Case-Laws - HC : Treatment for Unabsorbed depreciation pertaining to A.Y. 1997-98 - allowed to be carried forward and set off after a period of eight years OR governed by Section 32 as amended by Finance Act 2001 - HC
  Visit to Get Source

  ---

• Section 194 TDS Not Required on Advances as Deemed Dividends to Non-Shareholders u/s 2(22)(e.

  Case-Laws - AT : TDS in respect of the advances held as deemed dividends u/s 2(22)(e) – Section 194 does not require TDS when payment is made to a non-shareholder. - AT
  Visit to Get Source

  ---

• Mutual Society Loses Charitable Status Due to Member-Focused Benefits and Contributions Under Income Tax Laws.

  Case-Laws - AT : Charitable purpose – whole idea of this mutual society is that the particular members comprising it should be benefited out of their own contribution - assessee society is not a charitable society - AT
  Visit to Get Source

  ---

• Income Tax Act: Preventing Dual Deductions u/ss 10B and 80HHF to Maintain Tax System Integrity.

  Case-Laws - AT : Deduction u/s. 80HHF and u/s. 10B - express intention of Legislature with regard to sections 10B and 80HHF is not to allow deduction under both sections - AT
  Visit to Get Source

  ---

• Capital Gains Case: Municipal Tax, Land Conversion, and Cess Tax Not Considered Improvement Expenses for Assets.

  Case-Laws - AT : Capital gain – Expenses claimed as cost of improvements are Municipal tax, Land conversion and Mandal development cess tax, which cannot be said to be expenditure incurred for the improvement of or addition to the asset. - AT
  Visit to Get Source

  ---

• Income from Storage Charges Not Part of Business Activities; Section 80IB Deduction Denied Due to Contract Delivery Failure.

  Case-Laws - AT : Source of income with regard to storage charges was not business of assessee, but was failure of buyer to receive delivery of goods in compliance with terms of contract - deduction u/s 80IB not allowed - AT
  Visit to Get Source

  ---

Customs

• Drawback Claim Denied for Exports Under DEEC Scheme as per Section 74 of Customs Act, 1962.

  Case-Laws - CGOVT : Drawback claim – as per Notification No. 40/94-C.E. Drawback of duty under Section 74 of Customs Act, 1962 can not be allowed since the goods are exported in discharge of export obligation under DEEC Scheme - CGOVT
  Visit to Get Source

  ---

• Customs can issue a speaking order on assessed Bill of Entry, allowing appeal for machine import under EPCG license.

  Case-Laws - AT : EPCG licence - imported of machine - Even if the assessment made under Bill of Entry is an appealable order, the same does not prevent the department from passing a speaking order to enable the petitioner to file an appeal - AT
  Visit to Get Source

  ---

• Importers Must Affix MRP on Barcode Printers, Subject to Additional Customs Duty u/s 3 of Customs Tariff Act.

  Case-Laws - AT : Import of Barcode Printers - additional duty of customs under Section 3 of the Customs Tariff Act - whether the appellant are required to affix MRP – held yes - AT
  Visit to Get Source

  ---

• Amendment to Notification No. 094/2007-Customs: Updated Anti-Dumping Duties on Nonylphenol Imports to Protect Domestic Industries.

  Notifications : Amends Notification No.094/2007-Customs - Anti-dumping on import of nonylphenol. - Notification
  Visit to Get Source

  ---

DGFT

• DGFT Amends ITC(HS) Schedule-I Import Classifications for 2009-14, Focusing on Chapter-90; Key Tax Implications Highlighted.

  Notifications : Amends Schedule-I (Imports) of the ITC(HS) Classifications of Export and Import Items, 2009-14,Chapter-90. - Notification
  Visit to Get Source

  ---

• DGFT amends Notification No. 5, revising export conditions for carpets, handicrafts, and silk items to streamline trade.

  Notifications : Amendment in Notification No. 5 dated 02.07.2012 regarding conditions for export of Carpets, Handicraft items and Silk items. - Notification
  Visit to Get Source

  ---

• ITC (HS) 2012 Schedule 1 Import Policy Amended by DGFT: Changes in Classification and Duty Rates for Goods.

  Notifications : Amendment in ITC (HS) 2012 Schedule 1 – Import Policy. - Notification
  Visit to Get Source

  ---

FEMA

• New Guidelines on Indian Depository Receipts: Limited Two-Way Fungibility and Tax Implications Under FEMA.

  Circulars : Issue of Indian Depository Receipts (IDRs) - Limited two way fungibilty. - Circular
  Visit to Get Source

  ---

Service Tax

• Authority for Advance Rulings Rejects Service Tax Application, Deems It Maintainable u/s 96C.

  Case-Laws - HC : Application of Advance ruling under service tax was rejected by AAR on various grounds - The applications filed by the petitioners before the AAR under section 96C were maintainable. - HC
  Visit to Get Source

  ---

• Farmers Transporting Sugarcane Not Classified as Goods Transport Agencies, Exempt from Service Tax Due to No Consignment Notes Issued.

  Case-Laws - AT : Individual farmers for transportation of sugarcane from collection centres to the factory - payment of charges for such transportation. - can not be held as GTA as not issuing consignment notes - AT
  Visit to Get Source

  ---

• Service Tax Shortfall: Penalty Leniency Invoked u/s 80 of Finance Act Due to Reasonable Cause.

  Case-Laws - AT : Demand and penalty - Short payment of service tax – sufficient cause for invoking the provisions of Section 80 of the Finance Act - AT
  Visit to Get Source

  ---

• Service Tax on Pipeline Laying Clarified: Not Classified as Plant or Equipment, Exempt from Typical Tax Categories.

  Case-Laws - AT : Demand of service tax - Laying of pipelines cannot be construed as a plant, machinery or equipment or structure. - AT
  Visit to Get Source

  ---

• Section 76: Authorities Can't Start Proceedings for Penalty Recovery Under the Act.

  Case-Laws - HC : Penalty under Sec. 76 of the Act – authorities have no authority to initiate proceedings for recovery of penalty under Sec. 76 of the Act. - HC
  Visit to Get Source

  ---

• Market Research Not a Management Function for Tax Purposes; Each Service Must Be Separately Taxed Accordingly.

  Case-Laws - AT : Market Research may help in Management for that reason the activity of Market Research cannot be classified as Management function when both services are separately taxable - AT
  Visit to Get Source

  ---

• V-SAT Connectivity Charges Not Classified as Lease Circuit Services Under Service Tax Regulations.

  Case-Laws - AT : Demand in respect of V-SAT connectivity - V-SAT connectivity charges being recovered by the appellant from their customers and sub-brokers cannot be treated as charges for lease circuit services - AT
  Visit to Get Source

  ---

• Vocational Education and Training Courses Exempt from Service Tax if Recognized by Law or NSDC-Affiliated Institutions.

  Circulars : Service tax – vocational education/training course -- regarding. - Circular
  Visit to Get Source

  ---

Central Excise

• Tax Exemption for Machinery and Equipment in Water Supply Plants Supports Agriculture and Industry Development.

  Case-Laws - AT : Exemption Notification No. 3/2004 – Water supply plants for agricultural and industrial use - Exemption to machinery, instruments, equipments and pipes used therein - AT
  Visit to Get Source

  ---

• Settlement Commission's Immunity for Main Defaulter Extends to Co-Noticees, Preventing Penalty Imposition on All Parties.

  Case-Laws - HC : Where against main noticee/defaulter, the Settlement Commission has granted immunity from payment of any penalty, no penalty can be imposed upon other co-noticees - HC
  Visit to Get Source

  ---

• Applicant Denied Duty Payment on Exempted Goods: No Cenvat Credit Available u/r 6(1) of Cenvat Credit Rules 2004.

  Case-Laws - CGOVT : Cenvat credit – applicant was not allowed to pay duty on the exempted goods as per proviso to Section 5A(1A) of Central Excise Act, 1944 and no Cenvat Credit on the input services is available under Rule 6(1) of the Cenvat Credit Rules, 2004. - CGOVT
  Visit to Get Source

  ---

• Steel Tubular Poles Made from Pipes Constitute a New Product, Qualifying as Manufacturing Under Excise Laws.

  Case-Laws - AT : After the processing pipe/tube a distinct product comes into being which is known in the commercial parlance as steel tubular pole which has character and was distinct from MS black Tube/pipes. - This process amounts to manufacture - AT
  Visit to Get Source

  ---

• Glazing System Installation: Attaching Aluminum Sections and Glass Securing with Silicon Classified as Manufacturing Under Central Excise.

