TMI Tax Updates - e-Newsletter
August 7, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Articles

1. AMBIT, SCOPE AND POWER OF COMPANY COURT WHILE APPROVING AND SANCTIONING THE SCHEME.

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Finance Minister Confident of Bringing Economy Back on Desired Track; Gives an Overview of Map for Recovery.

Highlights / Catch Notes

Income Tax

• Court Denies Deduction Claim: Appellant Classified as Association of Persons, Not a Partnership Firm.

  Case-Laws - AT : Denial of claim of deduction of partnership remuneration and interest - the status of appellant has to be taken as AOP - no genuine partnership firm was in existence - AT
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• Assessing Officer Adds Income Based on Rough Ledger Notations Without Substantive Evidence in Liquor Trade Case.

  Case-Laws - AT : Addition made on account of liquor trade - it was only on the basis of noting in a rough ledger that the Assessing Officer has jumped to the conclusion that the assessee has earned this much of profit - AT
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• Section 40(a)(ia) of Income Tax Act remains effective despite accounting method; TDS non-deduction still applicable.

  Case-Laws - AT : Addition on account of non-deduction of TDS - the argument of the Revenue that s. 40(a)(ia) would become otiose in cash system of accounting, was without any basis. - AT
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• Section 80P Deduction Denied: Assessee's Activities Beyond Agricultural Purposes Lead to Unfavorable Decision.

  Case-Laws - AT : Denial of claim of deduction u/s 80P - The primary object as well as activities of assesse are not confined to agricultural purposes but other purposes also - against assessee. - AT
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• Tax Addition for Non-Deduction on Truck Payments u/s 194C Removed After Review.

  Case-Laws - AT : Addition u/s 40(a)(ia) for non-deduction of tax at source from the payments made to truck owners u/s 194C - sub-letting of work to other truck owners - addition deleted - AT
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• Depreciation on Non-Compete Fees Confirmed as Intangible Asset u/s 32(1)(ii) of Income Tax Act.

  Case-Laws - AT : Depreciation on non-compete fee - treating the same as intangible asset u/s 32(1)(ii) – claim of depreciation allowed - AT
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• Business Sale of Assets Qualifies for Section 54EC Tax Deductions, Not an Agency Agreement.

  Case-Laws - AT : Long term capital gains - Simply because assessee preferred to sell his business along with tangible assets would not mean that the agreement would become that of an agency. - clear case of sale of assets - deduction u/s. 54EC allowed - AT
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• Defining 'Copyright' in Tax Matters: Refer to Clause 3 of DTAA and Copyright Act 1957 for Clarity.

  Case-Laws - AT : In the absence of any definition of 'copyright' in the Income Tax Act or DTAA with the respective Countries, in view of clause 3 of the DTAA, reference is to be made to the respective law regarding definition of 'Copyright', namely, Copyright Act, 1957 - AT
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• Advance Rulings Challenged Under Articles 136, 226, 227 for Broader Judicial Review in Supreme and High Courts.

  Case-Laws - SC : It cannot be hold that an advance ruling of the Authority can only be challenged under Article 136 of the Constitution before this Court and not under Articles 226 and/or 227 of the Constitution before the High Court - SC
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• Income from Other Sources Must Be Included in Profit Calculation for Partner Remuneration under Book-Profit Rules.

  Case-Laws - HC : Even if the income from other sources is included in the profit and loss accounts to ascertain the net profit qua book-profit for computation of the remuneration of the partners the same cannot be discarded. - Tri
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• Court Rules on Consistent Accounting for Partners' Remuneration Deductions u/s 40(b)(v) of Income Tax Act.

  Case-Laws - HC : Excessive claim of deduction of partners’ remuneration - for the purpose of Section 40(b)(v) read with Explanation there cannot be separate method of accounting for ascertaining net profit and/or book-profit - Tri
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Service Tax

• Parliament's power to levy service tax on renting immovable property upheld; does not infringe State's rights. Retrospective application confirmed.

  Case-Laws - HC : Levy of service tax - renting of immovable property – within the legislative competence of the Parliament and it does not fall within the legislative competence of the State under entry 49 of List II of the Seventh Schedule to the Constitution – levy of service tax is retrospective - HC
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Central Excise

• Appellant Entitled to Continue Cenvat Credit Claim on Capital Goods Despite Finished Goods Exemption.

