TMI Tax Updates - e-Newsletter
August 8, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Articles

1. FREEBIES TO DOCTORS – NOT ALLOWABLE EXPENDITURE BUT TAXABLE IN HANDS OF DOCTORS- CBDT.

   By: DEVKUMAR KOTHARI

2. Eligibility of Cenvat Credit on Advances paid towards taxable service

   By: JAMES PG

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

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Anand Sharma Discusses DTAA, BIPA, VISA Issues with Chilean Foreign Minister Expansion of PTA Imminent.

2. Auction for Sale of Government Stocks.

3. Repayment of 7.00% Oil Marketing Co’S Government of India Special Bonds, 2012 on September 09, 2012 and 9.40% Government of India Stock, 2012.

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

Notifications

Customs

1. 38/2012 - dated 6-8-2012 - ADD

Seeks to extend the validity of Notification no. 89/2007-Customs dated 25th July, 2007 by one more year, i.e, upto and inclusive of 24th July, 2013 pending the outcome of sunset review.

Circulars / Instructions / Orders

Customs

1. 22/2012 - dated 7-8-2012

24x7 Customs clearance operations – regarding.

Companies Law

2. 23/2012 - dated 6-8-2012

Company Law Settlement Scheme, (Jammu & Kashmir) 2012.

Highlights / Catch Notes

Income Tax

• ITAT Can Issue Stay Orders to Preserve Appeal Outcomes, Ensuring Decisions Remain Effective Under Appellate Powers.

  Case-Laws - HC : Power of tribunal to stay - while exercising its appellate powers ITAT has also the power to ensure that the fruits of success are not rendered futile or nugatory and for this purpose it is empowered, to pass appropriate orders including orders of stay - HC
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• Indian Shares Sold to Cyprus Firm: Capital Gains Taxed Only in Mauritius Under India-Mauritius DTAC Article 13(4.

  Case-Laws - AAR : Sale by a Mauritian company of the shares held by it in an Indian company to a Cyprus company - the transactions which give rise to capital gains, can be taxed only in Mauritius, in view of paragraph 4 of Article 13 of the India-Mauritius DTAC - AAR
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• India-Austria DTAA: Subcontractor's Mining Services Not a Permanent Establishment, Taxed as Technical Fees Per AAR Ruling.

  Case-Laws - AAR : DTAA between India and Austria - subcontract - PE - That person can at best be said to render technical services or services 'in connection with' the mining activity undertaken by the original contractor - the revenues earned by the applicant are not taxable in accordance with section 44BB and are taxable only as fees for technical services. - AAR
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• High Court Rules Interest on Income Tax Refunds Taxable as "Income from Other Sources" Regardless of Circumstances.

  Case-Laws - HC : Interest paid on income-tax refund - though not conscious choice or voluntarily, the amount received towards statutory interest has to be subject to tax under the head "income from other sources" - HC
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• Income Tax Act: Distinct Roles of Sections 69B and 69C; Broad Interpretation Could Nullify Section 69C's Purpose.

  Case-Laws - HC : The scope and ambit of section 69B and 69C are altogether different. - If the contention of the Revenue is accepted and the expression is given a wider meaning as sought to be made out, the provisions of section 69C shall be rendered otiose. - HC
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• Court Rules: Tax Additions Need Rejection of Taxpayer's Accounts Before Using External Valuation Estimates.

  Case-Laws - HC : Difference between the cost of construction as disclosed by assessee and as estimated by the District Valuation Office - no addition could be made without rejecting books of accounts - HC
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• Interpretation of "Include" in Legislation Affects Cessation of Liability in Income Tax Cases.

  Case-Laws - HC : Remission or cessation of liability - The expression “include” is significant as Parliament did not use the expression “means”. Necessarily, even omission to pay, over a period of time, and the resultant benefit derived by the employer/assessee would therefore qualify as a cessation of liability, albeit by operation of law - HC
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• High Court Affirms Speed Post as Equivalent to Registered Post for Legal and Tax Documents Delivery.

  Case-Laws - HC : Speed post versus Registered post - Speed Post has all the principal attributes of registered post - HC
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• 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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Customs

• 24x7 Customs Clearance Operations Launched to Boost Efficiency and Reduce Delays in Goods Clearance and Trade Facilitation.

