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TMI Tax Updates - e-Newsletter September 10, 2013 Case Laws in this Newsletter: Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax TMI SMS Valuation - taxable service - construction service - being neither monetary nor non-monetary consideration, value of free supply not to be included u/s 67 - Tri Articles EXPORT PROMOTION BONANZA - CAPITAL GOODS IMPORTS @ 0 % DUTY ( EPCG SCHEME) COMPASSIONATE APPOINTMENT TO ILLEGITIMATE CHILD News RBI penalises Jamia Cooperative Bank Ltd, 2/9, Surya Complex, Sarai Julena, Okhla Road, New Delhi - 110025 RBI launches the 33rd Round of Inflation Expectations Survey of Households India’s Foreign Trade: August, 2013 RBI Reference Rate for US $ and Euro Notifications Customs 21/2013 - dated 6-9-2013 - ADD Seeks to impose anti dumping duty on imports of Zinc Oxide, originating in, or exported from, the People’s Republic of China for a further period of five years 20/2013 - dated 6-9-2013 - ADD Seeks to levy anti-dumping duty on imports of Sodium Perchlorate, originating in, or exported from, People’s Republic of China for a period of five years F.No.437/54/2013-Cus-IV - dated 5-9-2013 - Cus (NT) Appointment of Common Adjudicating Authority F. No. 437/53/2013-Cus-IV - dated 5-9-2013 - Cus (NT) Appointment of Common Adjudicating Authority F. No. 437/26/2013-Cus-IV - dated 5-9-2013 - Cus (NT) Appointment of Common Adjudicating Authority F. No 437/51/2013-Cus-IV - dated 5-9-2013 - Cus (NT) Appointment of Common Adjudicating Authority Income Tax 68/2013 - dated 4-9-2013 - IT Income-tax ( 15th Amendment) Rules, 2013. Circulars / Instructions / Orders Customs 32/2013 - dated 16-8-2013 Regarrding the amount of bond and bank guarantee and insurance under Regulation 5(1)(iii) of HCCAR, 2009. Companies Law Draft Rules under Companies Act, 2013 - dated 9-9-2013 Chapter II - Draft Rules under Companies Act, 2013 Draft Rules under Companies Act, 2013 - dated 9-9-2013 Chapter VI - Draft Rules under Companies Act, 2013 Draft Rules under Companies Act, 2013 - dated 9-9-2013 Chapter VIII - Draft Rules under Companies Act, 2013 Draft Rules under Companies Act, 2013 - dated 9-9-2013 Chapter IX - Draft Rules under Companies Act, 2013 Draft Rules under Companies Act, 2013 - dated 9-9-2013 Chapter X - Draft Rules under Companies Act, 2013 Draft Rules under Companies Act, 2013 - dated 9-9-2013 Chapter XI - Draft Rules under Companies Act, 2013 Highlights / Catch Notes Income Tax Capital gain or business income - Sale of Shares - The shares had been purchased out of borrowed funds and yet the Apex Court held that the same would not by itself indicate/evidence an intent to deal in shares. - HC Visit to Get Source Amendments made to Section 40(a)(ia) by Finance Act, 2010 - Retrospective effect or Prospective effect - The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. - held as retrospective effect - HC Visit to Get Source Default u/s 206C - Import of scrap - TCS (Tax Collection at Source) - It is the assessee himself who had declared that the materials sold by him was imported by him as scrap. The AO is not required to prove facts admitted by the assessee himself. - AT Visit to Get Source When the expenditure was not recorded in the books of account and the assessee failed to offer satisfactory explanation about the nature and source of such expenditure, there could arise no question of treating the value of such expenditure, which was deemed to be the income of the assessee, as deductible expenditure in the financial year - AT Visit to Get Source Tax Collection at Source (TCS) u/s 206C on Dead Rent/Royalty - mines and quarries - leases/licenses have been granted by the District Magistrate, would clearly prove that the District Magistrate, Jhansi is liable to collect TCS - AT Visit to Get Source Revision u/s 263 by CIT – The explanation under section 263 of the Act defines 'records' as all records relating to any proceedings under the Act available at the time of examination by the Commissioner. The audit objections under no circumstances can be called as record empowering the Commissioner of Income Tax to exercise jurisdiction under section 263 of the Act - AT Visit to Get Source Depreciation - During the year the entire unit was not put to use - The said block of assets was used for the purpose of business during the year. Under the circumstances the assets of the said closed unit amounts to use for the purpose of business in the year under consideration - depreciation allowed - AT Visit to Get Source Deemed Dividend - Treatment of Intercorporate deposits as dividend u/s 2(22)(e) - Intercorporate deposits cannot be treated as a loan falling within the purview of section 2(22)(e) of the Act. - AT Visit to Get Source Margin allowed by the assessee to the distributors was of the nature of commission which was liable for deduction of tax at source u/s 194H and the transaction between assessee and distributors is not in the nature of sale of sim card - AT Visit to Get Source Presumption of continuity of business, when external restriction has been put on carrying of business - The assessee is having valid BSE card which could not be used for the reason that SEBI has passed an order barring the assessee not to do any business activity – Assessee’s business has not come to an end - AT Visit to Get Source Customs Application for conversion – assesse seeks for conversion of shipping bills from DFRC scheme to DEPB scheme – the Board had issued circular in 2010 which had further liberalized such conversions - the policy was designed to encourage the exports - AT Visit to Get Source Service Tax Valuation of the taxable service - inclusion of value of free supply - construction of commercial or industrial complex - The value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of the later expression in Section 67 of the Finance Act, 1994 - AT Visit to Get Source Wrong Utilization of CENVAT Credit - Lapsed Credit - There was no provision of law to come to such a conclusion - The CBE and C's Circular also confirmed that the accumulated credit would not lapse and Rule 6 (3) does not bar utilisation of accumulated credit - AT Visit to Get Source Applicability of service tax - Insurance Service - Due weightage should be given to the clarifications given by the administrative department, when a new levy was imposed - The adjudicating authority had not examined the matter in proper perspective taking into account the instructions issued by the Board from time to time - AT Visit to Get Source Laible for penalty on delayed service tax or not – penalty under section 78 - there should be a mens rea on the part of the appellant to evade tax – there is no intention to evade service tax – penalty waived - AT Visit to Get Source Penalty on service tax u/s 76 - appellant paid service tax with interest thereon some time before issue of the show-cause notice. - penalty is uncalled for and set aside - AT Visit to Get Source Central Excise Classification of goods - Classification of 'dry concrete mixture', loose or packed, manufactured by the appellant – Goods to fall under 3824.90 -'dry mix concrete' and not under 3824.20 - AT Visit to Get Source MRP based Duty - Mis-declaration of MRP value - The conclusion arrived at merely on the basis of price list, particularly, when there was no evidence on record to show that during the relevant period any CTV was sold to the ultimate customer at a price higher than the price declared by the assesse - AT Visit to Get Source Cleared Goods Without Duty Payment - f he chooses to violate the law and supplied goods, he had to take the consequences for removing the goods without payment of duty. - AT Visit to Get Source Availing Cenvat Credit of duty paid inputs, semi-processed inputs and inputs contained in the final products lying in the stock after withdrawal of partial exemption - w.e.f. 1-3-2003 the exemption from excise