  Case-Laws - AT : Cenvat credit on capital goods – part credit was availed in 1st year - subsequently finished goods exempted - balance credit in subsequent years - right accrued is not deniable unless law abrogates such right, the appellant is entitled to the claim of part of cenvat credit on capital goods - AT
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Case Laws:

• Income Tax

• 2012 (8) TMI 130
  Block assessment - additions made by the Assessing Officer – Held that:- Undisclosed income taxable under the Income-tax Act, 1961 - assessee made a disclosure of unaccounted income and agreed to pay the tax by filing necessary return - assessee did not file any clarification or reply to the notices - assessee also filed an application seeking to produce additional evidence - Tribunal had accepted almost all the documents without there being any detailed consideration - Merely because the opposite party did not seriously object to those documents, the obligation of the Tribunal under rule 29 cannot be ignored - Tribunal ought to have remitted the matter to the Assessing Officer for consideration - order of the Tribunal set aside and matter remited to the Assessing Officer

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• 2012 (8) TMI 129
  Capital gain – sale of agricultural land - assessee contended that land not coming either within the limits of any municipality or within the distance of 8 kms, from any notified municipality or urban area – Held that:- Land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14)(iii) of the Act is not attracted - it cannot be looked in as a capital asset within the meaning of Section 2(14)(iii)(b) of the Act also – In favor of assessee

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• 2012 (8) TMI 128
  Non deduction of tax at source - demands raised under section 201(1) and 201(1A) r.w.s. 194 - Held that:- The onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A)and recovery provisions are set out in Section 201(1) - recovery provisions u/s 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereon - once assessee furnishes the requisite basic information, the AO can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income - matter is restored to the file of the AO for fresh adjudication - in favour of assessee for statistical purposes.

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• 2012 (8) TMI 127
  Denial of claim of deduction of partnership remuneration and interest - the status of appellant has to be taken as AOP - Held that:- it has to be necessarily held that no genuine partnership firm was in existence during the previous year 2007-08 as evidenced by a partnership deed executed since the beginning of the financial year. So also, the remuneration claimed for both the partners are again not in conformity with the statutory provision as being not authorized by the partnership deed executed and applicable from the beginning of the financial year. Thus, the AO's action in taking the status of the appellant as AOP and disallowing the deduction of remuneration and interest aggregating Rs.2,56,628/- is found to be fully justified both on facts and in law and accordingly confirmed - against assessee. Addition of income on loan of Rs. 20 lacs received from Mohd. Zakir Hussain, partner of the assessee firm CIT(A) deleted the same after observing that the amount was received from the partner whose identity was established and the amount was received from banking channel - Verifying the passbook of savings bank account of Shri Mohd. Zakir Hussain credit balance in the savings bank account amounting to Rs.34,28,415/- out of which Shri Mohd. Zakir Hussain issued the cheque of Rs. 20 lacs in favour of the firm, clearly proves the credit worthiness - CIT(A) was correct in deleting the addition made on account of loan received from the partner - in favour of assessee. Not being able to prove genuineness of transaction and credit worthiness in respect of the loan of Rs. 5 lacs each received from Jivanlal, Premlal, Ramkumar and Laxminarayan,no reason to interfere with the findings in confirming the credit received from these persons, accordingly - against assessee. Disallowance of claim of expenditure on account of details of Tools, Auzar and Tagari - Held that:- This expenditure is essentially required to be allowed as revenue expenditure as they are the consumables used in the business of construction life of which is less than one year - in favour of assessee. Confirm the action of the CIT A) in assessing the income of Rs.60,85,200/- in place of total income assessed by the Assessing Officer at Rs.1,57,94,180/-.