  Circulars : 24x7 Customs clearance operations – regarding. - Circular
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• Notification No. 89/2007-Customs Validity Extended Until July 24, 2013, Pending Sunset Review Outcome.

  Notifications : Seeks to extend the validity of Notification no. 89/2007-Customs dated 25th July, 2007 by one more year, i.e, upto and inclusive of 24th July, 2013 pending the outcome of sunset review. - Notification
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• Customs Classification: Mounted USB and Audio Ports on PCB Not Considered Populated for Tax Purposes.

  Case-Laws - AT : Import of computer cases - mere mounting of the USB port and audio port on a PCB does not make the PCB a Populated PCB - AT
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Corporate Law

• Jammu & Kashmir Companies Can Rectify Non-Compliance Without Penalties Under 2012 Settlement Scheme; Boosts Transparency and Accountability.

  Circulars : Company Law Settlement Scheme, (Jammu & Kashmir) 2012. - Circular
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Indian Laws

• Can Cenvat Credit Be Claimed on Service Tax Paid in Advance? Exploring Legal Interpretations and Rulings.

  Articles : Eligibility of Cenvat Credit on Advances paid towards taxable service - Article
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Service Tax

• Court Rules 'Used' Misinterpreted in Cenvat Credit Case, Extended Limitation Period Show Cause Notice Invalid.

  Case-Laws - AT : Extended period of limitation – input service – denial of Cenvat credit - the term 'Used' cannot cover the definition of input service, it would be purely a question of interpretation and therefore, show cause notice could not have been issued invoking extended period. - AT
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• 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

• No Refund: Price Reduction Not Valid Without Provisional Clearance Evidence in Goods Case.

  Case-Laws - AT : Refund - it is not shown that clearance of the goods was made on provisional basis. Once this is so, reduction of price at a later date could not be made foundation for seeking refund. - AT
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• Cenvat Credit Denied for Electricity Used Outside Factory; Authorities Demand 10% Payment on External Usage.

  Case-Laws - AT : Cenvat credit - electricity used outside the factory of production as well as in respect of peripheral area in the factory - demand on the ground that the appellant is liable to pay 10% on the price of electricity which is used outside the factory - AT
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• 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 166
  Writ petition on order barring the assessee from questioning the order passed by the CIT & staying the assessment proceedings before the AO and directing the Revenue to produce all the records pertaining to the assessments completed u/s 153A/ 143 (3) - Disallowance of the technical know-how fees - Held that:- The order as barring the assessee from questioning the order passed by the CIT on the ground that he did not exercise his independent mind but merely proceeded on the lines as dictated by the CBDT would not be proper, for no Court can plausibly lay down the grounds on which an order, which is to be passed, can be challenged by the aggrieved party - as the assessee cannot also be prevented from taking up the plea in the appeals filed before the Tribunal against the orders passed by the CIT consequently, the Tribunal cannot be faulted for directing, by its order to the Revenue to produce the assessment records and the records relating to the proceedings under Section 263 for the relevant assessment years as unless these records are made available to the Tribunal, it will not be able to take a view on the assessee's challenge that the CIT did not exercise his independent mind while initiating proceedings under Section 263. Power of tribunal to stay - Held that:- The order of the Tribunal in staying the assessment proceedings is well settled by the judgment in ITO v. Mohd. Kunhi, (1968 (9) TMI 5 - SUPREME COURT ) that while exercising its appellate powers under the Income Tax Act Tribinal has also the power to ensure that the fruits of success are not rendered futile or nugatory and for this purpose it is empowered, to pass appropriate orders including orders of stay - staying the assessment proceedings pending before the AO consequent to the directions of the CIT given in orders passed under Section 263 is part of the exercise of the appellate power of the Tribunal under Section 254 (1) with an aim to prevent multiplicity of proceedings and harassment to the assessee, with the possibility of the proceedings before the AO becoming meaningless if ultimately the order passed by the CIT is found to be invalid on grounds of jurisdiction or on merits - As it has not been shown before us by the petitioner as to what error was committed by the Tribunal in passing the stay orders, nor was it argued that the Tribunal did not exercise its discretion on the basis of settled parameters for granting stay of proceedings - writ petition dismissed.