duty on its final product available to the appellant prior to 1-3-2003 was partially withdrawn to the extent of 4% ad valorem by increasing the excise duty from 4% to 8%. - appellant cease to be exempted from excise duty. - credit allowed - AT Visit to Get Source Ship breaking activity - The raw materials which were inputs arising out of ship breaking material were cleared at the nil rate of duty and hence the benefit of Notification No. 202/88 will not be available - AT Visit to Get Source Case Laws: Income Tax 2013 (9) TMI 276 Capital gain or business income - Sale of Shares - Whether the subscription to 20% of the issued equity shares of M/s. MABL and subsequent sale thereof resulting in gain was in the nature of capital gains or in the nature of business income - Held that:- The fact that the Managing agency could be utilized for earning profit could not lead to the conclusion that shares so purchased were on revenue account in the absence of any intent to trade in in those shares. - Decided in favor of assessee. The assessee by purchasing the shares also acquired the right to manage M/s. MABL and in the absence of any other evidence to indicate that there was an intent on the part of the appellant to deal in the shares the only conclusion would be that the entire transaction of purchase and sale by the appellant was on capital account. Moreover, the subscription of 20% shares in M/s. MABL subscribed to by the appellant were not freely transferable but regulated and restricted by the shareholders agreement dated 16 May 2002. In view of the above agreement dated 16 May 2002 there was a three years lockin period in respect of the subscribed share capital and the appellant could not sell the same during that period. In case the appellant had to sell during three years lock in period the sale was restricted only to the other two parties to the shareholders agreement. Moreover, even after the three year lock in period was over, the other two parties to the agreement continue to have right of preemption in respect of the appellant's shareholding. The shares had been purchased out of borrowed funds and yet the Apex Court held that the same would not by itself indicate/evidence an intent to deal in shares. Taking all the cumulative factors including the decision of the Supreme Court in Ramnarain Sons (P) Ltd. [1960 (12) TMI 3 - SUPREME Court] the impugned order was incorrect in holding that 20% shares of M/s. MABL subscribed to by the appellant was stock in trade of the appellant and not its capital asset, as contended by the revenue. - Decided in favor of assessee. Though the appellant had right to appoint its nominee as a Manager of M/s. MABL yet the nominee could not exercise authority as a Manager on his own but had to do so in consultation with others and therefore was not the Manager. Consequently, the conclusion by the Tribunal that no amount was paid while subscribing for the shares to enjoy the rights of Manager of M/s. MABL. Merely because the appellant's nominee acts as Managing Director of M/s. MABL and such function of Managing Director as a Manager has to be discharged in consultation with others does not denude the Manager of its authority and function as a Manager. It is axiomatic that no Manager in any field of business activity enjoys on absolute and unfettered rights to manage his business without having to consult others. Therefore, the finding in the impugned order that because the appellant nominee has no absolute right to manage M/s. MABL as it desires, it must follow that the appellant has no right as a Manager of M/s. MABL, is perverse. - Decided in favour of assessee. 2013 (9) TMI 275 Amendments made to Section 40(a)(ia) by Finance Act, 2010 - Retrospective effect or Prospective effect - TDS on amount paid on before 28th February not paid before 31st March - But deposited before due date of filing of return - Held that:- Question whether the amendment is retrospective or prospective is vexed and rigid rule can be applied universally. Various rules of interpretation have developed in order to determine whether or not, an amendment is retrospective or prospective. Fiscal statutes imposing liabilities are governed by normal presumption that they are not retrospective. The cardinal rule is that the law to be applied, is that which is in force on the first day of the assessment year, unless otherwise mandated expressly or provided by necessary implication. The aforesaid dictum is based upon the principle that a new provision creating a liability or an obligation, affecting or taking away vested rights or attaching new disability is presumed to be prospective. However, it is accepted that Legislatures have plenary power to make retrospective amendments, subject to Constitutional restrictions. Section 43B deals with statutory dues and stipulates that the year in which the payment is made the same would be allowed as a deduction even if the assessee is following the mercantile system of accountancy. The proviso, however, stipulates that deduction would be allowed where the statutory dues covered by Section 43B stand paid on or before the due date of filing of return of income. Section 40(a)(ia) is applicable to cases where an assessee is required to deduct tax at source and fails to deduct or does not make payment of the TDS before the due date, in such cases, notwithstanding Sections 30 to 38 of the Act, deduction is to be allowed as an expenditure in the year of payment unless a case is covered under the exceptions carved out. The amended proviso as inserted by Finance Act, 2010 states where an assessee has made payment of the TDS on or before the due date of filing of the return under Section 139(1), the sum shall be allowed as an expense in computing the income of the previous year. The two provisions are akin and the provisos to Sections 40(a)(ia) and 43B are to the same effect and for the same purpose. Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G.P. rate and when expenditure which becomes subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences as is apparent from the case of Naresh Kumar. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. Nevertheless the Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitable so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. Case of Naresh Kumar is not one of rare cases, but one of several cases as we find that Section 40(a)(ia) is invoked in large number of cases. It is apparent that the respondent assesse did not violate the unamended section 40(a)(ia) of the act - The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support the expression “said due date” used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. Following the decision in Rajinder Kumar [2013 (7) TMI 454 - DELHI HIGH COURT], Decided against Revenue. 