  Case-Laws - AT : Aluminium structurals - The entire process of fixing the glazing system is done by fixing the aluminium section on the brackets and by sticking the glass using silicon. - held as manufacture - AT
  Visit to Get Source

  ---

Case Laws:

• Income Tax

• 2012 (8) TMI 754
  Reopening of assessment u/s 147 - assessee has a business loss or speculative loss - Held that:- As the assessee has disclosed full details in the Return of Income in the matter of its dealing in stocks and shares the loss incurred was a business loss - re-opening the assessment was not maintainable as decided in assessee's own case in ICICI Securities Ltd. Versus Asstt. Commissioner of Income Tax 3(2), Mumbai & Anr. [2006 (8) TMI 512 - BOMBAY HIGH COURT] - in favour of assessee.

  ---

• 2012 (8) TMI 747
  Multiparty 'Option Agreement' - an outstanding obligation on the part of Mahindra-British Telecommunications Ltd. (now, Tech Mahindra) to allot shares to SBC Services Incorporated, a US company (now AT&T Limited) would have stood in the way of Tech Mahindra making a public issue - public issue - denial of ruling - Held that:- If the right to exercise the option remained outstanding, there could not have been a public issue. So the share purchase agreement dated 23.6.2005 was entered into between Tech Mahindra and the applicant providing for investment by the applicant in Tech Mahindra and for getting shares allotted in its name. The shares to be allotted was of the numbers considered adequate to meet the obligation incurred by Tech Mahindra to AT&T in exercise of its option. The applicant as adopted process did not result in any avoidance of tax. If it had been a case of allotment of shares by Tech Mahindra to AT&T as per the option available to AT&T, that allotment would not have attracted capital gains tax since an allotment by a company was not a sale of shares. Hence, the constitution of the applicant had no motive of tax avoidance. The issue of capital gains has now arisen only because the applicant after getting the allotment of shares is selling them resulting in a gain giving rise to a question of chargeability to tax of that gain. The aim was to speed up the public issue. The public issue by Tech Mahindra was in the year 2006. If the route now adopted had not been adopted, Tech Mahindra would have had to wait till the year 2010 before it could come out with a public issue. The object of the Guideline 2.6.1 SEBI (Disclosure and Investor Protection) Guidelines, 2000 as relied is clearly to protect the investing public by ensuring that while a company makes a public issue, it is not burdened with any outstanding financial instruments or a right which would entitle the existing promoters or shareholders any option to receive equity share capital after the initial public offering, thus on such a transaction, it does not appear to be proper for this Authority to give a ruling on the basis that this Authority is not concerned with public interest or violation of a provision over which another authority would alone have jurisdiction to take penal action.

  ---

• 2012 (8) TMI 746
  India Netherlands DTTA - contract for supply of machinery, spare and wearing parts and technical documentation - chargeable to tax u/s 195 of Income-tax Act, 1961 OR as per Article 12 para 5 read with para 6.(a) of the DTAA - Held that:- No dispute to the fact that the two contracts were entered into the same day and on going through them, it is clear that the contract was neither for sale of property simplicitor nor for erection and service connected therewith. It was really an indivisible contract for supply, erection, commissioning testing etc. of a project. The applicant and Grasim have chosen deliberately to split up the contract into two. The applicant, according to it, has taken advantage of the splitting up by adopting the stand that the consideration for supply is not chargeable to tax in India. The first contract was for "the supply of machinery, spare and wearing parts and technical documentation for the production of Autoclaved Aerated Concrete" and the applicant has agreed "to undertake the design, engineering, supply and delivery of machinery, spare and wearing parts and technical documentation forming part of the Project". This cannot be taken to be a contract for "the sale of property" - rule on the question formulated that the transaction in question generates fees for technical services in the hands of the applicant and it does not come under the exception in paragraph 6(a) of Article 12 of the DTAC and that it is chargeable to tax in India - against assessee.

  ---

• 2012 (8) TMI 745
  Double Taxation and Prevention of Fiscal Evasion with the Swiss Confederation - Partnership agreement with Switzerland company - residential status of partners - Held that:- As far as the partners are concerned, they are not the recipients of the income. Their right is only to share the profits of the partnership. Since they cannot be said to receive any income from Siemens India Limited on the basis of the agreement relied on, it cannot be said that they being residents of Switzerland could invoke the DTAC to be taxed in terms of Article 14 of the DTAC regarding the particular income - The argument that the partners are residents of Switzerland and their incomes from the partnership are taxable in Switzerland is of no avail since what is involved is not the income, the partners receive from the partnership but the income derived by the firm from an Indian entity - The partnership is not shown to be a person liable to taxation in Switzerland - thus the Swiss Partnership will not be treated as a resident under the India Switzerland DTAC. Taxability on legal fees earned by the Swiss Partnership/Partners - Held that:- As the income received for rendering professional services by the partnership to the Indian company is in India and not elsewhere. The partnership sends its invoices to the Indian company, its client and the payment is remitted from India. The fact that the major part of the services are rendered outside India in respect of a dispute arising in India cannot alter the source of income. On the facts of this case it can be concluded that the source of income is in India, the legal fees received by the Swiss Partnership will be taxable in India.

  ---

• 2012 (8) TMI 744
  Off-shore supplies & services - application by the Revenue for rectifying mistake apparent from the ruling pronounced by the Authority - Held that:- Going through the ruling rendered in CTCI Overseas Corpn. Ltd., In re [2012 (2) TMI 75 - AUTHORITY FOR ADVANCE RULINGS] it is seen that there is a clear omission to consider the impact of the finding that the consortium which has been entrusted with the contract and of which one of the members was an Indian resident, had the status of an AOP under the Act. Once the status of an AOP has been assigned to the consortium, then the consortium can be assessed only as an AOP and not its members individually. Therefore, the logical conclusion to the ruling should have been that the transaction of offshore supplies which was part of the contract undertaken by the consortium, had to be considered on the basis that it was an activity carried on by the consortium - thus the offshore supplies is not liable to tax in India is a ruling inconsistent with the finding that the assessing unit is an AO - the mistake is apparent and it requires to be corrected - allow the application filed by the Revenue to the extent of reopening that part of the ruling which rules that the amount received / receivable from the applicant from the offshore supplies in terms of the contract dated 17.11.2009 is not liable to tax in India

  ---

• 2012 (8) TMI 743
  India Srilanka DTAA - Capacity Sales Agreement - whether the amounts payable by the applicant to SLT (Sri Lanka) under the terms of the Agreement would be in the nature of 'royalty' ? - Held that:- As taking several adjournment by the assessee and unable to submit the Consortium agreement, thus without understanding the right of the grantor of the right to the applicant, it would not be possible to rule on the questions raised satisfactorily - as it would be hazardous to venture to rule on the questions formulated without understanding the contents of the document and comprehending the rights available to SLT decline to rule on the questions formulated and close this application leaving it to the applicant to raise its contentions before the Assessing Officer - against assessee.

  ---

• 2012 (8) TMI 742
  Transmission, Wheeling & SLDC Charges - Whether TDS provisions u/s 194J or 194C will apply ? - Held that:- According to the agreement entered into by the applicant with RVPN and from a survey of the duties and obligations of RVPN viz-a-viz the applicant, it is not possible to accept the argument that for maintaining proper and regular transmission of electrical energy, no rendering of technical services is involved - It is not a mere case of RVPN maintaining its system with the help of its professional and technical personnel. It is also a case of such personnel ensuring regular and consistent transmission of electrical energy at the grid voltage at the distribution point of the applicant - argument on behalf of the applicant that in ensuring due and proper transmission of electrical energy from the generation point to the distribution point of the applicant, the services of technical personnel are not needed cannot be accepted, thus that the transmission involves the rendering of technical services and the consideration paid towards transmission charges partakes the applicant is obliged to withhold tax thereon under section 194J of the Act - against assessee. SLDC Charges are paid to the State Load Dispatch Centre constituted for the purpose of exercising the powers and discharging the functions under Part V of the Electricity Act - The centre is responsible for optimum scheduling and dispatch of electricity within the state in accordance with the contracts entered into with licencee and generating companies. It is to monitor grid operations, to keep accounts of the quantity of electricity transmitted through the state grid and exercise supervision and control over the transmission system, thus considering the nature of the obligations placed in the centre, and the role it performs, it cannot be said that it is rendering any technical services to the applicant - no withholding of tax in terms of section 194J or 194C of the Act is called for on the said charges - in favour of assessee.