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• 2012 (8) TMI 126
  Addition to income - on account of long term capital gains u/s 60C, interest on deposit, low house hold expenses and on account of gross profit - Held that:- After calling a remand report, the CIT(A) recorded his own finding to the effect that cost of acquisition and improvement of property sold by the assessee was Rs. 20,28,091/- as per the balance sheet of the assessee for financial year 2001-02 and onwards and that assessee had also invested Rs. 11.60 lakhs in REC Bond u/s 54EC, accordingly, the taxable capital gain works out to be nil. The finding recorded by CIT(A) has not been controverted by Department by bringing any positive material on record. No infirmity in the order of CIT(A) for deleting the addition made under the head “capital gains”. Addition on account of notional interest income which was neither accrued to assessee nor received by the assessee - As during the year the assessee has not incurred any interest expenditure, thus, there is no justification for making any addition on account of notional interest - action of the CIT(A) for deleting the addition made on account of notional interest income is thus warranted. Trading addition on account of closing stock shown in the balance sheet - CIT(A) after verification of various bills of future purchase, sales etc., recorded a finding to the effect that in the trading account, the assessee had just debited cost of sales , therefore, there is nothing wrong in showing closing stock directly in the balance sheet - CIT(A) also found that the closing stock of Future Urad amounting to Rs. 1,53,89,619/- in the Balance Sheet and in the Trading Account cost of future purchases is debited only to the extent of future sales. Hence question of showing Closing Stock in Trading Account does not arises - against Revenue.

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• 2012 (8) TMI 125
  Addition made on account of liquor trade with reference to the incriminating documents found during survey - CIT(A) deleted the addition - Held that:- Even if books of account are found to be not reliable, the maximum profit which can be determined should be based as per the verdict of Hon'ble Jurisdictional High Court in the case of Badriprasad Bhagwandas and Co.(1994 (10) TMI 268 - MADRAS HIGH COURT) according to which sales is arrived at 2.5 % of the license fee and net profit is to be worked out at 5 % of the sales. After considering the detailed submissions of the assessee, the CIT(A) keeping in view the liquor trade of assessee’s business. As the books of account so found were not proper books and the same was written by the 5th Class passed accountant of the assessee - while taking the figures shown in alleged documents, the AO did not bother to test check as to whether the total income extrapolated from such capital was at all corroborated by any evidence or even by kachcha accounts. It was also observed that the Assessing Officer adopted such extrapolation even did not maintain a consistent stand of the assessment years involved - the affidavit filed before the lower authorities by assessee depicts wherein various expenditure in the nature of bardana expenses, packing expenses, shop rent, salary of salesmen, Manager, helper and chowkidar, office expenses, transportation and travelling expenses, transportation and travelling expenses, brokerage, telephone and mobile expenses etc. were not taken care of while arriving at the net profit of the assessee as shown in the impounded rough ledger - it was only on the basis of noting in a rough ledger that the Assessing Officer has jumped to the conclusion that the assessee has earned this much of profit - no infirmity in the order of CIT(A) for upholding profit in case of liquor business as per verdict of Badriprasad Bhagwandas and Co - against revenue.

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• 2012 (8) TMI 124
  Disallowance of expenditure incurred - CIT(A) deleted the dis allowance - Held that:- Disallowance of hammali/cartage expenses were deleted by the CIT(A) after considering the nature of expenses claimed and turnover of the assessee and has also observed that the similar disallowance made in the assessment year 2001-02 was deleted by the Tribunal - as these expenses were necessarily incurred in the course of business and looking to the amount of expenditure, the same was found to be reasonable - no reason interfere in the order of CIT(A) - in favour of assessee. Disallowance of freight expenses - CIT(A) has retained the disallowance to the extent of Rs. 1 lakh on assessee’s failure to establish deductibility of full amount and deleted the balance by observing that AO has not recorded any finding regarding verifiability of claim of such expenses - partly in favour of assessee. Disallowance of expenditure incurred on salary - CIT(A) by observing that salary was even though paid to family members, but the same was for the work carried out by them and assessee was very much justified in engaging his own family members to discharge the various duties, who was trustworthy compared to the outsiders - amount of expenditure incurred on sales vis-à-vis total turnover of business and nature of business activities of assessee no infirmity in the order of CIT(A) for deleting the disallowance - in favour of assessee. Disallowance of rent payment - CIT(A)restricted THE disallowance to the extent of Rs. 11,500/- by observing that rent to the extent of Rs. 1,80,480/- was reasonable taking the rent at Rs. 2/- per sq.ft., which was also allowed in the assessment year 2001-02, there is no infirmity in the order of CIT(A) for deleting the disallowance on account of rent - partly in favour of assessee. Dis allowance of courier expenses - Dis allowance was deleted by the CIT(A) by observing that there was huge turnover of the assessee and such disallowance was not warranted - in favour of assessee. Dis allowance of stationery expenses - AO disallowed expenses without assigning any reason - no interference in CIT(A)'s order required - in favour of assessee. Dis allowance of 50% of “Misc. Expenses” - Considering over all turnover of the assessee, we restrict the disallowance to the extent of 25% of the expenses so claim - partly in favour of assessee. Dis allowance of Depreciation - As before the AO the assessee has not furnished WDV chart of the fixed assets on which depreciation has been claimed and was furnished for the first time before the CIT(A) -restore this ground back to the file of the Assessing Officer for deciding afresh - in favour of assessee for statistical purposes. Disallowance of commission - CIT(A) deleted it by observing that such commission was being paid to Shri R. S. Narang for last several years for sales promotion considering his long experience of 40 years in the field which was essential for promoting sales of the assessee - in favour of assessee.