2013 (9) TMI 274 Default u/s 206C - Import of scrap - TCS (Tax Collection at Source) - Held that:- assessee himself has declared the goods imported by him as brass scrap before the Customs authorities. He is therefore bound by that declaration. Once it is declared as waste and scrap under the Customs Tariff Act, it necessarily follows that it is in the nature of waste and scrap, which is definitely not usable as such. Be that as it may, the definition of "scrap" under Explanation (b) is wider in scope than the definition of "scrap" as given in the Customs Tariff Act. In this view of the matter, materials recovered on demolition of buildings, old machines/fixtures/fittings sold as scrap, discarded packing materials, etc., would also fall in the category of "scrap" as defined in Explanation (b) as all of them are items, which are no longer useful as such, and therefore fall in the category of waste and scrap from the manufacture or mechanical working of materials, which is definitely not usable as such - Decided against assessee. Assessee submitted that he was under a bona-fide belief that what was imported and sold by him was not "scrap" within the meaning of Explanation (b) to section 206C. We are unable to accept the aforesaid submission for two principal reasons. One, the assessee has placed no material either before the AO or before the CIT(A) or before us to establish his bona-fide in the matter. It is not his case that he was advised by any competent professional that the scrap sold by him would not attract the provisions of section 206C. Two, the provisions of section 206C are not subject to reasonable cause or bona-fide belief like provisions relating to levy of penalty. It is the assessee himself who had declared that the materials sold by him was imported by him as scrap. The AO is not required to prove facts admitted by the assessee himself. Once the assessee makes a declaration to that effect before the Government and the Government also acts upon that declaration, he is precluded from pleading otherwise before the Government. Section 115 of the Evidence Act is quite apposite. Both the authorities, namely, the AO and the CIT(A), have taken cognizance of the aforesaid declaration made by the assessee before the Customs authorities before fixing the liability on the assessee. It cannot therefore be said that the AO has not brought out any material on record to show that the material imported and subsequently sold by the assessee was "scrap". Two, we have also taken the view that the material imported and subsequently sold by the assessee was "scrap" within the meaning of Explanation (b) to section 206C. First proviso to sub-section (6A) of section 206C not only seeks to rationalize the provisions relating to collection of tax at source but is also beneficial in nature in that it seeks to provide relief to the collectors of tax at source from the consequences flowing from non/short collection of tax at source after ensuring that the interest of the Revenue is well protected, we have no hesitation to hold that the said proviso would apply retrospectively and therefore to both the assessment years under appeal. We therefore direct the assessee to appear before the Assessing Officer along with relevant documents as stipulated by the first proviso to sub-section (6A) of section 206C within two months of the date on which this order is pronounced upon which the AO shall examine the claim of the assessee in the light of the said provisions and pass appropriate order accordingly in conformity with law after giving reasonable opportunity of hearing to the assessee - Following decision of Allied Motors (P.) Ltd. v. CIT [1997 (3) TMI 9 - SUPREME Court] - Decided in favour of assessee. 2013 (9) TMI 273 Bad debts versus Provisions for bad and doubtful debts - rural banking - Scope and ambit of the proviso to Section 36(1)(vii) - whether deduction of the bad and doubtful debts actually written off in view of Section 36(1)(vii) limits the deduction allowable under the proviso to the excess over the credit balance made under clause (viia) of Section 36(1) – rural advances - Held that:- U/s 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year, while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans. Therefore, we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields – Following decision of Catholic Syrian Bank Ltd. Versus Commissioner of Income Tax, Thrissur [2012 (2) TMI 262 - SUPREME COURT OF INDIA] - Decided in favor of assessee. Disallowance u/s 14A - Interest on tax free bonds and debentures and dividend income - Held that:- It is an undisputed fact that the Assessee has earned Rs. 39.65 Crore on account of interest on tax free bonds, debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed Rs. 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at Rs. 36.68 Crore and after setting off disallowance made by the assessee, he disallowed Rs. 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of Rs. 25.35 Crore - matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue - Decided in favour of assessee. Disallowance of depreciation - Held that:- It is an undisputed fact that the income from lease has been considered by Assessee as income It is an undisputed fact that the AO has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the assessee is not entitled to depreciation - disallowance as assessee’s use of vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire - assessee is a public limited company engaged in the business of hire purchase, leasing and real estate - High Court allowed the appeal of revenue - As long as the asset is utilized for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. In the present case the assessee is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(24) the income derived from leasing of the trucks would be business income, or income derived in the course of business, and has been so assessed. Hence, it fulfills the second requirement of Section 32 viz. that the asset must be used in the course of business. See CIT Karnataka, Bangalore Vs. Shaan Finance (P) Ltd., Bangalore [1998 (3) TMI 8 - SUPREME COURT] and M/S I. C. D. S. LTD. VERSUS COMMISSIONER OF INCOME TAX. MYSORE & ANR. [2013 (1) TMI 344 - SUPREME COURT] - Decided in favour of assessee. Penalty u/s 271(1)(c) - Held that:- assessee had disclosed all the material facts before the AO and CIT(A). When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing inaccurate particulars thereof. This is a case of bona fide difference of opinion regarding the allowability of a claim of deduction between the Assessee and dept. What is to be seen is whether the said claim made by the assessee was bona fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty under s. 271(1) (c) of the Act. In the present case all the necessary facts were furnished by Assessee. In the case of CIT Vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) the Hon. Apex Court has held that there making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of Assessee. In view of the totality of facts we are of the view that the addition does not call for levy of penalty under s. 271(1)(c) - Decided in favour of assessee. 2013 (9) TMI 272 Admission of additional evidence - Held that:- The appellate authorities should exercise their discretion in permitting or not permitting the assessee to raise an additional ground/additional evidence in accordance with law and reasons. There is no blanket permission to the assessee to raise the additional ground or filing of additional evidence according to his own whims and fancies. There should be reasonable cause for furnishing additional evidence belatedly. In the present case, we find no reasonable cause for raising the additional grounds/evidences so belatedly. Considering the facts of the present case, we have no hesitation in declining to admit the additional evidences filed by the assessee before us and accordingly the additional evidence is rejected. - Decided against the assessee. Addition u/s 68 of the Income Tax Act – if this amount is duly assessed in the hands of Sri A. Mallikarjuna as his income, then taxing the same in the hands of the assessee would amount to double addition of the same amount. It cannot be permitted. Accordingly we direct the Assessing Officer to verify whether this amount taxed in the hands of Sri A. Mallikarjuna and if he has not filed any appeal against this addition in his hand or it reaches the finality by the decision of a superior judicial forum, then it should not be assessed once again in the hands of the present assessee. - Decided in favor of assessee. Addition of Rs. 31.5 lakhs towards CD/DVD/satellite/overseas rights as against Rs. 25 lakhs – Held that:- As per the agreement between the assessee and Gemini Television total consideration is of Rs.31.5 lakhs and out of which the assessee received only Rs. 25 lakhs and the balance is to be paid on the date of signing the agreement - As the agreement entered with G. Harinath was found