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• 2012 (8) TMI 165
  Addition as unexplained investment in excess/shortage of stock - ITAT deleted the addition - Held that:- No material has been brought to show that the findings of Tribunal are perverse that departmental personnel had not followed any of the basic steps of stock checking and had proceeded to inventorise the stock in a haphazard manner - the revenue was directed to place on record the documents or material on the basis of which it can be said that the factual findings recorded by the Tribunal are mentioned wrong but till the date of final hearing of the appeal the revenue has not been able to produce any document or material to buttress its challenge to the Tribunal’s findings - that no substantial question of law arises - in favour of assessee. Disallowance of the expenses - ITAT deleted the disallowance - Held that:- The seized material should be followed in its entirety and both the receipts and the payments are to be taken into consideration and it would be unjust and contrary to the principles of income tax law to take note of only the income part reflected in the seized material, excluding the expenditure part reflected in the same seized material, provided the expenditure part is allowable as business expenditure - as the expenses represent turning charges, overtime payments, payments to temporary workers, remuneration to excise consultants, incentives etc.are expenses incurred by the assessee for the purpose of the business deletion of disallowed expenses is thus warranted - in favour of assessee. Levy of surcharge u/s 113 - ITAT deleted the levy - Held that:- According to the judgment of in Commissioner of Income Tax v. Suresh N. Gupta (2008 (1) TMI 396 - SUPREME COURT ) it was held that “even without the proviso under Section 113, the Finance Act, 2001 was applicable to a block assessment year passed under Chapter XIV-B. The amendment made by inserting the proviso to Section 113 was merely clarificatory and that the Finance Act of the year in which the search was initiated would apply" - Tribunal therefore was in error in holding that since the search was conducted on 29.08.1996, at a time when the proviso to Section 113 was not in existence, the levy of surcharge was not proper - against assessee.

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• 2012 (8) TMI 163
  Addition on account of unexplained loan - Held that:- The assessee received the amount and thereafter, repaid the amount, which has been transferred back to the same bank account, thus from the aforesaid transactions it is clear that the amount of Rs. 39,00,000/- remaining outstanding as on 31.03.2006 has been repaid by the assessee in the subsequent F.Y. 2006-07 except by an amount of Rs. 2,15,000/- transferred to current account of the creditor - verifying the assessment records of the creditor it is a registered Company with the ROC & also assessed by ITO, Ward 12(3), New Delhi - As the assessee has been able to prove the identity of the creditor as well the credit worthiness of the creditor and genuineness of the transaction the addition of Rs.39 lakh made by the AO on account of loan taken from H.G. Exim P. Ltd. stands deleted - in favour of assessee.

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• 2012 (8) TMI 162
  India-Mauritius DTAC - sale of shares of a US Company holding 100 per cent shares of company incorporated in India by a Mauritian company to another US company - Held that:- The beneficial ownership has not prevailed over the apparent legal ownership & Company law also recognized the recorded owner of the shares and not the person on whose behalf it may have been held thus the applicant is justified in its view that capital gains arising on the sale of shares of Exevo Inc., US by Copal Market Research Ltd. ("CMRL") to the applicant would not be chargeable to tax in India in the hands of CMRL. Earn-out would be part of the full value of consideration receivable by CMRL i.e.seller as the share purchase agreement also provided for the seller to get 'earn-out' consideration calculated as per a formula contained in clause 5.3 of the agreement and subject to clause 3.8 and 5.5 of the agreement. Section 115JB of the Act would apply even to a foreign company but no ruling on this point as nothing was argued on it. There would be no liability in the applicant to withhold tax under section 195. Sale by a Mauritian company of the shares held by it in an Indian company to a Cyprus company - Held that:- The Capital Gains arising on the sale of shares of Indian company helb by Mauritian company are not chargeable to tax in India in the hands of the applicant as the transactions are held to be taxable in India, going by the DTAC, the transactions which give rise to capital gains, can be taxed only in Mauritius, in view of paragraph 4 of Article 13 of the India-Mauritius DTAC Earn-Out consideration would be part of the full value of consideration receivable by the applicant - no obligation on Moody's Group Cyprus Limited, Cyprus to withhold tax under section 195.