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• 2012 (8) TMI 123
  Addition on account of unaccounted deposit and withdrawals in the bank account - Held that:- Addition u/s 68 has been made in the hands of the assessee for the amounts which were found credited in the account of another person that too without bringing any positive material on record - the transactions in the bank account of Shri Shailendra Dubey, employee of assessee firm even technically cannot be made to be part of transactions of the assesse and consequent addition u/s 68. Even the account was opened and operated by employee and not by the partners of the assessee firm, consequently no infirmity in the conclusion drawn in deleting additions - in favour of assessee. Addition on the basis of alleged excess stock - Held that:- As assessee submitted voucher issued by Agrawal Jewellers, Bhopal & M/s Kanval Jewellers evidencing confirmation of giving gold ornaments to the assessee and receipt of gold articles entry in its Vyapari register - statements of the partners were duly recorded mentioning that such stock of gold was sent to the assessee firm -as in the assessment of M/s Agrawal Jewellers, the same AO has accepted this version that stock to the extent of 2210.300 gms was sent to the assessee firm, in that case no ‘U’ turn is expected or permitted - as the excess stock of 31.56 gms which was claimed to be a weighing error by the assessee, the value of which is Rs.2139.50 per gram, was treated as unexplained investment resulting into addition of Rs. 66,523/- therefore no infirmity in the stand of the learned CIT(A) - in favour of assessee. Addition on account of sales out of books - Held that:- The true copy of the seized documents on the basis of which the addition was made was duly perused/examined by the learned CIT(A) and ultimately found that the unaccounted sales were only to the tune of Rs. 1,73,765 which resulted into relief of Rs.2,85,416/- out of the total addition of Rs.4,59,181 - partly in favour of assessee. Addition on account of precious stones - Held that:- There is uncontoverted finding in the impugned order that the Jawaharat account was duly maintained on year to year basis and there is substantial stock in comparison to the addition, consequently no infirmity in the impugned order in deleting the addition - against revenue.

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• 2012 (8) TMI 122
  Addition on account of non-deduction of TDS - Held that:- Provisions of sub clause (ia) of Section 40(a) speaks of amount “payable” on which tax is to be deducted and not in respect of amount of expenditure already paid during the year - Revenue’s argument does not have any merit that payment of earlier years’ outstanding expenses cannot be allowed in subsequent year unless specifically provided in the statute as proviso to s. 40(a)(ia) lays down that earlier year’s provision can be allowed in subsequent years only if TDS is deducted and deposited. Hence, Revenue’s fear is unfounded and the provision of s. 40(a)(ia) covers the situation - The Income-tax Act, 1961, already has a precedent in s. 43B which allows expenses only on payment basis and therefore, the argument of the Revenue that s. 40(a)(ia) would become otiose in cash system of accounting, was without any basis. Restore the matter back to the file of AO with a direction to recompute the amount of disallowance with reference to the amount which remained payable at the end of the year. However, no disallowance is to be made with respect to the amount, which have already been paid and did not remain outstanding at the end of the year - in favour of assessee for statistical purposes.