to be false, the claim of amount received from him at Rs. 25 lakhs is totally contrary to the facts on record. Being so, the CIT(A) is justified in sustaining the addition of Rs. 31.5 lakhs on this count. Addition of Rs. 3 lakhs towards 16MM rights – Held that:- There was a seized document A/SRB/44 which was a xerox copy of agreement dated 16.10.2011 for sale of sole and exclusive exploitation of 16MM rights of the film “Maa Annaiah” for a period of 5 years from 25.12.2001 - The lessor and the lessee are the assessee firm and Sri MVVS Prasad son of Venkateswara Rao resident of Kovvur, West Godavari. Being so, no any infirmity in the order of the CIT(A) as the addition is based on the seized material and the same is confirmed. Unexplained expenditure u/s 69C of the Income Tax Act – Held that:- Where in any financial year the assessee incurs any expenditure thereof and the assessee fails to offer satisfactory explanation to the Assessing Officer, the amount covered by such expenditure may be treated as deemed income of the assessee for such financial year. The scheme of section 69C would show that in cases where the nature and source of investment made by the assessee or the nature and sources of acquisition of any asset owned by the assessee or the source of expenditure incurred by the assessee are not explained at all or not satisfactorily explained, then, the value of such investment and money or the value of articles not recorded in the books of account or unexplained expenditure may be deemed to be the income of the assessee. Deduction to be allowed in respect of unexplained expenditure included as deemed income in the hands of Assessee – Held that:- Because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14, it would not be possible to classify such deemed income under any of these heads including income from other sources which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69,69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted - When the expenditure was not recorded in the books of account and the assessee failed to offer satisfactory explanation about the nature and source of such expenditure, there could arise no question of treating the value of such expenditure, which was deemed to be the income of the assessee, as deductible expenditure in the financial year, and hence, such deemed income did not fall under the head ‘Profits and gains of business or profession’ – Hence, no deduction is allowed in this resect – Decided in favor of Revenue. 2013 (9) TMI 271 Revision u/s 263 - Options when cryptic and arbitrary order passed by the Assessing officer – Held that:- Arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. - As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving his reasons therefor. Reliance has been placed upon the various judgment in the case of S.N. Mukherjee v. Union of India [1990 (8) TMI 345 - SUPREME COURT], wherein it has been held that what is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy – In the present case, it has been held Assessing Officer is cryptic in nature and there is no discussion. No proper enquiry on the part of the Assessing Officer. The Assessing Officer absolutely closed his eyes and completed the assessment without raising any objection on the impugned issues. Being so, the issues in dispute are required to be examined thoroughly by the Assessing Officer. The CIT is not justified himself giving direction to make addition - At all fairness, the issues to go back to the Assessing Officer for fresh consideration. Accordingly, the entire issues are remitted back to the Assessing Officer for fresh consideration. - Decided partly in favor of assessee. 2013 (9) TMI 270 Re-opening of assessment u/s 147 for the reason of legal opinion expressed by the audit party and not the factual error found by the audit team – Held that:- Relying upon the judgment in the case of Xerox Modicorp Ltd.[ 2013 (1) TMI 160 - DELHI HIGH COURT]; Air India[1994 (10) TMI 33 - BOMBAY High Court] and Indian Eastern and Newspaper Society [1979 (8) TMI 1 - SUPREME Court], it has been held in the present case that re-opening of assessment is not valid. In the instant case, audit party has not pointed out any factual error or omission but has expressed the opinion on the analysis of the balance sheet of one of the two concerns of the assessee that the interest paid by the assessee needs to be disallowed because the borrowed funds were diverted by providing interest free loans to others - The decision of Hon’ble Apex Court in the case of P.V.S. Beedies Pvt.Ltd. [1997 (10) TMI 5 - SUPREME Court] would not apply because in that case, there was only a factual error – Decided against the Revenue. 2013 (9) TMI 269 Revision u/s 263 - Correctness of application of section 263 by CIT – AO allowed set off B/F losses and unabsorbed depreciation - Held that:- Nothing has been brought on record to show that any inquiry has been made by the AO in the course of assessment proceedings on this account and hence, it has to be accepted that such set off was allowed by the AO in the absence of any supporting material and without making any inquiry and therefore, the jurisdiction exercised by ld. CIT u/s. 263 of the Act is justified - Decided against the assessee. Revision u/s 263 - AO did not refer the case of TPO where International transaction reported by the assessee in Form 3CEF is more than Rs.5 crore Held that:- oard Instruction No. 3 dated 20-05-2003 issued by CBDT u/s. 119 of the Act as per which it was decided that wherever the value of international transaction exceeds to Rs. 5 crore, the case should be taken up for scrutiny and reference u/s.92CA be made to the TPO - the Assessing Officer was duty-bound to refer the matter to the TPO for determination of Arm's Length Price and since, this was not done by the AO, it has to be accepted that the assessment order in both years is erroneous as well as prejudicial to the interest of Revenue. - Decided against the assessee. 2013 (9) TMI 268 Tax Collection at Source (TCS) u/s 206 C on Dead Rent/Royalty - assessee in default - Held that:- lease/license was granted by the District Magistrate on behalf of the State Government for mines and quarries against consideration. May be the TAN is issued in the name of District Mining Officer, is not relevant to avoid liability to collect TCS by the District Magistrate. Considering the above facts, noted by the assessing officer and confirmed by the District Mining Officer that leases/licenses have been granted by the District Magistrate, would clearly prove that the District Magistrate, Jhansi is liable to collect TCS in the facts and circumstances of the case. - Decided against the assessee. The amount payable or the amounts received are the important factors which shall have to be taken into consideration at the time of collection of TCS. The above provision, therefore, would not be restricted to the amounts paid or payable on account of specified terms. It may be anything and as such it would also apply against the amount payable or paid on account of dead rent/royalty. Whatever name is given in the agreement of mining, the same is payable by the licensee to the District Magistrate and upon that the District Magistrate is required to collect TCS as per above provisions. Whether dead rent was to be paid in advance or royalty was to be paid after start of business are not relevant criteria to deal with the provisions of section 206C(1C) of the IT Act. - Decided against the assessee. The assessee is also liable to pay interest u/s 206(6A) of the Income Tax Act, which has been brought on the statute w.e.f. 01.04.2007 - Since the assessee was responsible for collecting tax and failed to do so in accordance with the provisions of law, therefore, for the failure of assessee to collect the tax, the assessee would be liable to pay tax to the credit of the Central Government in accordance