  ---

• 2012 (8) TMI 741
  India and Saudi Arabia DTAC - Construction and Maintenance Agreement - assessee made the payments to Saudi Telecom Limited ('STC') under the terms of the EIG Capacity Transfer Agreement, towards acquisition of the EIG capacity - Held that:- The right to use in this case to access the particular segment of a larger system to use the capacity of the system powered by the equipments of the whole system and under paragraph 3 of Article 12 of the DTAC, consideration paid for use of or the right to use a design or model plan, commercial or scientific equipment would be royalty - if the consideration is royalty it is taxable in the country of the prayer according to the laws of the State of the payer. Here, that would be according to the laws of India, thus the ruling on question No.1 is that the payment made by the applicant to STC under the EIG Capacity Transfer Agreement towards acquisition of EIG capacity is chargeable to tax in India as royalty in terms of paragraph 2 of Article 12 of the DTAC between India and Saudi Arabia. As the payment by the applicant would suffer withholding tax under section 195, since the applicant is a resident, the payee is a non-resident and the payment is chargeable to tax in India under the Act. Treatment for Payment of annual operations and maintenance charges - Held that:- As it appears that this is a share of the annual operations and maintenance charges incurred for maintaining the entire system it cannot be treated as fees for technical services and can be treated as the share of costs for maintenance incurred for the right to use the system acquired by the applicant - in favour of assessee.

  ---

• 2012 (8) TMI 740
  Claim of interest payable by the Revenue - aggregate of instalments of Advance Tax/TDS paid exceeds the assessed tax - Held that:- As decided in Modi Industries Limited And Others Versus Commissioner of Income-Tax And Another [1995 (9) TMI 324 - SUPREME COURT] holds that Advance Tax or TDS loses its identity as soon as it is adjusted against the liability created by the Assessment Order and becomes tax paid pursuant to the Assessment Order, thus, the assessee not entitled to interest under the relevant provisions of the Act - for purpose of calculating interest u/s 214, the "regular assessment" means original assessment made u/s 143/144. Section 214 does not provide for payment of compensation by the Revenue to the assessee in whose favour a refund order has been passed and as that Sandvik Asia Limited Versus Commissioner Of Income-Tax And Others [2006 (1) TMI 55 - SUPREME COURT] has not been correctly decided relied by assessee for claim of interest - direction to the Registry to place this matter before Hon'ble the Chief Justice on the administrative side for appropriate orders - against assessee.

  ---

• 2012 (8) TMI 739
  Rejection of application by AAR on barred u/s 245R (2) (1) - Objective of the mechanism of advance rulings - unless the assessing authority specifically raised a question, and issued notice calling the assessee to respond to it, the question would not arise, and consequently, the bar would not apply - the filing of a return of income did not automatically result in a question being "pending" before the Income Tax Authority - Held that:- The proviso to Section 245R(2) creates a bar to the jurisdiction of the Authority if it is seen that any of the conditions are fulfilled as once the assessee proceeds to file a return, or take a similar step, the Authority's jurisdiction to entertain the application for advance ruling is taken away, because the Income Tax authority concerned would then be seized of the matter, and would potentially possess a multitude of statutory powers to examine and rule on the return. Conversely, if the authority is approached before an income tax return is filed, or any other income tax authority is approached, the application can be entertained, and the AAR would be exclusively dealing with the matter before it - thus AAR held that in the case of the applicants, keeping the dates of filing of return in mind, its jurisdiction to entertain the application was barred under Section 245R(2) Proviso (1) - that upon a return of income being filed, the matter is "pending", in the sense that the Assessing Officer has the right to take such steps, including issuance of notice, etc, the further duty cast on the assessee to disclose all facts, including every potential income. The argument that the AAR erred in not following a so called past practice is unpersuasive as no practice, without its roots in the law, but based on an unchallenged understanding can be pursued, holding otherwise would be creating an estoppel against a statute - thus AAR was correct in rejecting the application for ruling.

  ---

• 2012 (8) TMI 738
  Unaccounted Investments - documents recovered from another assessee's premises - Held that:- Tribunal recorded that the seized documents even contained the signature of the assessee. The dates on which the alleged payments were made towards the partnership firm also tallies with the date on which such partnership was entered into - The first of such payments made by the assessee is on 5.4.1995 and the last is dated 8.5.1995, the partnership deed was entered on 28.4.1995 and the retirement deed on 12.4.1996, thus none of the payments with respect to which the additions were made related to the period after the retirement of the assessee - As the entire issue turns on facts and the Tribunal have elaborately considered the same and the findings cannot at all be termed as perverse - no question of law arises from the order of the Tribunal - against assessee.

  ---

• 2012 (8) TMI 737
  Addition made for bogus purchases – letters issued u/s 133(6) returned as unserved in the case of at least 22 parties - no reply received from at least another 11 parties – cheques encashed by third parties at places, which were not mentioned anywhere in the purchase bills - Held that:- It is observed that in the remand proceedings, creditors send confirmation letters, and confirmed the receipt of cheques on account. In view of aforesaid, we find that the assessee has partially discharged her onus to substantiate the purchases made by her. The purchases have been accounted in the books of account. The sales reported by the assessee have been accepted by the assessing authority. The sales have been made out of the opening stock and purchases made by the assessee. If the purchases omitted by the assessing authority are really excluded from the stock account, it would not have been possible for the assessee to arrive at the sale figures reported by her. It is to be seen that the income generates out of the sales. When all these facts are taken into consideration, it is not possible for us to endorse the view of the lower authorities that the entire such purchases objected to by them should be treated as bogus At the same time, it is also not possible to accept the entire contentions advanced by the assessee, since confirmations have been received only during remand proceedings. Hence, an addition on account of alleged bogus purchases is called for, however with moderation – Decided partly in favor of assessee

  ---

• 2012 (8) TMI 736
  Deduction u/s 10A - dis-allowance in respect of three undertaking located at Chinchwad, Akruti and Millennium Business Park - assumption of them being mere expansion of the existing units - Held that:- Issue stands fully covered in favor of the assessee in assessee’s own case for the AY 2002-03 and 2003-04 wherein it was held that merely because the approval letter received from STPI stated the setting up of the three units as an expansion of the corresponding units, cannot be fatal to the plea set up by the assessee that the three units in question are independent and distinct units liable for an independent claim of deduction u/s 10A, since all the prescribed conditions have been fulfilled - Decided in favor of assessee. It is also directed to allow set-off of the losses of the section 10A eligible units against the normal business income of the assessee while computing income as per normal provisions of the Act. Transfer pricing - adjustments u/s 92CA on account of non charging of interest chargeable on excess period of credit allowed to Associated concerns - Held that:- Issue is covered in favour of the assessee in assessee’s own case for AY 2002-03 and 2003-04, wherein it was held that " a continuing debit balance, is not an international transaction per se, but is a result of international transaction". Residuary clause in the definition of ‘international transaction’ does not apply to a continuing debit balance, for the elementary reason that there is nothing on record to show that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee - Decided in favor of assessee Deduction u/s 80HHE - exclusion of turnover of overseas branches from export turnover and not from the total turnover - Held that:- If turnover of overseas branches is excluded from export turnover, same needs to be reduced from total turnover - Decided in favor of assessee Computation of interest u/s 234B without considering credit available under DTAA for taxes paid in USA - Held that:- Issue has been decided in favor of assessee in earlier year wherein it was held that interest u/s 234B has to be computed after considering tax credit in respect of the taxes paid abroad. Also, law has been amended to the effect that Explanation (1) to section 234B by the Finance Act 2006 is clarificatory and, therefore, has retrospective application - Decided in favor of assessee.