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• 2012 (8) TMI 121
  Gross profit addition after rejecting the books of account - CIT(A) deleted the addition - Held that:- The appellant had already included additional income of Rs. 22,02,339/- in its audited profit & loss account and after inclusion of such income, the appellant had filed the return of income at total income - the additional income so declared is going to effect the net profit rate shown by the assessee, however, there is no impact on the trading results or gross profit so earned by the assessee by inclusion of such additional income - as there is a substantial increase in sales during the year under consideration of 3.48 times as against sale of earlier year - the settled legal proposition is that with increase in sale volume, the assessee has to make some sacrifice on the part of gross profit rate, meaning thereby with increase in overall turnover, even though over all gross profit will increase, but the gross profit rate will fall to certain extent - additional income of Rs. 22.02 crores surrendered by the assessee, which has resulted into increase net profit of the assessee direction to AO to restrict the trading addition to the extent of Rs. 1.00 lac Addition in respect of payments made without deduction of tax - CIT(A) deleted the addition - Held that:- No justification in CIT(A)'s Order in deleting the disallowance in so far as the goods transported by the transporter and payment made by the assessee for the same itself amounts to a contract. It is not necessary that such contract should also be in writing. The work of transporter in carrying the goods and act of the assessee in making payment for such transportation of goods itself amounts to a contract on which the assessee was liable to deduct tax u/s 194C(2) - restore the matter back to the file of AO with a direction to recompute the amount of disallowance with reference to the amount which remained payable at the end of the year - partly in favour of revenue.

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• 2012 (8) TMI 120
  Addition for non furnishing any basis of valuation of closing stock and estimation of work in progress - Held that:- As the assessee has not maintained day to day quantitative details of plots and other properties sold during the year under consideration and only on the basis of lay out plans of various schemes, inventory of unsold stock was prepared and the same was valued at cost price method - various registers produced contained only details of vacant plot and flat details, but basis of valuation of closing stock could not be worked out on the basis of these registers - as findings recorded by AO and CIT(A) in this regard has not been controverted by assessee by bringing any positive material on record the addition on account of valuation of closing stock and work in progress is hereby confirmed - against assessee. Addition for the change in method of accounting - change of method of accounting from hybrid system to the mercantile system - Held that:- This change in method of accounting was bona fide which was consistently followed by the assessee in subsequent year that change in method of accounting was made for complying with the statutory requirement of Section 145(1)- that an Assessing Officer cannot base the computation of income solely on the basis of report of auditors - even after change in the method of accounting from hybrid to mercantile during the year under consideration, the assessee had shown positive gross profit in comparison to gross loss in the assessment year 2005-06 and 2004-05, thus nothing on record to suggest that assessee had changed method of accounting to show lower profit during the year as compared to earlier year - direction to delete the addition made on account of change in method of accounting and auditors’ report regarding reduction in net profit - in favour of assessee. Disallowance for depreciation on assets - Held that:- the assessee has failed to produce any fixed assets registers, therefore, existence of various assets and utilization thereof in the relevant previous year was prior to assessment year 2003-04 was not verifiable - confirm the action of the Assessing Officer for decline of claim of depreciation - against assessee.

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• 2012 (8) TMI 119
  Denial of claim of deduction u/s 80P - Held that:- Section 80P was amended by the Finance Act 2006, with effect from April 1, 2007, introducing subsection (4), which laid down specifically that the provisions of section 80P will not apply to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Accordingly, deduction under section 80P was no more available to any regional rural bank from the assessment year 2007-08 onwards - Circular No. 319, dated January 1, 1982, deeming any regional rural bank to be co-operative society stands withdrawn for application with effect from the assessment year 2007-08 - The legislative intent for insertion of sub Section (4) as per the speech of Hon'ble Union Finance Minister on 28.2.2006 clearly shows that Coop. Banks were excluded from the benefit of Section 80P on the plea that like any other bank, the Coop. Banks are also lending institution and should pay tax on their profits. Accordingly, Coop. Banks were excluded from the scope of Section 80P. The assessee is neither PACs nor PCARDB and hence not eligible for deduction U/S 80P as the object of the assessee and the range of the activities is not confined to taluk but is extended to entire district of Bhopal & Vidisha - Primary object of principal business of PACS is to finance for agricultural purposes or purposes connected with agricultural activities. The primary object as well as activities of assesse are not confined to agricultural purposes but other purposes also - against assessee.

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• 2012 (8) TMI 118
  Addition u/s 40(a)(ia) for non-deduction of tax at source from the payments made to truck owners - sub-letting of work to other truck owners. - Held that:- The assessee is one of the main contractors for transporting the products of party and in order to execute the assignment given by the company to the assessee, the assessee engaged his own truck as well as had hired trucks from other owners. The entire payment of transportation was made by the company to the assessee after deducting tax. This establishes that there is no nexus between the company and the owners of the truck engaged by the assessee. The company has deducted TDS for all the payments made to the assessee. Therefore, it is clearly established that the assessee is responsible for the entire transportation job assigned by the company to the assessee - nothing on record to show that the assessee had sub-let his work to other truck owners - in favour of assessee.