with law. Therefore, quoting a wrong provision would not be relevant for the purpose of deciding the issue. Same view is taken by ITAT, Agra Bench in the case of Agra Development Authority v. ACIT [2012 (10) TMI 887 - ITAT AGRA] – Decided against the Assessee. Double deduction of TCS from the assessee, when the leasee/lincencee has already paid tax - Held that:- Reliance has been placed upon the Hon’ble Karnatka High Court judgment in the case of Sree Manjunatha Wines v. CIT [2011 (9) TMI 254 - KARNATAKA HIGH COURT], wherein it has been held that If in a given case the assessee has not collected the tax from the buyer and if the buyer has paid tax to the revenue, the revenue is not deprived of the tax which is legitimately due to them. - The assessee submitted before the AO that all the licensees are assessed to Income-tax, but no evidences have been filed before the AO for payment of taxes - Restored the issue to the file of AO with direction to assessee to substantiate that all the payments of taxes have been made by the licensees/lessees referred in all the assessment years under appeals with proper evidence of payments by the licensees or lessees in question and the AO on verification of the same shall decide the issue in accordance with law by giving reasonable and sufficient opportunity of being heard to the assessee - Decided partly in favor of assessee. 2013 (9) TMI 267 Revision u/s 263 by CIT – Revision on basis of objection raised in the Audit - Held that:- Twin condition of (i) Order to be erroneous and (ii)Order to be prejudicial to the Revenue, to be satisfied - Commissioner of Income Tax while passing the order under section 263 of the Act had not even taken any note of the objection of the assessee that the figures appearing in the show cause notice do not match with the figures reflected in the Balance Sheet of the assessee. The basis of such figures in the show cause notice issued by the Commissioner of Income Tax is not clear and in the absence of the same, no merit in invoking of jurisdiction by the Commissioner of Income Tax under section 263 of the Act specially in cases where the Assessing Officer had made due enquiries during the course of assessment proceedings and had applied his mind before passing the assessment order Commissioner of Income Tax in the present case had also initiated the proceedings under section 263 of the Act on the basis of the audit objections. Show cause notice was issued in the present case for non-deduction of tax at source, out of certain expenses incurred by the assessee and order passed by the Commissioner of Income Tax under section 263 of the Act directing the Assessing Officer to re-determine the income of the assessee by applying a rate other than the rate applied by the Assessing Officer, being without jurisdiction, is not tenable in law - The provisions of section 263 of the Act are clear and absolute that the power is to be exercised by the Commissioner of Income Tax from the examination of the records of the proceedings under the Act. The explanation under section 263 of the Act defines 'records' as all records relating to any proceedings under the Act available at the time of examination by the Commissioner. The audit objections under no circumstances can be called as record empowering the Commissioner of Income Tax to exercise jurisdiction under section 263 of the Act. Further it is apparent that the Commissioner of Income Tax has initiated the revision proceedings only on the basis of Audit Objection. Such exercise of power under section 263 of the Act is not tenable in law. The grounds of appeal raised by the assessee are thus allowed – Decided in favor of Assessee. 2013 (9) TMI 266 Transfer pricing - ALP - Selection of comparables – Revenue authorities have excluded Gilicon and Kitco and including Siro for the purpose of comparability analysis – Held that:- As regards Siro, there is a functional similarity between the said company and the assessee company in as much as both of them are engaged in the business of providing services relating to clinical trials. The difference is only in the business model adopted by these two companies, in as much as Siro is doing the clinical trials on its own where as the assessee company is getting the clinical trials done from the third parties - business model adopted by Siro cannot be the basis to exclude the said company from the comparability analysis especially when there is a functional similarity in the main business carried on by Siro as well as by the assessee-company which is that of providing services in relation to clinical trials – Decided against the Assessee. As regards Gilicon, Paper Book show that the consultancy work was substantially sub-contracted by Gilicon - Moreover, Gilicon is in the business of consulting engineers and advisors which is functionally different from the business of the assessee of providing clinical trial services - Gilicon is not only functionally different from that of the assessee company but even the business model adopted by the said company is different and the said company therefore cannot be included for the purpose of comparability analysis – Decided against the Assessee. As regards Kitco, if items of non-operating income are excluded from the profits before Income Tax of Rs. 13.67 Lakhs and Rs. 19.45 Lakhs of Kitco for the Financial Year 2000-01 & 2001-02, there was an operating loss incurred by Kitco in the Financial Year 2000-01 and 2001-02 - On the ground that the said entity making consistently operating loss could not be taken as comparable with the assessee company which is a captive service provider. Validity of recomputation the operating profit by estimating notional indirect cost at 5% thereby altering the cost base – Held that:- If the indirect cost was already included by the assessee in the total cost of Rs. 1080.25 Lakhs incurred in relation to the services provided to its AE for applying the mark up of 10%, there is no justification in adding indirect cost @ 5% of the direct cost separately as done by the authorities below relying on the terms of the relevant agreement - However, inclusion of indirect cost of Rs. 285.48 Crores in the total cost of Rs. 1080.25 Lakhs based on the break-up requires verification as there is no reference to any such details furnished by the assessee nor there is any finding given on verification of such details – Issue restored to the file of A.O. to verify the relevant record - If the stand taken by the assessee that indirect cost of Rs. 285.48 Lakhs was already included in the total cost of Rs. 1080.25 Lakhs is found to be correct, the AO is directed not to add separately indirect cost @ 5% of the direct cost for the purpose of Transfer Pricing exercise – Decided in favor of Assessee for statistical purpose. Inclusion notional interest in the cost base while working out the arm's length price – Held that:- If the relevant interest expenditure was not actually incurred by the assessee and the same was included in the total cost of Rs. 1085.25 Lakhs for applying the mark up of 10% to the AE only on notional basis, the same cannot included in the cost base for the purpose of working out the arm's length price - . The same has to be excluded from the cost base and what should be taken as cost base to work out the profit margin of the assessee is the expenditure actually incurred by the assessee - Excluded the interest amount of Rs. 16.01 Lakhs from the cost base after verifying that the same was included by the assessee only on notional basis and it did not represent the expenditure actually incurred by the assessee – Decided in favor of Assessee. Depreciation on assets located at Ankleshwar Plant – closed unit - Held that:- During the year the entire unit was not put to use but since the same is forming part of the block of assets of the machinery of the entire company's other unit being used, examination of use of individual assets does not arise – Reliance has been placed upon the judgment in the case of M/s. Swati Synthetics Ltd, wherein it has been held that the year under consideration is not the first year of the assets acquired. The assets of closed unit still remained exist/part of the block of assets. The said block of assets was used for the purpose of business during the year. Under the circumstances the assets of the said closed unit amounts to use for the purpose of business in the year under consideration, therefore assessee is entitled for deprecation – Decided in favor of Assessee. Rental income - Classification of Head of Income - Income arising from Sub-leasing of property' is to be taxed in the hands of the assessee whether business income or house property income – Held that:- Assessee is a deemed owner u/s 27(iiib) where an immovable property is acquired on lease for a period of more than 12 years – Income assessable under head ‘Income from House Property’. 