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• 2012 (8) TMI 161
  DTAA between India and Austria - claim of absolute exemption from levying of tax in India - assignment of work to sub contractor by original assessee/applicant - Held that:- That under paragraph 3 of Article 5 of the DTAC, the applicant shall be deemed to have a PE in India and to carry on business through that PE if it provided services and facilities in connection with prospecting or extraction or exploration of mineral oil in India - as activities of the applicant are by its PE or deemed PE and consequently, the whole of the income arising out of the contract will be attributable to that PE. Exception contained in section 9(1)(vii) was confined to consideration received for mining or like project undertaken by the recipient - As in a case before us where the applicant had only surveyed the area earmarked by the contractor who had undertaken the mining project and rendered technical services to enable that person to perform the mining job itself, the exemption contained in Explanation 2 to section 9(1)(vii) of the Act was held to have no application - That person can at best be said to render technical services or services 'in connection with' the mining activity undertaken by the original contractor - the revenues earned by the applicant are not taxable in accordance with section 44BB and are taxable only as fees for technical services. Taxes on payments made by Essar Oil Limited under the sub-contract in question to be withheld under section 195 would be at 10.56% of the amount to be paid.

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• 2012 (8) TMI 160
  Denial of claim of loss - advance given for supply of chlorine gas cylinders - supplier went into liquidation - Held that:- To allow the claim of loss as desired by assessee it is required to whether an expenditure is on the capital account or on revenue - whether the unrecoverable advances given to Supplier were in order to secure a capital advantage and thereby create an asset of enduring nature or if it was in the normal course of business for acquiring stock in trade no factual material about the life of the cylinders, the number of times they are used, and the average time they are held before their replacement by the assessee has been given - Undoubtedly, they are necessary to supply the finished product to the assessee’s customers yet, these facts by themselves are insufficient and not helpful for discerning a complete picture, essential to decide the main issue - matter is remanded back to the appropriate AO to ensure a just ascertainment of the nature of the expenditure incurred.

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• 2012 (8) TMI 159
  Disallowance of deductions u/s.80IB (10) from the income computed as undisclosed income u/s. 69A - no such claim of deduction u/s 80IB is made by the assessee in the return of income for the block period - Held that:- A fresh claim could be urged before the Appellate authorities even if the claim was not made in the return of income filed before the AO. As in this case, the search took place in 2002 therefore, the present case is governed by Chapter XIVB of the said Act - as Section 158BB of Chapter XIVB deals with computation of undisclosed income of the block period as amended by the Finance Act, 2002 with retrospective effect from 1/7/1995 the total income or loss has to be computed in accordance with the provisions of the said Act and the same would include Chapter VI-A of the said Act. Section 80IB of the said Act is a part of Chapter VIA of the Act. In view of the above, while computing the undisclosed income for the block period the respondent-assessee is entitled to claim deduction from its income under Section 80IB. Undisclosed income found in the form of cash was explained as having been acquired while carrying on business as a builder and this explanation was accepted by the AO, no question of application of section 68,69 and 69A, 69B and 69C - in favour of assessee.

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• 2012 (8) TMI 158
  Interest paid on income-tax refund - does it bears the character of income and is exigible to tax ?- Held that:- Unless there is an exact indication in the Income Tax Act itself, that interest payable on income tax refund amounts fulfill the basic character as income (defined under Section 2(24) of the Income Tax Act) cannot be ignored - It is no doubt true that this amount cannot be treated as interest income since the assessee did not earn it through conscious choice or voluntarily, nor was it engaged in the activity of investing its amount and earning interest but the basic characteristic of income being what it is, the amount received towards statutory interest has to be subject to tax under the head "income from other sources" & and is exigible to tax - in favour of revenue.

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• 2012 (8) TMI 157
  Additions to the returned income - difference between the cost of construction as disclosed by assessee and as estimated by the District Valuation Office - Held that:- Since AO had not rejected the books of accounts u/s 145(3), by pointing out any defect, the reference to the DVO was not valid and therefore, his report could not be used for framing assessment u/s 143(3) read with Section 153A. The scope and ambit of section 69B and 69C are altogether different. The connotation to the investment appearing in section 69B has to be in the context of investments made in some property or any other type of investment and it could not be the business expenditure. The word " investment" contained in section 69B deals with investment in bullion, jewellery or other valuable article, etc. If the contention of learned counsel for the Revenue is accepted and the expression is given a wider meaning as sought to be made out, the provisions of section 69C shall be rendered otiose. Except the report of the DVO on which the AO relied upon there was nothing on record to suggest that there was any other evidence to disbelieve the expenditure shown by the assessee. In fact the seized documents pertaining to this company were duly confronted vide questionnaire and the reply furnished thereof satisfactorily explains the transactions recorded therein which have been verified vis-à-vis books of account/Balance Sheet - as can be seen from a comparison of the valuation by the assessee with that of the DVO the variation is only 3.86 % which is a very minor variation - As AO did not examine the variations, with specific reference to any items of expenditure that were unreasonable additions made cannot be warranted - in favour of assessee.