  ---

• 2012 (8) TMI 735
  Exemption u/s 11/10(1) - denial on ground of violation of statutory provisions of activities, non agricultural income such as on account of sale of coffee, beedi leaves, cashew, eucalyptus, timber, pepper etc - there were mixed objects other than charity in the case of assessee - Held that:- It is noteworthy that Tribunal has decided in favor of assessee in earlier year. In view of aforesaid and facts of the case, we set aside the impugned order of the CIT(A), and restore the matter to the file of the CIT(A) with a direction to pass a speaking order with regard to the claims of the assessee for exemption under S.11/S.10(1) - Decided in favor of revenue for statistical purposes

  ---

• 2012 (8) TMI 734
  Adjustment to valuation determined by DVO under reference made u/s 142A - Revenue contesting grant of deduction @ 15% on account of rate difference between the CPWD rates and the rates existing in Khothagudem and Khammam and also on account of self supervision @ 10% - assessee firm, engaged in the business of running a hotel at Kothagudem, Khammam, constructed six storied hotel building - Held that:- There is no dispute in the present case with regard to existence of difference in the CPWD rates adopted by the DVO and the local rates prevailing in Kothagudem/Khammam, hence, assessee is entitled for deduction at the rate of 15%. Percentage of deduction on this account depends on the facts of each case and the steel rate differences. Deduction towards self supervision at the rate of 10% - Revenue contending deduction @ 7.5% - Held that:- Considering the size of the town and the asset under consideration( six storeyed hotel building), it is held that assessee was in an advantageous position to bargain the rates to the maximum benefit of the assessee, in which case, higher deduction is justified - Decided against Revenue

  ---

• 2012 (8) TMI 733
  Provision for obsolete stock written back - AY 02-03 - dis-allowance on ground that there is no provision under the Act to allow deduction for obsolete stock, hence provision for same written back would not be reduced from taxable income - assessee explained that though for AY 2001-02, provision for obsolete stock was made, however no deduction was claimed for same while computing total income - in view of no deduction claimed, subsequent reversal shall be deducted from the total income - Held that:- In view of the conflicting claim made by the parties and considering the contentions of assessee that an income which has already been taxed is again being taxed, we think it proper to restore the matter back to the file of the AO who shall examine the issue as to whether the assessee in fact has not claimed deduction of provision for obsolete stock Provision for bad debts written back - AY 03-04 - dis-allowance - assessee explained that though for AY 2001-02, provision for bad debts was made, however no deduction was claimed for same while computing total income - in view of no deduction claimed, subsequent reversal shall be deducted from the total income - Held that:- Since no provision for doubtful debts is allowed in the I.T. Act, if the provision is debited to the P/L A/c, it must be added back while computing total income. However, if it is credited to the P/L A/c as happens when it is written back, then the income is artificially increased while computing the income as per I.T. Act, the provision so credited has to be reduced from the total income. If not reduced would lead to taxing income twice. Since the entire provision created has already been offered to tax in the AY 2001-02, hence it is justified to allow the deduction of same - Decided in favor of assessee.

  ---

• 2012 (8) TMI 732
  Addition towards share capital introduced by HUF of Managing Director of the appellant company – source of the application money along with confirmation being furnished – karta of HUF being in hold of 10 acres of cultivatable land - Held that:- Identity of the person investing in share application is not in doubt who happens to be the MD of the company. When the identity of the investor is not doubted and the fact that he is holding agricultural land to the extent of 10 acres has not been disputed, the AO should not have treated the share application money as unexplained cash credit at the hands of the assessee company only because of a doubt in his mind that this amount could not have been earned from agricultural operations. If at all there was any doubt regarding the source of investment, proceedings should have been initiated against MD in his individual capacityand no addition could have been made at the hands of the assessee company - Decided in favor of assessee

  ---

• 2012 (8) TMI 731
  Stay petition - recovery of outstanding demand – Held that:- DRP passed the directions in its cryptic order of three pages without giving thought to all the objections raised by the assessee - very high pitch addition is made by discarding the comparables given by the assessee and hence, this demand is raised - adjustment made by the TPO and also considered by the DRP in respect of the international transactions with the AEs appears to be without application of mind - assessee made out a prima facie case for grant of the stay - assessee's stay petition is allowed

  ---

• 2012 (8) TMI 730
  Arm’s length price - investment advisory services to assets management companies - transactions between assessee and its associated enterprises were at arm’s length price, an arm’s length analysis was performed by assessee-company and submitted to TPO - TPO rejected two entities that were selected comparables by assessee-company and, on other hand, TPO introduced two fresh comparables to determined arm’s length price – Held that:- Assessee raised several points and contentions before the learned DRP against the proposed adjustment to the amount of transactions entered into by the assessee with its associate enterprises - DRP in a very short and summary order has upheld the TPO’s action without giving the reasons as to why the TPO was justified in suggesting the adjustment to the transfer pricing transactions after selecting various comparables - DRP has failed to ascribe cogent and germane reasons for rejecting the assessee’s several objections, accepting the TPO’s order in summary manner and has failed to consider various points raised by the assessee - matter is restored to the file of the Assessing Officer/DRP for fresh adjudication Disallowance of bonus paid by the assessee to its employees (who are also shareholders of the assessee-company) under section 36(1)(ii ) of the Act by holding that the same would have been payable by way of dividend – Held that:- There was a specific direction by the learned DRP to allow the assessee’s claim if the same was allowed in the earlier year - matter restored to the file of the Assessing Officer for fresh adjudication after verifying as to whether identical claim was allowed in earlier years and if it is found that the same is allowed in the earlier year, the Assessing Officer shall allow the assessee’s claim as so directed by the learned DRP Disallowance of severance cost paid by the assessee-company to one of its employees – Held that:- Issue was pending in appellate proceedings in the earlier years - matter restored to the file of the Assessing Officer/DRP for fresh adjudication after ascertaining as to whether identical issue based on same set of facts has been decided by any appellate authority in earlier years and if it is not so, then learned DRP is directed to decide the issue on merits having regard to the provisions provided under section 37(1) of the Act in the light of the facts of the present case Disallowance out of staff welfare expenses – Held that:- Claim of the assessee was that the get together was held for the benefit of the employees. Since the expenditure was incurred for the benefit of the employees in the course of carrying on business by the assessee, it cannot be said that the amount has not been incurred for the purpose of business. The assessee is in the business of investment advisory services and its business is solely dependent on the skills and expertise of its employees - it is a common practice in the industry to conduct training sessions for its employees and get together – expenditure allowed Disallowance of the payment made by the assessee to Hunt Executive Research Limited under section 40(a)( ia) of the Act – Held that:- Assessee paid a fees to Hunt Executive Research Limited as professional fees - payment on account of professional fees, tax was duly deducted at source under section 194J and thus, no disallowance has been made by the Assessing Officer - reimbursement of expenses would not come under the ambit of payment of professional fees within the meaning of section 194J of the Act - disallowance deleted

  ---

• 2012 (8) TMI 729
  Rectification or order - typographical error - omission of ‘not’ in the sentence "PE or no PE" - held that:- PE or no PE, since entire repairs and overhauling is carried outside India, the profits arising to assessee from such repairs can not be taxed in India - error corrected. - Decided in favor of assessee. Rectification in respect of consideration for use of replacement components - held that:- By no stretch of logic, our direction constitutes a ‘mistake apparent on record’ liable to be rectified under section 254(2), even if that be a mistake. In any event, there is no mistake in remitting the matter to the file of the C1T(A) for fresh adjudication because none of the authorities below had an occasion to deal with the application of Article 13 of Indo UK tax treaty, on the facts of this case. It is not open to us to revisit our conclusion and place limitations on the powers of the CIT(A] which were not placed in the original order. - Decided against the assessee.

  ---

• 2012 (8) TMI 728
  Exemption under sections 11 and 12 of the Income-tax Act - denial of exemption – alleged that assessee violated the provisions of section 13(1)(d) of the I.T. Act since the assessee trust had given loans – Held that:- Assessee while giving the impugned loan to another society did not violate the provisions of section 13(1)(d) read with section 11(5) of the I.T. Act as the loan was neither an investment nor a deposit - AO never disputed this fact that the assessee as well as Ram Lakhan Shiksha Samiti i.e., the society, who received the loan, were having similar objects, therefore, the temporary loan was given by the assessee to another society having similar object and nothing is brought on recorded by the AO that the said loan was out of the accumulated surplus of the year under consideration set apart - appeal is allowed Decision in DIT v. Acme Educational Society [2010 (7) TMI 159 - DELHI HIGH COURT] followed.

  ---

• 2012 (8) TMI 714
  Reassess income/recompute loss/ depreciation allowance - notice under Section 148 - directions from Dispute Resolution Panel (DRP) - writ petition - Held that:- Writ petition under Article 226 of the Constitution of India is maintainable where no order has been passed by the AO deciding the objection filed by the assessee u/s 148 and assessment order has been passed or the order deciding an objection u/s 148 has not been communicated to the assessee and assessment order has been passed or the objection filed has been decided along with the assessment order, thus it was not open to the AO to decide the objection to notice under section 148 by a composite assessment order - AO was required to, first decide the objection of the assessee filed u/s 148 and serve a copy of the order on assessee. And after giving some reasonable time to the assessee for challenging his order, it was open to him to pass an assessment order. This was not done by the AO, therefore, the order on the objection to the notice u/s 148 and the assessment order passed under the Act deserves to be quashed - in favour of assessee. Re-opening of assessment - non application of provisions of Section 32(2) by AO - Held that:- Once the AO notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever, therefore,that in a situation where the AO during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reason for not making addition - If on the facts disclosed by the assessee, a wrong legal inference is taken by the AO at the time of original assessment then it would not confer any power on him u/s 147 to commence reassessment proceedings - in favour of assessee. Treatment for Unabsorbed depreciation pertaining to A.Y. 1997-98 - allowed to be carried forward and set off after a period of eight years OR governed by Section 32 as amended by Finance Act 2001? - Held that:- Any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001, thus once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever - writ petition allowed in favour of assessee.