2013 (9) TMI 265 Deemed Dividend - Treatment of Intercorporate deposits as dividend u/s 2(22)(e) - Intercorporate deposits to be treated as loan or deposit – ‘Loan’ & ‘Advance’ and ‘Deposits’ – Held that:- Provisions of section 2(22)(e) of the Act refers to only ‘loans’ and ‘advances’ it does not talk of a ‘deposit’ - Provisions of section 2(22)(e) of the Act refers to only ‘loans’ and ‘advances’ it does not talk of a ‘deposit’ - View taken by the Ld. CIT(A) that the Intercorporate deposit is similar to the loan would no longer have legs to stand – Reliance has been placed upon the decision of the Special Bench of this Tribunal in the case of Housing & Urban Development Corporation Ltd. [2005 (11) TMI 199 - ITAT DELHI-E], wherein it has been held that loans and deposits are to be taken different and distinct - Intercorporate deposits cannot be treated as a loan falling within the purview of section 2(22)(e) of the Act. Allowability of expenses attributable to dividend income – Invocation of provisions of section 14A of the Income Tax Act – Held that:- Assessee had a share capital of Rs.8 cr. and had reserves and surplus at Rs.56 cr. It was the submission that the investments were only Rs.2,96,17,000/- - As per the decision of Godrej & Boycee Mfg. Co. Ltd., referred to [2010 (8) TMI 77 - BOMBAY HIGH COURT], there must be a proximate relationship between the expenditure and the income which does not form part of the total income – Issue restored to the file of A.O. for deciding as per the line of decision of the Hon’ble Bombay High Court in the case of Godrej & Boycee Mfg. Co. Ltd. 2013 (9) TMI 264 Transfer pricing - ALP - Advertisement, marketing and business promotion adjustment for Transfer pricing adjustment - AMP expenditure incurred in excess of the mean "expenditure incurred on AMP upon sales" of comparable companies - The TPO determined the Bright Light AMP expense at 84% on the basis of comparables selected for the purpose of bench marking the AMP expenditure incurred by the assessee viz-a-viz 12.55% AMP expenses of the assessee – Held that:- Reliance has been placed upon the judgment in the case of L.G. Electronics India (P.) Ltd. [2013 (5) TMI 633 - ITAT DELHI] , wherein it has been held that TPO restricted the comparable cases to only two without discussing as to how other cases cited by the assessee were not comparable. A bald comparison with the ratio of AMP expenses to sales of the comparables cases without giving effect to the relevant factors as discussed above, cannot produce correct result. As the TPO has neither properly considered the request of the assessee for inclusion of some other comparable cases nor examined the effect of the above discussed relevant factors on the question of determination of the cost/value of international transaction, the ends of justice will meet adequately if the order of the TPO and that of the AO giving effect to such order is set aside and the matter is restored to the file of the TPO for determining the cost/value of the international transaction and the consequent ALP afresh as per law – In the present case also, matter is restored to the file of the TPO for determining the cost/value of the international transaction and the consequent Arm's Length Price afresh as per law Rate of depreciation to be applicable on UPS and Printer - Depreciation on UPS and printer from 60 percent to 15 percent, by treating the same as Plant and Machinery without appreciating that UPS and printer is "integral part of the computer system" – Held that:- Reliance has been placed upon the judgment in the case of Orient Ceramics and Inds. Ltd [2011 (1) TMI 26 - DELHI HIGH COURT], wherein it has been held that depreciation @ 60% on such items shall be allowed – In the instant case also, depreciation allowed @ 60% - Decided in favor of Assessee. 2013 (9) TMI 263 TDS u/s 194H – Tax deduction at source in relation of the margin money allowed by the assessee to the distributors on supply of pre paid Sim cards and recharge coupons - The assessee is rendering mobile telephone services to the customers through appointment of distributors – Held that:- Margin allowed by the assessee to the distributors was of the nature of commission which was liable for deduction of tax at source u/s 194H and the transaction between assessee and distributors is not in the nature of sale of sim card – Decided against the Assessee. As per the telecom regulation, connection could be given to customer only after production of identity, proof of address etc. and this job has been entrusted by the assessee to the distributors. In the post paid scheme, the assessee pays certain charges to the distributors for all these services such as enrollment of subscribers with proper verification and documentation on behalf of the assessee. The assessee treats such payment made to the distributors in post paid scheme as commission for services rendered on which tax has been deducted at source. However, in case of pre paid scheme, the assessee allows certain margin to the distributors while supplying the Sim cards and recharge coupons and this margin is treated by assessee as discount on which no tax has been deducted at source. The assessee’s claim is that it was a case of sale of Sim cards and recharge coupons to the distributors at discount and therefore the payment were not for rendering any services and thus could not be considered as commission – Held that:- Relying upon the decision of Hon’ble High Court of Kerala in case of Vodafone Essar Cellular Ltd. [2010 (8) TMI 691 - KERALA HIGH COURT], it has been held that transaction of the assessee, with the distributor for supply of Sim cards and recharge coupons under the pre paid scheme is not sale – In a similar case Hon’ble Supreme Court in case of BSNL and another Vs. Union of India reported [2006 (3) TMI 1 - Supreme court] upheld the contention of the assessee that there was no sale involved. Applicability of provision of section 194J regarding deduction of tax at source in relation to roaming charges and inter-connect usage charges paid by the assessee to other cellular operators - Payments were for technical services rendered and therefore provisions of section 194 J were attracted as per which tax was required to be deducted, which had not been done by the assessee and, accordingly the AO treated the assessee in default u/s 201(1) of the IT Act – Held that:- Reliance has been placed upon the judgment passed by Hon’ble Supreme Court of India in Bharti Cellular Ltd [2010 (8) TMI 332 - Supreme Court of India], wherein it was held that for applicability of section 194 J, it was necessary to find out if human intervention was involved at any stage including the stage where the existing capacity was exhausted and additional capacity was required. The Hon’ble Supreme Court directed the CBDT to issue directions to all its officers that in such cases the department need not proceed