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• 2012 (8) TMI 117
  Penalty under Section 271 (1) (c) of the Act – Held that:- Record indicate the tampering of record on the part of the assessee - refund was only as a result of the manipulation by the assessee and the assessee has not paid any tax. It is precisely because of the refund, the problem arose for the assessee and concealment was detected by scrutiny – against assessee

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• 2012 (8) TMI 116
  Depreciation on non-compete fee - treating the same as intangible asset u/s 32(1)(ii) – Held that:- Non-compete Right is clearly in the nature of a business or commercial right and since it is capable of being owned and transferred, it is "of similar nature' as know how, patents, copyrights etc. as contained in clause (ii) of sub section (1) of sec. 32 of the Act - claim of depreciation allowed - decision in the case of Medicorp Technologies India Ltd. (2009 (1) TMI 332 - ITAT MADRAS-A) followed. Deduction u/s.80HHC – whether sales-tax is to be excluded from total turnover for purpose of computing deduction under section 80HHC – Held that:- Total turnover in clause (ba) of the Explanation below section 80HHC, excluding only freight & insurance up to the customs station

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• 2012 (8) TMI 115
  Validity of notice issued u/s 148 by the Assessing Officer – Held that:- Original assessment u/s 143(3) was completed on 05.12.2006. Thereafter, the AO noted reasons which according to him led to under-assessment of income - it was recorded that the aforesaid income has escaped assessment - notice u/s 148 was issued on 24.10.2007 - notice has been issued and served within a period of four years from the end of relevant assessment year. Therefore, proviso to section 147 is not applicable - details in respect of all these points were not on the record of the AO - it has to be seen in this case whether the disclosure was made properly in the course of assessment so that AO could compute the income correctly - This will necessitate the examination of various grounds for reopening. Regarding provision for milk can repairs - excess allowance of brought forward loss shows that income has escaped assessment - this amount was not offered for taxation. No reason was adduced before the AO in support thereof - evidence pertains to provision in respect of milk can repair, advance to staff and the subsidy of Rs.5.00 lakh received by the assessee - evidence was in possession of the assessee even at the time of assessment - matter restored to the file of the AO as these require examination of additional evidence - appeal is treated as partly allowed for statistical purposes.

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• 2012 (8) TMI 114
  Long term capital gains - Exemption u/s 54EC - sub broker - assessee was carrying on some broking business with main broker and had about 1800 clients. This business was transferred to main broker - since the cost of goodwill was nil and assessee had purchased the capital bonds, assessee claimed deduction u/s. 54EC - Assessing Officer disallowed assessee's claim on ground that due to changes in SEBI Regulations regarding share trading, assessee could no more act as a sub-broker and, thus, assessee could not continue his business as a result of which there could be no transfer of goodwill - Held that:- Assessee could still act as a remisier - assessee still remained entitled to his commission which was to be shared by the main broker with such remisier - Simply because assessee preferred to sell his business along with tangible assets would not mean that the agreement would become that of an agency. It still remained an agreement between a principal to principal - clear case of sale of assets - deduction u/s. 54EC allowed - revenue's appeal is dismissed.

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• 2012 (8) TMI 113
  Allowability of bank guarantee commission – Held that:- Bank guarantee has been given on behalf of the assessee - commission paid by the assessee to the guarantor for enabling it (the assessee) to make deferred payment of the purchase consideration, constitutes revenue expenditure and not capital expenditure and, therefore, is admissible as deduction from the income - bank guarantee on behalf of the assessee by M/s. PCL has to be verified and decided accordingly Disallowance of interest expenditure on secured loans - Assessing officer opined that there was no evidence to the effect that the assessee had paid any tax or made TDS thereon – Held that:- No payment has gone out of the assessee company and THDC itself deducted the amount towards the interest. It is being a joint venture of Government of India and Government of U.P. - there is no question of deducting the TDS on the impugned interest amount - THDC falls under the purview of section 194A(3)(iii)(f) of the Income-tax Act, 1961 and as such it is not liable for deducting TDS - ground of the assessee is allowed Ad-hoc disallowance – disallowance is made on ad-hoc basis as the expenditure is not properly supported by vouchers – Held that:- Ad-hoc disallowance at Rs. 15 lakhs is on higher side - Assessing Officer directed to disallow only 5% of the cash expenses unvouched by proper bills and receipts if it is not a statutory payment since there are chances of inflating the cash expenses. This ground is partly allowed. Disallowance of legal charges on account of non TDS - assessee submitted that each payment is less than Rs. 20,000 on various dates and provisions of section 40(a)(ia) are not applicable – Held that:- Whether the payments are less than Rs. 20,000 is required to be examined by the Assessing Officer - matter Assessing Officer - ground is allowed for statistical purposes - appeal of the assessee is partly allowed.