  ---

• 2012 (8) TMI 713
  Claim of Depreciation on Stock Exchange Membership Cards - Held that:- As decided in M/s Techno Shares & Stocks Ltd. Versus CIT IV [2010 (9) TMI 6 - SUPREME COURT OF INDIA] by virtue of Explanation 3 to Section 32(1)(ii) the commercial or business right which is similar to a "licence" or "franchise" is declared to be an intangible asset, therefore, the right of membership, which includes right of nomination, is a "licence" or "akin to a licence" which is one of the items which falls in Section 32(1)(ii) of and the Tribunal was right in holding that depreciation was allowable on the cost of the membership card - in favour of assessee. Claim of Depreciation on goodwill - Scheme of Amalgamation - Held that:- Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other business or commercial right of a similar nature' - in favour of assessee. Cancellation of disallowance of bad debt - Held that:- Bad debt claimed by the assessee was incurred in the normal course of business and, therefore, the assessee was entitled to deduction u/s 36(1)(vii)- the manner in which the assessee maintains its accounts is not conclusive for deciding the nature of expenditure - in favour of assessee.

  ---

• 2012 (8) TMI 712
  Disallowance of reconciliation loss - whether the said figure of 3.46% of the purchases did or did not include gas in the pipeline ? - Held that:- As AO following the directions of the Tribunal furnished for this year accordingly restored the matter to the file of the AO for this year also ignoring a clear finding that loss of about 4% of purchases is reasonable subject to verification - As the loss of 3.4% is borne out by audited accounts, which is lower than the average loss of about 4%. Therefore, there seems to be no reasonable cause to make the disallowance of reconciliation loss by stating that the details of stock lying in pipe lines were not furnished in qualitative or quantitative terms as what had to be verified was whether the loss was in the vicinity of 4%, which has been held to be reasonable by the Tribunal. The matter be remitted to the AO for the purposes of determining / verifying as to whether gas in the pipeline in respect of the assessment year 2005-2006 has been included in the figure of closing stock or not. If the Assessing Officer finds that there is gas in the pipeline, which has not been included in the closing stock, to that extent, the same shall be added back to the closing stock and insofar as the figure of 3.46% of the purchases is concerned, the same shall be modified accordingly.

  ---

• 2012 (8) TMI 711
  Receipt of rent and compensation - Business income OR Income from House Property - the period of lease exceeding 12 years - revenue invoking the provisions of section 27(iiib) r.w.s. 269 UA(f) - Held that:- By an agreement dated 7th November, 1984 HLL granted the assessee a licence in respect of an area admeasuring about 450 square meters on the term of not entitled to renew the same upon the expiry of the period of 11 years from the date of the occupation certificate of the shopping arcade - As the assessee and HLL entered into a fresh agreement dated 24th January, 1999 for a duration of this agreement was 10 years with enhanced consideration, no connection whatsoever between the two agreements can be developed - no indication of any factors on the basis of the agreements or even otherwise which would indicate that the latter agreement was a continuation of the first agreement - as neither the assessee nor HLL had a right to renew the first agreement this is the clearest indication that the subsequent agreement was separate and distinct and was entered into on the basis of fresh negotiations. As the first agreement was entered into on 7th November, 1984 before the provisions of Section 27(iiib) and 269UA(f) came into force with effect from 1st April, 1988 and 1st October, 1996, respectively, thus it cannot, therefore, be said that the agreement was structured by the parties thereto to get over the said provisions - thus the rental income is need to be held under the head “Profits and gains from business” - in favour of assessee.

  ---

• 2012 (8) TMI 710
  Disallowance of Bad debt on 'vatav kasar' - assessee is a stock and share broker - assessee contended that even if the deduction is not allowable as bad debts,the aforesaid amount of Rs.44.98 lacs should be allowed as a business loss in computing the profits and gains earned in carrying on a business - Held that:- The expression “Profits and gains of business or profession” u/s 28 is to be understood in its ordinary commercial meaning and the same does not mean total receipts. What has to brought to tax is the net amount earned by carrying on a profession or a business which necessarily requires deducting expenses and losses incurred in carrying on business or profession. As decided in Badridas Daga Versus CIT [1958 (4) TMI 2 - SUPREME COURT] if the deduction is not allowable as bad debts, the Tribunal ought to have considered the assessee's claim for deduction as business loss - The fact that condition of bad debts were not satisfied by the assessee would not prevent him from claiming deduction as a business loss incurred in the course of carrying on business as share broker - in favour of the assessee

  ---

• 2012 (8) TMI 709
  Disallowance of exemption u/s. 10A - unit of assessee at SEEPZ Mumbai - reopening of assessment u/s 147 - Held that:- As decided in CIT Versus Paul Brothers [1992 (10) TMI 5 - BOMBAY HIGH COURT] where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Income Tax officer cannot withdraw the relief for subsequent years. More particularly so, when the revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. In this case for the assessment years 2000-01 and 2001-02 the relief granted u/s 10A to SEEPZ unit has not been withdrawn and there is no change in the facts which were in existence during the assessment year 2000-01 vis a vis the claim to exemption under section 10A. Therefore, it is not open to the department to deny the benefit of Section 10A for subsequent assessment years i. e. assessment years 2002-03 and 2003-04 and 2004-05 - no need to reopen the assessment - in favour of assessee.

  ---

• 2012 (8) TMI 708
  Applicability of TDS provisions in respect of the advances held as deemed dividends by the AO u/s 2(22)(e) – advance provided to sister concern in which share-holders of the assessee are having substantial interest of more than 20% by way of shares – legality and validity of the proceedings u/s 201(1) and 201(1A) after lapse of a period of four years – Held that:- As far as trade advances are concerned, there is no question of applicability of the provisions of S.194, and consequently, applicability of provisions of S.201(1) and S.201(1)(1A) does not arises. As for the other advances as well, it is held that it is only where the payee in relation to the payments in question is a share-holder, such payments may attract the provisions of S.2(22)(e), and consequently liability to TDS u/s 194. Therefore, Section 194 does not require TDS when payment is made to a non-shareholder. See ANZ Reality Pvt. Ltd. V/s. ITO(2008 (10) TMI 268 - ITAT JAIPUR-B) – Decided in favor of assessee. For the purpose of applicability of TDS provisions, six years is held to be a reasonable period. See Mahindra and Mahindra Limited V/s. DCIT (2009 (4) TMI 207 - ITAT BOMBAY-H) – Decided in favor of Revenue

  ---

• 2012 (8) TMI 707
  Alleged Bogus payments made for purchase of Plant and why the assessee, the Managing Partner issued such cheques. Therefore, role and innocence of the assessee in discharging the onus is not fully demonstrated. Also, employing the short lived bank accounts of other two concerns, whose antecedents are not verifiable have added fuel to the fire. We restore the matter to the file of the AO for re-consideration of the whole issue, after carrying due verification with a direction to obtain relevant confirmation from supplier of P&M about supply of the P&M and receipt of the agreed amount of consideration

  ---

• 2012 (8) TMI 706
  Suppression of Sales - retail trade in liquor – AO on observation of GOMS of the Govt., of AP and retailer’s margin, reworked sales based on MRP fixed - addition made for suppression of sales, deleted by CIT(A) on ground that MRP fixed by the Government may be an indicator for knowing the general price of the product but the same cannot be considered as the price for which the sales were effected by the assessee – Revenue contesting the same on various grounds including that TDS & TCS rate of 1% fixed in liquor trade if adopted would render net profit margin to be in excess of 5% - Held that:- In view of aforesaid and various other submissions of Revenue, we set aside the order of the CIT(A) and direct the AO to estimate net profit at 5% of the purchases or stock put for sale during the year subject to the assessed income not less than returned income – Decided partly in favor of Revenue.