only by the contracts placed before the officers and the matter should be examined with the help of technical experts – Accordingly, in the present case it was held the issue should receive fresh consideration at the hands of the AO – Matter restored to the file of A.O. for fresh adjudication. Applicability of provisions of section 194 J to the payments made by the assessee for outsourcing of manpower from the sister concern – A.O. contended the applicability of section 194 J as per which tax was required to be deducted at the rate of 10% in place of tax deducted at the rate of 2% by the assessee u/s 194 C of the IT Act - The claim of the assessee is that it did not want to keep on its roll the employees rendering clerical services in the back office and accordingly such staff were outsourced from the sister concerned. However, the payments were made for reimbursement of actual expenses incurred by the sister concern plus a sum of Rs. 350 per employee per month – Held that:- As regards the payment for reimbursement, there is no profit element involved and therefore TDS provisions could not be applied - Payment of Rs. 350 per employee was for supply of manpower and not for any professional and technical services - CIT (A) has also given a finding that the persons supplied by the sister concern were just graduate and under graduate and had been assigned the work at the clerical level or had been given routine work - Nothing produced before us to controvert the finding of CIT (A) - No infirmity in the order of CIT (A) holding that the payments were not for any technical services or for any professional or managerial services – No applicability of section 194J – Decided in favor of Assessee 2013 (9) TMI 262 Presumption of continuity of business, when external restriction has been put on carrying of business - Issue of enhancing the income of the assessee by Rs.1,07,98,248/- by disallowing the carry forward loss of Rs.1,07,98,248/- on account of trading in shares and securities claimed by the assessee as the assessee has not carried any business activity during the year under consideration - Assessee’s registration as share broker was cancelled by SEBI and there was no purchase and sale of shares by the assessee from the previous year - There being no business activity in shares and securities form the year 2001 on account of cancellation of registration as share broker, loss arising from mere valuation of the opening stock of shares would not lead to the conclusion that the assessee was carrying on any such activity – Held that:- Reliance has been placed in the decision in the case of KNP securities P. Ltd [2009 (5) TMI 840 - ITAT MUMBAI] - Not doing business activity was not on account of assessee’s will but on account of forced circumstances; therefore, it cannot be said that the assessee has closed/discontinued us business activity its own. The establishments of the assessee were intact and they were to be maintained. Staff members were kept and salaries were paid to them Loans taken from various banks and others for the purpose of business activity in past were outstanding during the years under consideration; therefore, any interest accrued was to be paid during the year under consideration or was payable. The assessee is having valid BSE card which could not be used for the reason that SEBI has passed an order barring the assessee not to do any business activity. Therefore, it cannot be said that the assessee could not use the BSE card its own which was ready to use – Assessee’s business has not come to an end. The meaning of discontinuation is explained in the Law Lexicon where “it implies a voluntary act and abandonment of possession followed by the actual possession of another, it implied that the person discontinuing has given up the lend and left it to the possessed by anyone choosing to come in - In the present case neither the business is discontinued on account of voluntary act of the assessee nor the same has put to stop its own. The business could not be done for the reason that SEBI has barred the assessee not to do any business activity till further order. The assessee was barred till further orders clearly mean that the assessee was not barred permanently - Expenses incurred by the assessee for the purpose of its business activity are allowable as the establishment was not scraped and the assessee was still hopeful to start its business activity - Reliance is again placed upon the judgment in the case of CIT vs Vellore Electric Corporation Ltd reported in [1998 (11) TMI 42 - MADRAS High Court] – Further, similar decision has been passed in the case of Sree Meenakshi Mill Ltd, in [1966 (9) TMI 34 - SUPREME Court] by Hon’ble Supreme Court – Decided in favor of Assessee. Loss on account of loss of shares - Held that:- the assessee has not produced any evidence either before the AO or before the Ld.CIT(A) as to the physical loss of the shares. Also, we find merit in the reasoning of the Ld.CIT(A) that if the shares are lost, the assessee could have obtained duplicate for the same. - Decided against the assessee. Prior period of expenses - mercantile system of accounting - Held that:- it is for the assessee to demonstrate that the liability has been incurred in the year under consideration. The Ld.AR’s argument that the prior period expenses to be allowed as set off against the prior period income, in our view, is not legally tenable. Also, as there is no material placed on record to show that there is any nexus that the expenses claimed are incurred for earning of the interest income in terms of section 57 of the Act - Decided against the assessee. Customs 2013 (9) TMI 288 Goods matched with sample or not - assessee had imported a consignment of Indian groundnut kernels and declared the assessable value - samples were drawn from the consignment and CHA had reported that the samples do not meet the standards of FSSA regulations – Held that:- Court set aside the order and remit the matter back to the adjudicating authority to re-consider the issue after following the principles of natural justice – issue needs to be considered as regards suitability of the cargo as a cattle feed - the case was of severe health hazard – thus the court direct both the sides to take the matter seriously and come to a conclusion on the issue within 30 days of production of certified copy of the order – decided in favour of assessee. 2013 (9) TMI 287 Undervaluation of goods - Waiver of pre deposit – department was of the view that the assessee undervalued the goods and did not discharge the correct custom duty – Held that:- Assessee already submitted enough amount as security – stay granted. 2013 (9) TMI 286 Condonation of delay - Revenue explain that delay in filing appeal before Tribunal was unintentional and that was only 28 days – Held that:- Revenue appeal was allowed and Appellate Authority below to adjudicate the matter as expeditiously as possible – court lift up the embargo of 15 days to dispose the matter as the same may cause prejudice – decided in favour of revenue. 2013 (9) TMI 285 Application for conversion – assesse seeks for conversion of shipping bills from DFRC scheme to DEPB scheme – Held that:- The request of the assesse for conversion of the shipping bill to DEPB scheme was justifiable and it cannot be said that the circular issued by the Board in 2004 bars the claim of the assesse – The description of the goods exported was exactly the same as mentioned in the DEPB schedule - In the case of DFRC scheme, the assesse was required to give technical characteristics of the material used by them so that the replenishment of those materials used by importation could be allowed – the Board had issued circular in 2010 which had further liberalized such conversions - the policy was designed to encourage the exports - in the facts and circumstances of the case a liberal view was called for. Period of limitation – Held that:- The application had to be considered on merits - In view of the Police report it cannot be said that there was five year delay in filing application – Decided in favor of assesse. 