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• 2012 (8) TMI 112
  TDS - purchase of software from Israel treated as royalty – Held that:- Issue under consideration has been settled by the High Court in assessee's own case and it has been held that payment made by the assessee to non-resident companies would amount to royalty within the meaning of Article 12 of the DTAA with the respective countries and there was obligation on the part of the assessee to deduct tax at source u/s. 195 of the I.T. Act - appeal is dismissed. In the absence of any definition of 'copyright' in the Income Tax Act or DTAA with the respective Countries, in view of clause 3 of the DTAA, reference is to be made to the respective law regarding definition of 'Copyright', namely, Copyright Act, 1957, in India, wherein it is clearly stated that "literary work" includes computer programmes, tables and compilations including computer [databases]. Section 16 of the Copyright Act, 1957 states that no person shall be entitled to copyright or any similar right in any work, whether published or unpublished, otherwise than under and in accordance with the provisions of the said Act or of any other law for the time being in force, but nothing in this section shall be construed as abrogating any right or jurisdiction to restrain a breach of trust or confidence.

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• 2012 (8) TMI 111
  Deduction u/s. 80P of the Act – RRBs - Held that:- Assessee's gross total income, total income, is nil in view of set off of brought forward business losses, which stand both claimed as well as allowed in assessment - no deduction u/s. 80P in the admitted absence of any positive gross total income for the current year is exigible to the assessee - Revenue's appeal is allowed

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• Customs

• 2012 (8) TMI 136
  Evading customs duty - revoking the CHA licence - Held that:- From the records of the case, it is seen that mis-declaration of the weight and consequently the value of the export consignments has been clearly established int his case as can be seen from the panchanama proceedings - Since the logistics support was provided by the CHA firm, they should have been aware of the full details of the consignments under export and the mis-declaration made with regard to the weight, number of pieces, FOB value of exports As the partner of the CHA firm and two of their employees have clearly admitted to aiding and abetting the fraudulent exports, there is nothing that needs to be proved in the instant case - The entire export transactions were a sham and everyone, the exporter, the CHA the logistics firm and the shipping agent colluded and connived with each other so as to defraud the exchequer as they had retracted their statements, the same was not done immediately or at the first available opportunity but only in reply to the show cause notice issued under the Customs Act - Thus more than 6 months had elapsed between the deposition of the statement and the retraction. It is a well settled legal position that such belated retraction has no sanctity in the eyes of law and has to be treated as pure afterthought - the case against the appellant is built on the statements recorded from their own. When the cargo was LCL, the CHA directed the shipping line to book it as FCL and also collected FCL charges form the exporter as a consideration for their help and support in committing the fraud. Further in his statement has admitted that he had not obtained copies of the transport document from the transporter/trucker who brought in the export goods for examination and stuffing. Therefore, violation of regulation 13(k) is also established - As it is not a case of minor infractions of the provisions of CHALR but a major active involvement in aiding and abetting fraudulent exports leading to substantial loss of revenue to the exchequer the maximum punishment prescribed in the CHALR is clearly attracted - aginst assessee.

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• 2012 (8) TMI 135
  EXIM Policy - import of Rough Marble Blocks was restricted and needed a import licence for import – Held that:- Licence issued by the competent authority permitting the appellant to import a quantity of 2117.74 MT of Rough Marble Blocks - licence was not produced before the adjudicating authority, the matter needs to be remanded back to the adjudicating authority - appeal is allowed by way remand.