  ---

• 2012 (8) TMI 705
  Best judgement assessment - estimation of profit @ 8% u/s 44AD - further addition made of concealed contract receipts not reflected in the regular books of account maintained and unexplained investment u/s 69B utilized to pay wages to workers/labourers - Held that:- W.r.t. addition on ground of concealed contract receipts, assessee contended that same has been received in the following year after deduction of tax at source. TDS certificates and bank statements placed on record. Therefore, the AO is directed to accept the gross contract receipts as declared by the assessee. Further, once the NP rate having been applied no other addition on account of wages or contract receipts as mentioned hereinabove can be a subject matter of addition. AO is directed to exclude the said amounts - Decided in favor of assessee

  ---

• 2012 (8) TMI 704
  Registration u/s 12AA - denial on ground of it being non-charitable - assessee trust created for health and medical education - assessee contended that the scope of inquiry by CIT is only to examine the genuineness of the objects of the trust and not application of income for charitable purpose, which can be examined at the stage when the trust files its return - Held that:- Tests for registration which have to be applied are (i) whether the activities of the society are genuine, and (ii) whether the purpose of the society is charitable. Therefore, assessee had satisfied the conditions for registration u/s 12AA because the activities of the assessee-trust are genuine and purpose of the assessee-trust is charitable. CIT-II directed to grant registration to the assessee-trust - Decided in favor of appellant

  ---

• 2012 (8) TMI 703
  Depreciation on windmill - dis-allowance of claim of higher depreciation @ 80% on ground that assessee has not exercised option as per proviso to Rule 5(1A) before the due date of filing the return of income u/s 139(1) for the relevant AY in which generation of power had begun - Held that:- CIT(A) has not passed speaking order giving detailed reasons for allowing the appeal of the assessee. Moreover, the AO in his assessment order has also taken contradictory stand with respect to the business of the assessee. In our considered opinion, the order of the CIT(A) is liable to be set aside and the matter requires to be remanded back to the AO to decide the matter afresh after taking into consideration facts of the case and submissions of the assessee.

  ---

• 2012 (8) TMI 702
  Penalty – penalty imposed u/s.271(1)(c) in respect of denial of deduction u/ss 10A/10B on such interest income – Held that:- Similar penalty was initiated by the Revenue in respect of asstt. year 2003-04 also - AO got satisfied as to the non-levy of penalty and dropped the same – In favor of assessee

  ---

• 2012 (8) TMI 701
  Registration under section 12A/12AA – Held that:- Society can be held to be "charitable" there must be an element of charity to public at large - society under consideration is a mutual concern of the members who form the society and the whole idea of this mutual society is that the particular members comprising it should be benefited out of their own contribution - assessee society is not a charitable society within the meaning of the Act so that registration under section 12A/12AA can be granted - appeal of the assessee is dismissed.

  ---

• 2012 (8) TMI 700
  Disallowance of expense u/s 40(ia) of the Income Tax Act – Held that:- Assessee has deducted tax at source u/s 194C whereas according to the Assessing Officer provisions of section 194I are applicable - assessee is in default as per provisions of sec. 201 but disallowance of the expenditure is not permissible u/s 40(a)(ia) - appeal filed by the assessee is allowed.

  ---

• 2012 (8) TMI 699
  Disallowance of provision for bad and doubtful debts – Held that:- Deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt - But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off - proviso indicates that it is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii) - in favour of the assessee Decision in the case of Catholic Syrian Bank Ltd. vs CIT (2012 (2) TMI 262 - SUPREME COURT OF INDIA) followed.

  ---

• 2012 (8) TMI 698
  Deduction u/s. 80HHF in addition to treating an amount as exemption u/s. 10B of the I.T. Act by applying the provisions of Section 80HHC to the export turnover - While computing deduction under section 80HHF it included export profit of EOU Held that:- Profit derived from EOU should be reduced because profit derived by EOU was exempt from tax under section 10B – express intention of Legislature with regard to sections 10B and 80HHF is not to allow deduction under both sections and further, both of said sections expressly prohibits to allow deduction other than allowable under respective sections – order of Commissioner (Appeals) was to be confirmed Claim for deduction u/s. 10B - assessee have set up a new unit for production of media content software – alleged that production of a media content program on a beta-cam tape could not be equated with an article or thing and, therefore, assessee did not satisfy basic condition of manufacture and production of an article or a thing prescribed in section 10B - Held that:- Incorporeal rights contained in beta-cam tapes are 'goods' or 'merchandise' and, hence, entitled to deduction under section 10B

  ---

• 2012 (8) TMI 697
  Capital gain – date of acquisition - deduction of section 54EC – Held that:- Period of holding a capital asset should be deemed to include the period for which the asset was held by the previous owner of the property referred in the Sub-sec.(1) of Sec.49 of the Act - none of the authorities below considered the matter in the light of the provisions of section 49(1) – matter remanded Disallowance of Municipal tax, Govt.conversion fee and Mandal Development cess tax as cost of improvement – Held that:- Expenses claimed as cost of improvements are Municipal tax, Land conversion and Mandal development cess tax, which cannot be said to be expenditure incurred for the improvement of or addition to the asset. Municipal tax is revenue in nature to be paid year after year, whereas the Govt. Conversion fine and Mandal Development cess tax are levied by the local authority for converting the land and develop the area, where the property is located - expenses also cannot be said to be for the additions or for the improvement of the asset - assessee’s appeal is partly allowed for statistical purposes

  ---

• 2012 (8) TMI 696
  Unconditional grant - Voluntary and unconditional grant received by the assessee for protecting image and goodwill of the holding company - taxable as business receipt or not – Held that:- Payment was voluntary or that it was an unconditional payment, will not make it a capital receipt not chargeable to tax. The stand of the Assessee before the Revenue authorities that BMIL was in losses and the payment in question was made to recoup such losses is contrary to the material on record. There was holding and subsidiary company relationship between BMIL and BMG besides business relationship viz., BMIL was using the brand image of BMG, making use of the technical know-how of the parent company and was also acting as the marketing agent for BMG for sale of diagnostic products, BIO chemicals and Bio catalysts. It is only because of such relationship and also in the light of the help rendered by BMIL in terms of protecting and promoting the interests of BMG in the wake of COMSAT incident, the payment in question was made by BMG and was therefore a payment connected with the business of BMIL and was liable to be taxed u/s.28(i) read with Sec.2(24) of the Act; Whether claim of depreciation is mandatory in nature – AO noticed from the schedule of depreciation furnished by the assessee that depreciation was being claimed on the WDV without adjusting for depreciation allowable for A.Y.s 1995-96 & 1996-97 in the hands of erstwhile BMIL - BMIL did not opt to claim depreciation for the assessment years 1995-96 & 1996-97 although assets have been used in the business carried on by BMIL during those years – Held that:– Making of a claim and the furnishing of particulars – have to be read as cumulative conditions. If either of the two conditions are not fulfilled the AO cannot force the depreciation allowance on the assessee - in the absence of a claim by the assessee the allowance cannot be thrust upon him even if the particulars are available to the AO. Therefore, the mere fact that the assessee did not make a claim for depreciation places a fetter upon the powers of the AO to allow depreciation Whether software development product expenses is allowable as revenue expenditure u/s. 37(1) – expenditure for acquiring and implementing software programme known as known as ERP package MFG Pro-version – Held that:- Nature of the software and its role in business of the assessee have to be considered - matter remanded to AO for fresh consideration Computation of profit u/s. 115JA – Held that:- P&L Account prepared by the assessee for the purpose of 115JA of the Act has been duly certified by the Chartered Accountant. There is no complaint that the same is not in accordance with provisions of part II & Part II of Schedule VI of the Companies Act 1956. As rightly pointed out by the assessee the only restriction in 115JA(2) is regarding the depreciation which has to be in conformity with the method adopted under Companies Act. There is however, departure in section 115JB(2) of the Act which provides that the accounting policies and accounting standards adopted while preparing P&L Account for section 115JB of the Act should correspond to the one adopted for the purpose of Companies Act 1956

  ---

• 2012 (8) TMI 695
  Deduction under section 80-IB of the Income-tax Act - Profits and gains from industrial undertakings other than infrastructure development undertakings – Assessee industrial undertaking had received storage charges - Held that:- Source of income with regard to storage charges was not business of assessee, but was failure of buyer to receive delivery of goods in compliance with terms of contract, it could not be treated as profits of undertaking for purpose of section 80-IB Disallowance of expenditure claimed for foreign travelling expenses in respect of one of its director and his wife – Held that:- In absence of any material contradicting claim made by company, merely because she was wife of a director, her travelling abroad could not be treated as pleasure trip and said expenditure on foreign travel was to be treated as business expenditure

  ---

• Customs

• 2012 (8) TMI 748
  EPCG licence - imported of machine - item was assessed to duty under Customs Tariff Heading No. 9030.89 applying the duty rate of 20% + 5% + 13%CVD + 4%SAD - appellant requested for reassessment of the Bill of Entry on the ground that they have an EPCG licence for the same and requested for assessment @ 10% + 5%, which was rejected - refund claim was also rejected on the ground that inasmuch as the request for reassessment was rejected, there is no merit in the refund claim – Held that:- Even if the assessment made under Bill of Entry is an appealable order, the same does not prevent the department from passing a speaking order to enable the petitioner to file an appeal - department should have passed a speaking order as to why the appellant’s claim for exemption under EPCG scheme was not admissible before they rejected the refund claim - matter is remanded to the original adjudicating authority

  ---

• 2012 (8) TMI 727
  Demand for Provisional clearance of goods - Held that:- For provisionally assessing duty the petitioner will deposit 20% of the differential duty in cash while furnishing bank guarantee for the remaining 80% and on fulfilling these conditions and after completing all the other formalities,if any, the goods will be released to him as early as possible and without delay.