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• 2012 (8) TMI 156
  Disallowance of guest house expenses and depreciation on guest house - ITAT allowed it - Held that:- As decided in Britannia Industries Ltd. v. CIT [2005 (10) TMI 30 - SUPREME COURT] that the intention of the legislature in introducing sub-sections (3), (4) and (5) of Section 37 is clear and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of any accommodation in the nature of guest house indicated in sub-section (4) of Section 37 - against assessee.

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• 2012 (8) TMI 155
  Rejecting the claim of refund - the petitioner under the Kar Vivad Samadhan Scheme 1998 claimed for settlement of the arrears of the assessment year 1992-93 - Held that:- The adjustment of the refund amounts together with interest, did not at all prejudice the petitioner under the Kar Vivad Samadhan Scheme, 1998 - It is also pertinent that the revision itself was delayed. Ofcourse the petitioner contends that the same was due to the appeal filed against the letter of rejection but that alone cannot enable the petitioner to file a delayed revision -as there is no prejudice caused to the petitioner and that there is absolutely no illegal enrichment by the department no revision can be ordered at this stage and the petitioner's claims for the same is devoid of merit.

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• 2012 (8) TMI 154
  Disallowance of claim of unpaid liability in respect of salaries - ITAT allowed the claim - Held that:- It would not be logical to say that a debtor or an employer, holding on to unpaid dues, should be given the benefit of his showing the amount as a liability, even though he would be entitled in law to say that a claim for its recovery is time barred, and continue to enjoy the amount. Because with effect from 1-4-1997 by virtue of Finance Act, 1996 an Explanation was added to Section 41 which spells out that “loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof” shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause”. The expression “include” is significant as Parliament did not use the expression “means”. Necessarily, even omission to pay, over a period of time, and the resultant benefit derived by the employer/assessee would therefore qualify as a cessation of liability, albeit by operation of law - decided against assessee.

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• 2012 (8) TMI 153
  Non serving the notice under Section 143(2)- assessee contested against notice not being served within the stipulated period as provided under Section 143(2) (ii) - Held that:- Department sent the notice u/s 143(2) to the Assessee on the assessee's address, and that too through Speed Post which is more reliable mode therefore, it is required to be presumed that notice was delivered to the addressee in accordance with law under Section 282(1)- the notice sent through "Speed-post" did not return to the Income Tax Department as undelivered - no uncertain terms in terms of section 27 of the General Clauses Act, unless and until the contrary is proved by the addressee, service of notice is deemed to be effected at the time at which the letter would have been delivered in the ordinary course of business when it is sent to the addressee at his address by registered post. Speed post versus Registered post - held that:- There are two principal attributes of registered post: one, there is established system in which receipt of the mail is recorded; and two, movement of such mail as also its delivery is recorded. If the aforesaid attributes of registered post are present in any other class of mail or post forming part of an established system, that mail or post would, in substance, be registered post notwithstanding the name by which it may be called. 'Speed post' is a part of established system of delivery in which the receipt of mail as also its movement and delivery are recorded. "Speed Post" has all the principal attributes of "registered post". As the assessee has led no evidence to prove that the impugned notice was not received by him or that he was not responsible for its non-service and the details given by the AO in the assessment order included not only the receipt no. under which speed post was sent but also the tracking code, it is thus proved that a proper notice was issued to assessee in the course of the assessment proceedings. When any authority decides the matter on preliminary issue and if finding on that preliminary issue is reversed, then normally, the matter is required to be remanded for deciding the remaining issues, if the remanding authority/Court itself is not deciding the other issues - As CIT(A) allowed the assessee's appeal only on the ground of notice u/s 143(2) without deciding other issues now the matter is remanded to the C.I.T. (Appeal) for considering it afresh .