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• Corporate Laws

• 2012 (8) TMI 110
  Winding up - respondent-company became indebted to the petitioner-company and, despite service of statutory notice, it did not liquidate the liability – Held that:- Even if the amount claimed in the statutory notice is higher than the admitted amount, as long as the admitted amount exceeds the minimum amount stipulated under section 434(1)(a) of the Companies Act, and despite service of a statutory notice, the respondent-company fails to pay the lesser amount, it must be deemed that the respondent-company is unable to pay its debts in view of the legal fiction under section 434(1)(a) of the Companies Act - mere existence of an arbitration clause would not bar exercise of jurisdiction by this court under section 433(e) of the Companies Act for winding up of a company which is deemed to be unable to pay its debts

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• Service Tax

• 2012 (8) TMI 134
  Waiver of pre-deposit – demand of service tax - appellant has entered into an agreement with HPC Ltd for supply of labour for running the retail outlet under COCO Scheme – Held that:- Services provided by the appellants are in terms of labour contract services entered by them with HPC Ltd - services cannot be held to be falling under business auxiliary service – waiver of pre-deposit allowed - Matter remand to Commissioner (Appeals)

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• 2012 (8) TMI 133
  Writ Petition - levy of service tax - renting of "immovable property – whether amendment is retrospective - petitioner is engaged in renting/leasing warehouses and storage space for agro and other products – Held that:- Amendment was clarificatory in nature and Parliament certainly possesses the necessary legislative competence to declare the said amendment to be retrospective in operation - imposition of service tax on renting of immovable property was within the legislative competence of the Parliament and it does not fall within the legislative competence of the State under entry 49 of List II of the Seventh Schedule to the Constitution – levy of service tax is retrospective

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• 2012 (8) TMI 132
  Waiver of pre-deposit – whether activities undertaken by the applicants in respect of arranging outdoor advertising in the foreign countries are liable to service tax under the category of advertising agency - contention is that the activities are undertaken in respect of services provided outside India. The applicants had only arranged space for advertisement and with effect from 1.5.2006 providing space or time as the case me for display, advertising also comes under the scope of advertising agency service. The period of demand is prior to 1.5.2006 – Held that:- Providing of such space comes under the purview of service tax with effect from 1.5.2006 by introducing a separate entry in respect of providing space for display of advertising. Pre-deposit of the dues is waived and recovery of the same is stayed during the pendency of the appeal. Stay petition allowed

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• 2012 (8) TMI 131
  Services of supply of manpower and security services - whether reimbursement of expenses form part of the assessable value in respect of taxable services of clearing and forwarding service provided by the appellant – Held that:- claim is to set off Cenvat credit against liability incurred - assessable value shall include reimbursable expenses, matter needs remand to consider Cenvat issue - there shall be no penalty under Sections 76 and 78 of the Finance Act, 1994

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• Central Excise

• 2012 (8) TMI 109
  Maintainability of appeal – Held that:- As per the provisions of Section 35E (2) of the Central Excise Act, the appeal against the adjudication order is to be filed by the same authority who passed the impugned adjudication order - in the present case the adjudication order is passed by the Joint Commissioner whereas the appeal is filed by the Assistant Commissioner of Central Excise - no infirmity in the impugned order passed by the Commissioner (Appeals).

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• 2012 (8) TMI 108
  Penalties under Rule 25 of the Central Excise Rules, 2002 – appellant issued statutory invoices to another party without supply of goods with a view to enabling that party to avail CENVAT credit of the duty covered by the invoices - manufacturer sold the goods to one party and issued the invoice to another – Held that:- Conduct of the appellant attracted Rule 25 - quantum of penalty reduced

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• 2012 (8) TMI 107
  CENVAT credit on outdoor catering service used for serving food to their employees - respondent submits that the show-cause notice in this case did not raise any such ground for denial of CENVAT credit – Held that:- Objection raised by the learned Deputy Commissioner (AR) cannot be sustained as it is beyond the scope of the show-cause notice - Revenue's appeal dismissed.

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• 2012 (8) TMI 106
  Cenvat credit on capital goods – credit was availed in 1st year - when in subsequent year the rest part of the capital goods cenvat credit was claimed and the final product was being exempted from duty - Revenue disallowed such claim – Held that:- Earning of duty by the assessee is not in dispute - Credit earned not being found to be illegitimate - right accrued is not deniable unless law abrogates such right, the appellant is entitled to the claim of part of cenvat credit on capital goods - Appeal allowed.

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