  ---

• 2012 (8) TMI 726
  Drawback claim – Held that:- Goods were taken for reprocessing after re-importation and reprocessed goods exported cannot be said to be identified as re-imported goods - as per Notification No. 40/94-C.E. Drawback of duty under Section 74 of Customs Act, 1962 can not be allowed since the goods are exported in discharge of export obligation under DEEC Scheme - no infirmity in the impugned Order-in-Appeal - Revision Application is rejected

  ---

• 2012 (8) TMI 694
  Refund - refund claim was rejected only on the ground of limitation and the issue of bar of unjust enrichment was not being examined by the adjudicating authority – Held that:- Refund claims are within time - adjudicating authority has not examined the issue of unjust enrichment - matter remanded back to the adjudicating authority

  ---

• 2012 (8) TMI 693
  Import of Barcode Printers - additional duty of customs under Section 3 of the Customs Tariff Act - whether the appellant are required to affix MRP – Held that:- Whether the shopping malls “which are typical buyers of the imported printers) can be regarded as institutional consumers - Shopping malls, or stockists are not similar to a transporter or a hotel - it is required under the Standards of Weights and Measures (PC) Rules, 1977 to declare on the package of the imported article its retail sale price - goods are liable to value as per provisions of Section 3(2) of the Customs Tariff Act, 1975

  ---

• Corporate Laws

• 2012 (8) TMI 725
  Winding up petition - petitioner contending non-payment of debt whereas respondent company contended that petitioner had supplied defective products and even after repeated requests by the respondent, the petitioner failed to rectify the same - respondent reworked on the defective produced with HAL due to which it incurred huge expenditure - delay in delivery of products to the end-customers resulted in loss of business opportunities - Held that:- Notwithstanding the fact that the products were delivered but the same being defective, no claim could be made by the petitioner towards the defective goods. The defect was sought to be rectified by giving it to another agency. Handing over for reworking to another agency was only due to the fact that the products received by the respondent was defective. Therefore, it cannot be held that there is a debt and that has been admitted or the respondent is liable to pay the debts. The dispute raised is bona fide and not a moonshine. There is enough material to show that the goods were defective. The petitioner having accepted the same has also replied stating that it would rectify the defects. Hence the defence is substantiated by the admission of the petitioner. No claim could be made for defective goods. No amount can be held to be due on account of the defective goods. Petition dismissed.

  ---

• 2012 (8) TMI 692
  Compensated by way of interest on the outstanding loan as ordered by CLB - from the year 1983 until the date of repayment at the rate of interest at which the funds were borrowed after adjustment for any share of profit already passed on - Held that:- the CLB could not have ordered recovery of interest over the amount advanced under the agreement dated 30.09.1983 because such an order essentially resulted in modification of the terms of the agreement between the parties; and such a modification could not have been made without the consent of the appellant company in view of clause (e) of Section 402 of the Act. Worthwhile it shall be to refer to the scheme of the relevant provisions as contained in Part-A of Chapter VI of the Act on the powers of Company Law Board for prevention of the oppression and mismanagement. The CLB, in the present case, though has ordered a fundamental modification in the terms of the agreement between the appellant company and the respondent No. 2 company but then, the consent of the appellant company, the third party for the purpose of clause (e) of Section 402, was not obtained. Neither the order impugned records so nor there is any other material on record to show that any such consent was obtained - directions to recovery of interest from the appellant company by the respondent No.2 company, is set aside CLB appears to have proceeded rather on the wrong assumption that according to the auditor's report of the year 1988-89, the appellant company was not possessing many facilities and that the facilities were not availed by the respondent No. 2 company as appears that the pronoun "it", as used by the auditor in his report, was taken by the CLB to mean as if the appellant company was not possessing many of the facilities. The report, read as a whole, makes it clear that the expression "it does not possess" referred to the respondent No. 2 company, in whose regard the audit report was being made, and not to the appellant company.

  ---

• Service Tax

• 2012 (8) TMI 753
  Claim of Cenvat Credit on the pipes and valves - assessee sought to obtain advance ruling from AAR on eligibility to avail CENVAT Credit of excise duty paid by it on pipes and valves to the manufacturer, against the Petitioner's output service tax liability under the taxable service category of "transport of goods through pipeline or conduit? AAR rejected the application - Held that:- As the petitioners are Government Companies being subsidiaries of Gujarat State Petronet Ltd. The holding company and each subsidiary company are separate and distinct legal entities and every company has an independent right to file an application before the AAR for pronouncement of an advance ruling on the questions raised in the applications. Section 96A(b)(ii) and (iii) support the case of the petitioners that a joint venture company could be an applicant. Further a resident falling within the class of mentioned in sub-clause (iii) could also maintain an application. The petitioners fall within the ambit of section 96A(b)(iii), therefore, we hold that the petitioners being a step-down subsidiary company of a Government Company are covered within the definition of the "applicant" in terms of section 96A(b) of the Finance Act. The applications filed by the petitioners before the AAR under section 96C were maintainable. As the petitioners and the holding company were separate and distinct legal entities and had independent rights and the AAR does not possess absolute discretionary power. Under section 96D(2) proviso (a) the important words used are, “in the applicant’s case”, which clearly explains that if in the applicants own case any matter is pending or had been decided then the AAR could dismiss the application - The AAR could not reject the applications of the petitioners under its discretionary power as there were no exceptional circumstances, or abuse of the legal process or rendering incompatible decisions concerning the same parties or any anomalous situations would have arisen if the AAR would have pronounced advance ruling. The petitioners had not yet entered into any transaction and the advance ruling had been sought on the proposed activity or service, therefore, the petitioners’ applications were maintainable and the AAR was required to pronounce advance ruling under section 96D of the Finance Act. Even assuming that the question pending before the CESTAT in the matter of holding company and the question raised before AAR by the petitioners were similar, if the AAR pronounces advance ruling on the question raised by the petitioners, then, in our opinion, it will not result in conflicting or incompatible decision between the same parties, as the order of the AAR would be binding only on the petitioners and the tax authorities in view of section 96E of the Finance Act - in favour of assessee.

  ---

• 2012 (8) TMI 752
  Demand of service tax - manufacture of VP sugar and molasses - They engaged individual farmers for transportation of sugarcane from collection centres to the factory and paid charges for such transportation. The Appellants were not paying any service tax on such services received by them for transportation of goods – Held that:- Entry in the Act defines "Goods Transport Agency" as one which issues consignment notes and thereafter Rule 4B says that "Goods Transport Agency" has to issue consignment note - That is to say if a goods transport operator does not issue consignment note he does not come within the meaning of "Goods Transport Service" and then the requirement under Rule 4B also is not enforceable – pre-deposit waived

  ---

• 2012 (8) TMI 751
  Demand and penalty - Short payment of service tax – Held that:- Services have been rendered by a retired police officer who was not familiar with the law relating to Service tax - appellant was eligible for availing full exemption from Service Tax in terms of Notification No. 6/2005-S.T., - It is a clear case of ignorance in not opting to avail this exemption - sufficient cause for invoking the provisions of Section 80 of the Finance Act - appellant has chosen to collect Service Tax from parties who were willing to pay the tax and paid the same to the department. He has failed to collect the Service Tax from other clients who were not willing to pay - Service Tax liability is upheld - re-quantification of Service Tax liability by adopting cum-tax benefit in respect of cases where Service Tax has not been collected - The interest liability is also upheld on the re-quantified Service Tax liability - penalty imposed under Section 78 is set aside - amount already paid shall be adjusted towards the Service Tax liability and interest so re-quantified.

  ---

• 2012 (8) TMI 750
  Demand of service tax - Held that:- Laying of pipeline for water supply projects will not come under the category of erection, commissioning and installation service - Board’s Circular dated 24-5-2010 makes it absolutely clear that unless the activity undertaken results in the emergence of an “erected, installed and commissioned plant, machinery, equipment or structure”, the activity will not come under the category of erection, commissioning and installation service. Laying of pipelines cannot be construed as a plant, machinery or equipment or structure.