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• 2012 (8) TMI 152
  Reopening of assessment - non deduction of TDS on the labour charges paid - assessee stated that he was covered under Section 44AB - Held that:- An individual or HUF should deduct tax at source under sub-section (2) of Section 194C on payments made to a sub-contractor and must establish that in the financial year immediately preceding the financial year in which such sum is paid or credited, total sales, gross receipts or turnover of such individual or HUF from profession or business exceeded the limits provided in Section 44AB and the accounts were thus compulsorily auditable. The assessee as an individual or HUF may be required to make the payments to a sub-contractor on the first date of the financial year or at any rate in the early part of the financial year when obviously assessee will not be in position to foresee whether total sales, gross receipts or turnover would exceed statutory limits and his accounts would be therefore required to be audited under Section 44AB, thus in such a situation, the assessee could not be expected to deduct tax at source - It is precisely for this reason that the liability of an individual or HUF to deduct tax at source upon the payments being made to the sub-contractor, is made relatable to financial year immediately preceding the year when such payment is made or credited - AO's reason to believe that the income chargeable to tax has escaped assessment is without any foundation and lacks validity - in favour of assessee.

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• 2012 (8) TMI 151
  Liability to deduct TDS in respect of payments made for purchase of software from foreign company - Tribunal held that assessee had purchased only a right to use the copyright and the entire copyright itself the payment cannot be treated as Royalty as per the DTAA and treaties - 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. Order of Tribunal set aside and assessment order restored. See CIT, International Taxation v. Samsung Electronics Co. Ltd (2011 (10) TMI 195 - KARNATAKA HIGH COURT) - Decided against Assessee

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• 2012 (8) TMI 150
  Trading addition on account of suppression of sales - assessee, deriving income from the business of country liquor - CIT(A) provided partial relief - assessee contesting estimation made - Held that:- It is seen that the CIT(A) has already granted relief on two counts, firstly by estimating the total sales at Rs.1.3 crores against estimation of Rs.1.4 crores estimated by the AO and secondly the net profit was directed to be at 5% on the reduced estimation, especially when no sale vouchers were prepared by the assessee and rejection of books of accounts of the assessee was upheld. We find no infirmity in the conclusion drawn by the CIT(A). It is affirmed - Decided against assessee. Extinguishment of liability - addition u/s 41(1) - Held that:- Admittedly, from the AY 2002-03 the assessee had been showing these liabilities in the books of accounts and in spite of laps of mandatory period of three years after which debt cannot be recovered in the absence of part payment or acknowledgement and the assessee has also changed line of business i.e. from India made foreign liquor to country liquor and no payment of any sort was made to any of the parties mentioned in the assessment order, one undisputed fact is emerging that there is no intention on behalf of the assessee to repay the impugned amounts or any part thereof. Hence we find no merit in this ground - Decided against assessee. See CIT vs Karamchand Thapar & Others (1996 (8) TMI 2 - SUPREME COURT) Addition u/s 40A(3) - cash purchases - assessee contended that said purchases were made pursuant to the transfer permit issued by the excise department - Held that:- This is an undisputed fact that the payments were made at the directions of the excise authorities as the situation was not within the control of the appellant. Therefore, CIT rightly deleted aforesaid addition - Decided in favor of assessee.

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• 2012 (8) TMI 149
  Unexplained cash and excess stock found during the search - reasons were assigned by the assessee showing that he was maintaining regular books of account and assessed to tax since long. Due to ill health – Held that:- Books of account were prepared were produced before the Assessing Officer during the course of assessment proceedings - Assessing Officer did not find any discrepancy in the books and, therefore, considering the extract of Section 158BA(3), it was clear that the transactions upto the date of search were recorded in the books on the basis of prime records, that is to say, other documents maintained in the normal course of business, and in such circumstances, there was no justification for treating the cash as unexplained if as per the books produced before the Assessing Officer the cash found tallied with the books

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• 2012 (8) TMI 148
  Search - assessment order – limitation – Held that:- Panchanama was drawn on 7.2.1996 - Again a third visit was made and a panchanama came to be drawn on 25.4.1996 - order of assessment came to be passed on 24.4.1997 - time starts running from the date of the first Panchanama – assessment order should be passed within one year therefrom - entire order is set aside on the ground of bar of limitation

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• 2012 (8) TMI 147
  Deduction under Section 80HHC of the Income Tax Act – Held that:- While computing the export profit on trading of goods under Section 80HHC(3)(b) of the Act the indirect costs allocable should be in accordance with Explanation (e) even when the indirect costs attributable to such export was identifiable and allocable - When once the assessee has not pointed out the indirect cost attributable to the export and contends that there was no indirect cost attributable to export, the same cannot be accepted and therefore, indirect costs have to be calculated in accordance with law - While so calculating, all the expenses involving indirect cost have to be included and no items can be excluded as done by the first appellate authority and therefore, the order passed by the ITAT directing the assessing officer to pass fresh orders after computing indirect cost in proportion to all the indirect costs incurred by the assessee attributable to export in the proportion inferred to in the order, is justified - in favour of the revenue

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• 2012 (8) TMI 146
  Penalty levied under section 271(1)(c) – assessee received reimbursement of the tax liability incurred by the assessee in India - assessee had not offered the above reimbursed amount to tax under the bonafide belief that the same were not taxable – Held that:- It was a case of bonafide mistake and that there was no intention to evade tax - appeals are dismissed

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• 2012 (8) TMI 145
  Reassessment proceeding under Section 147 – Disallowance of unabsorbed / unserved depreciation - period of limitation - amendment w.e.f. 1997-98 - Held that:- Depreciation has been wrongly allowed pertaining to the assessment year 1993-94 to 1997-98 to which the petitioner was not entitled - deemed to have escaped assessment within the meaning of Section 147 of the I.T. Act for which action under Section 147 was taken and the impugned notice under Section 148 is issued - depreciation which was allowed by the Assessing Officer while completing assessment under Section 143(3) was never before the 1st Appellate Authority and consequently before the ITAT - writ petition is dismissed.

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• 2012 (8) TMI 144
  Scope of Section 263 - Deduction under Section 80-HHC - computed without excluding charges which fall within the scope of Explanation (baa) to Section 80HHC of the Act – Held that:- Finding of the Commissioner in the orders issued under Section 263 is that the Assessing Officer has not considered the scope of Explanation (baa) of Section 80HHC of the Act - Commissioner had only pointed out the mistake prima facie committed by the Officer in making assessment without reference to the relevant statutory provisions and directed him to re-work the relief under Section 80HHC Even though counsel for the assessee contended that for the year 1993-94 Tribunal allowed these issues on merit - with regard to the exclusions to be considered from the total income as well as the turnover covered by the Commissioner's order – matter remanded to AO

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• 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 143
  Confiscation of diamonds – Held that:- Assessee had produced purchase vouchers in relation to the diamonds - proprietary firm was registered with the Sales Tax department - - in the event of seizure of non-notified goods burden of poof is on Revenue to prove that there was illegal import and inability of the litigant to produce documents showing legal importation does not ipso facto prove that the goods were smuggled - department has failed to discharge their burden to prove that these documents are fabricated and diamonds in question are illicitly purchased - in favour of the appellant

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• 2012 (8) TMI 142
  Import of computer cases - Customs authorities denied the exemption on the ground that goods contain a USB card and hence a Populated Printed Circuit Board making the goods ineligible for the exemption – Held that:- What is contained in the computer case is an extension of PCB for ease of connection. But the same is not an electronic component or Populated PCB since it does not have active and passive electronic components like ICs, resistors, capacitors, relays, switches etc. - mere mounting of the USB port and audio port on a PCB does not make the PCB a Populated PCB - appellants are eligible for the impugned exemption under Notification No.21/2002

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• 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 141
  Sanction of the Scheme of amalgamation - Held that:- Having regard to the averments made in this Petition and the materials placed on record and the affidavits filed by the Regional Director , Ministry of Company Affairs, Noida, and the Official Liquidator the Petition deserves to be allowed - no legal impediment to the grant of sanction to the Scheme of Amalgamation. Hence, sanction is hereby granted to the above mentioned Scheme of Amalgamation under Section 391(2) r.w.s. 394 of the Companies Act ,1956 and Consequent upon the merger /Amalgamation of the Companies the Transferor Company shall stand dissolved without being wound up. Learned counsel for the petitioners states that the petitioner Companies would voluntarily deposit a sum of Rs.1,00,000/- in the Common Pool Fund of the Official Liquidator.