  ---

• 2012 (8) TMI 749
  Penalty under Sec. 76 of the Act – Held that:- Assessee has paid both the service tax and interest for delayed payments before issue of show cause notice under the Act - after the payment of service tax and interest is made and the said information is furnished to the authorities, then the authorities shall not serve any notice under sub-section (1) in respect of the amount so paid. Therefore, authorities have no authority to initiate proceedings for recovery of penalty under Sec. 76 of the Act.

  ---

• 2012 (8) TMI 719
  Demand of service tax – penalty - appellants were providing the service of cable operators - they did not pay service tax as applicable – Held that:- There is no case for imposing penalty for an amount more than net tax liability - penalty under Section 78 is reduced - penalty under Section 76 is waived - appellant is given an opportunity to pay 25% of the penalty under Section 78 in 30 days of receipt of the order

  ---

• 2012 (8) TMI 718
  Demand of service tax under Management and Business Consultant – Held that:- Revenue has no proof that service have been provided by the Gamma Holding except the terms of the contract - no service tax to be paid for entering into a contract. Levy arises only when activities are performed - Market Research itself is needed for management of an organization cannot be reason for classifying the service as Management Consultancy considering the legal position that a service has to be classified under the heading which is more specific. Market Research may help in Management for that reason the activity of Market Research cannot be classified as Management function when both services are separately taxable - requirement for pre-deposit waived

  ---

• 2012 (8) TMI 717
  Demand in respect of V-SAT connectivity - appellant registered as Stock Broker – Held that:- This service is provided by telegraph authority or by a person licensed under Section 4(1) of the Indian Telegraph Act - appellant are not telegraph authority or a person licensed under Section 4(1) of the Indian Telegraph Act - V-SAT connectivity charges being recovered by the appellant from their customers and sub-brokers cannot be treated as charges for lease circuit services - requirement of pre-deposit of service tax demand, interest and penalty is waived - stay application is allowed.

  ---

• 2012 (8) TMI 716
  Penalty - delay in payment of service tax - service tax and the interest have been deposited belatedly but the penalty amount was not deposited – Held that:- No intention to avoid payment of service tax and infact for the period from September, 2004 February 2005 the service tax has been deduct and further in view of the information given by the NIIT of which the respondent is a franchise claiming that they have made out a ground claiming exemption the said explanation has been accepted by the appellate authority - ground is made out for waiving of the penalty 80 of the Act is justified - appeal is dismissed.

  ---

• Central Excise

• 2012 (8) TMI 724
  Interest on Refund - revision application by Revenue contested that rebate claim has been paid within three months from the date of sanctioning the claim no interest is payable - Held that:- As in the case of Jindal Drugs Limited (2012 (2) TMI 78 - BOMBAY HIGH COURT ) the rebate claim was admittedly paid within three months of sanctioning the claim and the issue is covered by this decision, no fault can be found with the decision of the Joint Secretary to the Government of India in rejecting the revision application filed by the Revenue against allowance of interest claim.

  ---

• 2012 (8) TMI 723
  Application for waiver of pre-deposit of penalty - Held that:- As Commissioner (Appeals) dismissed appeal for non-compliance with the provisions of section 35F for not making pre-deposit of penalty ignoring that assessee already paid total interest of involved in this case - as Commissioner (Appeals) has not decided the issue on merits Appeal allowed by way of remand.

  ---

• 2012 (8) TMI 722
  Exemption Notification No. 3/2004 – Water supply plants for agricultural and industrial use - Exemption to machinery, instruments, equipments and pipes used therein – whether water which is stored reservoir within thermal power plant is used for the industrial purpose or for other purposes also - whether water is further treated before being used for industrial purposes – Held that:- From “Dahej raw water reservoir, the raw water is pumped to industries and existing industries are treating/processing this raw water at their respective water treatment plant to make it fit for industrial uses - pipes have been laid for carrying water for industrial use and the water has been treated by the respective industries or by Thermal Power plant, as the case may be, to make it fit for the purposes for which it was intended - appellants eligible for the exemption Notification No. 3/2004, dated 8-1-2004 - pre-deposit waived

  ---

• 2012 (8) TMI 721
  Pre-deposit – penalty – Held that:- Main defaulter/MHL has been granted immunity and is not to pay any penalty and, therefore, these appellants should not be called upon to pay the penalty has not been addressed at all - where against main noticee/defaulter, the Settlement Commission has granted immunity from payment of any penalty, no penalty can be imposed upon other co-noticees – pre-deposit waived

  ---

• 2012 (8) TMI 720
  Cenvat credit – rebate claim on export of goods - applicant is a manufacturer of readymade garments - applicant have availed cenvat credit on inputs contrary to the conditions stipulated under Notification 30/2004 – Held that:- When goods are exempted from payment of duty, no cenvat credit is permissible under Rule 6(1) of the Cenvat Credit Rules, 2004. Even the Cenvat Credit on the input services is not allowed for exempted goods - applicant has not declared on ARE-1s that they are clearing the goods under Notification No. 29/2004-C.E., on payment of duty whereas they were clearing the goods for home consumption under Notification No. 30/2004-C.E., at nil rate of duty - applicant was not allowed to pay duty on the exempted goods as per proviso to Section 5A(1A) of Central Excise Act, 1944 and no Cenvat Credit on the input services is available under Rule 6(1) of the Cenvat Credit Rules, 2004.

  ---

• 2012 (8) TMI 691
  Denial of cenvat credit - manufacturer of steel tubular poles - Held that:- Consedering the entire process it is evident that the MS black Tube/pipes as initially procured cannot be termed as pipe/tube of specific diameter and this product cannot be sold in the market as pipe/tube which are inputs for manufacture of steel tubular pole. Thus after the processing pipe/tube a distinct product comes into being which is known in the commercial parlance as steel tubular pole which has character and was distinct from MS black Tube/pipes. This process amounts to manufacture and as such no merit in the plea of the Department that steel tubular poles cleared on payment of duty by the respective assessees were not leviable with excise duty. As the appellants used duty paid inputs for the production of their final product which was cleared to the customers on payment of excise duty & department having accepted the excise duty on the final product cannot be permitted to deny cenvat credit on the inputs used for the manufacture of the final product on such a technical plea - in favour of assessee.

  ---

• 2012 (8) TMI 690
  Aluminium structurals - Manufacture - demand of excise duty- assessee was awarded the works for structural glazing/aluminium joinery - Held that:- The entire process of fixing the glazing system is done by fixing the aluminium section on the brackets and by sticking the glass using silicon. For this reason, semi-unitized glazing system is internationally known as sticking glazing system. - the ratio of the Mahindra & Mahindra judgment [2005 (11) TMI 103 - CESTAT, NEW DELHI] settled the dispute against the assessee. Period of limitation - appellant suppressed the fact of manufacture of aluminium structures in erecting the structural glazing system in the RMZ premises - demand is not barred by limitation Regarding quantification and extension of Cenvat – Held that:- Duty due should be quantified on the assessee producing the relevant documents and cenvat credit allowed in accordance with law - goods are liable to duty as manufactured goods - grant of benefit of cenvat credit on production of necessary documents

  ---

• 2012 (8) TMI 689
  Cenvat credit - Whether there could be any intention to evade payment of duty on the part of the applicants when the applicants always had the credit balance in their RG 23A Part II Register even after discharging duty liability and at no point of time they paid duty from their PLA – Held that:- At the time of the search, private records were found. The assessee is not able to make out a case that the private records, which were found from the business premises - on physical verification of the inputs, such inputs were not found there - assessee is not able to dispute this finding recorded by the Tribunal in this regard - assessee is not entitled for any benefit of the credit balance available in RG 23A Part II Register inasmuch as in the present case, on the basis of the seized private records, the suppression of production was detected - in favour of the revenue.

  ---

• Indian Laws

• 2012 (8) TMI 715
  RTI Act - application with the Ministry of External Affairs (MEA) about the action taken report (ATR) on a complaint made to the Central Vigilance Commission – Held that:- Disclosure of information relating to alleged charges of corruption and misappropriation of government money - allegation and/or complaint, vigilance enquiry and the enquiry reports were in respect of the Ambassador in her official capacity and related to her office and acts/omissions therein and also because all the information sought by the Appellant exists in official records already, hence the information cannot be classified as personal nor exemption be sought on that ground - since the information sought relates to allegations of misappropriation of government money, public money being at stake, the information cannot be considered as personal information and hence the information does not fall under provisions of Section 8(1)(j) of the RTI Act, 2005 - information as sought by the Appellant be provided - No authority can proceed on the assumption that an information ordered to be disclosed will be misused - mere expression of an apprehension of possible misuse of information cannot justify non-disclosure of information

  ---