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• 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 169
  Point of Taxation Rules, 2011 - rate of tax 10% or 12% - services which were provided before 01.04.2012 and even invoices were issued before 01.04.2012 and payment is received after 01.04.2012 - Held that:- no coercive action shall be taken for non-payment of differential service tax.

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• 2012 (8) TMI 168
  Waiver of pre-deposit – Extended period of limitation – input service – denial of Cenvat credit - input services of Travel Agent, Custom House Agent, Tour operation, Telephone, Insurance and Courier etc and paid the service tax from the Cenvat Credit towards the payment of service tax liability for providing output services of repair, operation and maintenance, erection and commissioning – Held that:- these services are required for providing the output service by the appellant. CHA service was used for importing Water Treatment and Components for Water treatment Plant, which was used for installation or repair and maintenance etc. Similarly, the service of Tour operator and Courier service were also used in providing of service. Even if a view is taken that the term 'Used' cannot cover the definition of input service, it would be purely a question of interpretation and therefore, show cause notice could not have been issued invoking extended period. Show cause notice was issued in 2008 whereas, the period of demand is 2003-2004. Demand was time barred. Decided in favor of assessee.

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• 2012 (8) TMI 167
  Allowance of refund claim of input services - GTA services,transit insurance on outward freight and CHA services - department agitating allowance - Held that:- GTA services for the period prior to 01.04.2008, till the place of delivery should be treated as "input services" as decided in the case of Commissioner of C. Ex. & S.T., LTU, Bangalore Vs. ABB Ltd [2011 (3) TMI 248 (HC)] CHA services - considering the case of CCE, Rajkot Vs. Rolex Rings Pvt. Ltd. [2008 (2) TMI 295 (Tri)]in respect of exported goods when the ownership rests with the exporter till delivery of the goods at the port, the place of removal should be treated as the port and therefore, the CHA services should be treated as "input services" in the light of inclusive definition of "input services". Transit insurance charges - As it is directly linked to GTA services, thus eligible for credit up to 31.03.2008 - Somaiya Organo Chemicals Versus CCE, Aurangabad [2010 (9) TMI 316 (Tri)] - in favour of assessee.

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• 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 140
  Refund - manufacture of P.C. poles – Held that:- Assessments were not provisional and the respondents cleared the PC poles on payment of appropriate duty. Subsequent to the clearances, Maharashtra State Electricity Board reduced the price as per the terms of the contract – refund is not allowed

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• 2012 (8) TMI 139
  Cenvat credit - electricity used outside the factory of production as well as in respect of peripheral area in the factory - demand on the ground that the appellant is liable to pay 10% on the price of electricity which is used outside the factory - Held that:- Electricity is not an excisable item as per Section 3 of CEA, 1944 and the manufacturer is liable to reverse the credit on duty availed as inputs used in the generation of electricity which is not used in the factory of the production- appellant has failed to show that the same is used within the factory, therefore this issue also requires reconsideration as in the show-cause notice the allegation is that the electricity is used in the peripheral area within factory gate - matter is remanded to the Commissioner

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• 2012 (8) TMI 138
  Wrong utilization of CENVAT Credit - claim of exemption Notification No.64/1995-C.E. dated 16.03.1995 - Held that:- Looking into the ER1 returns filled by assessee no clear picture can be made out whether credit of tax availed is correct or not and whether it is in respect of a dutiable product or exempted product - thus it cannot be claimed that the assessee has disclosed the correct facts to the department - assessee has failed to make out a case for complete waiver of pre-deposit - direction to pre-deposit 50% of the duty demanded.

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• 2012 (8) TMI 137
  Appeal dismissed on technical ground of non-compliance of the direction to make pre-deposit by the stipulated date - assessee contested that he did not comply with the order of pre-deposit because he was pursuing his writ petition filed against the order and subsequently withdrew the appeal and deposited the pre - deposit amount as directed along with balance demand - Held that:- The default on the part of the appellant was unintentional and it occurred only because the appellant had challenged the order of pre-deposit in High Court which he withdrew - since the entire amount of duty has been deposited, the order of the Commissioner (Appeals) is set aside and the matter is remanded back for hearing afresh for deciding on merits - in favour of assessee.

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• 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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