2013 (9) TMI 284 Adding additional grounds - Redemption fine – Penalty - The quantum of redemption fine depended on the facts and circumstances of the case and was subject to the statutory limit prescribed u/s 125 according to which the same cannot exceed the market price – Held that:- The comparison of the declared value to the value ascertained by the chartered engineer clearly gives an indication of profit margins - it cannot be said that the redemption fines had been imposed without any basis or without conducting any enquiry - Commissioner (Appeals) had taken all relevant facts into account and used his discretion to reduce the redemption fines and penalties - The quantum of redemption fines and penalties sustained by the Commissioner (Appeals) cannot be considered either to be excessive or on the lower side - no justification to interfere with the orders of the Commissioner (Appeals) – decided in favor of revenue. Corporate Laws 2013 (9) TMI 283 Oppression and Mismanagement u/s 397 and 398 - Whether Anitha Impex Ltd. was a shareholder of the company - Held that:- Petitioner ceased to be a shareholder of company and it had no locus standi to file the company petition, and the question of restoring its shareholding in the company cannot be adjudicated under section 111 of the Act - The alleged shareholding of petitioner involved complicated questions of facts and law - The evidence tendered by the KSK group raised a suspicion that consideration had passed to petitioner but mere suspicion was not conclusive evidence - If the share transfer was illegal and not supported by consideration, the remedy open to petitioner was to seek appropriate remedies before a civil court - The point was found against the petitioners. Restoration of Shares - Whether the petitioners were entitled to restoration of 24 per cent. of 2,60,000 shares of the Company - Held that:- The Kanunga group has transferred their entire stakes in the company to the KSK group - If at all there was a plea that no consideration was paid, it was for them to sue the KSK group for the unpaid consideration, before a civil court - If at all petitioners were entitled to claim 24 per cent. of the 10,000 shares (2,400 shares), they had to get it established by availing appropriate remedies before a civil court because complicated question of facts were involved in the case - Then it automatically follows that the Kanunga group (petitioners Nos. 1, 2 and 3) had no stakes in the first respondent-company on the date of filing of this petition. They had failed to prove that their names were removed from the register of members of the company without sufficient cause. Accordingly the point is found against the petitioners. Restoration of Directorship - Whether petitioner was entitled to get his directorship restored as per the memorandum of understanding - The terms of the memorandum of understanding were not made part of the articles of association, and directorial complaints were not grounds to invoke powers under sections 397 and 398 of the Act There was no reason to interfere with the removal of the first petitioner as a director. Liability to Transfer Shares - Whether respondents Nos. 1 and 8 are liable to transfer 40 lakhs shares of respondent No. 1 company to the first petitioner in terms of the memorandum of understanding dated April 3, 2002 Held that:- The implementation of the memorandum of understanding was incapable of performance - At the same time parties had acted upon some terms of the memorandum of understanding - the remedy available to the petitioners was to approach the civil court for implementation of the memorandum of understanding or seek compensation for breach of the obligations - As already referred to earlier the complaint based on the implementation of the terms of memorandum of understanding was beyond the scope of enquiry by the Company Law Board under sections 397 and 398 of the Companies Act - As rightly pointed out by learned counsel for the respondents the relief in respect of 40 lakhs shares as per the memorandum of understanding was a relief of specific performance or a cause of action for a suit for payment of consideration court declined to grant any relief in respect of the 40 lakhs shares as per the memorandum of understanding. Even if petitioners Nos. 1 and 2 held 24 per cent. of the shares, the petitioners could have held and owned only 2,400 shares out of 17 lakhs shares as on March 31, 2005 which constituted less than one per cent of the then paid-upcapital - The allotment of shares of the company petition was not disputed by the petitioners in the company petition - Since the petitioners ceased to be the shareholders with effect from August 30, 2006, as per the records maintained, the petitioners had no locus standi to challenge the subsequent allotment made as per the decision of the majority. Increase in Authorized Share Capital - Whether the increase in the authorised share capital from ₹ 50 lakhs and the further allotment of shares beyond ₹ 5 lakhs shares was liable to be annulled, or whether the petitioner should be given the option to subscribe for 24 per cent. of the present capital of the company, as an alternative relief - The hands of the petitioners were not clean enough to sustain a petition against the respondents - Evidently and admittedly they became aware of the happenings in the company as early as in 2006 - the entitlement of 40 lakhs shares and all other claims based on the memorandum of understanding were rendered otiose and that the Kanungas had exited respondent No. 1 by selling their shareholding and relinquishing their directorship in respondent No. 1 - the petitioners did not care to initiate any proceedings before the Company Law Board - There was no explanation for the long delay of more than two years in filing this petition - The petitioners were guilty of unexplained delay, laches, etc. thus no orders could be passed on ground of equity also. Jurisdiction of CLB Bar of Limitation - Whether the Company Law Board has jurisdiction to enforce the terms of the memorandum of understanding - Whether the petition was barred by the principles of limitation, acquiescence, laches etc. - Held that:- Breach of contract by a majority shareholder does not amount to oppression of minority shareholders or mismanagement or that the contractual relationship between two individuals does not fall within the purview of sections 397 and 398 - Even if it was to be held that the petitioners still hold 2,400 shares in the company it was not established that the affairs of the company were being conducted in a manner prejudicial to public interest or in a manner oppressive to any members and prejudicial to the interest of the company - It was also not pleaded or established that circumstances exist justifying the winding up of the company and that the winding up would unfairly prejudice the petitioners or the members of the company - The petitioners were not entitled to any reliefs. There can be no judicial intervention in these proceedings to grant the reliefs based on this memorandum of understanding - I would advise both parties to sit across the table and settle the issue on the performance of mutual obligations rather than agitating the ten years old dispute again before the civil court - all the issues were found against the petitioners, the company petition was only to be dismissed - the company petition stands dismissed. Service Tax 2013 (9) TMI 294 Valuation of the taxable service - inclusion of value of free supply - construction of commercial or industrial complex - section 67 - benefits under Notification No. 15/2004-ST, dated 10.09.2004 as amended by Notification No. 4/2005-ST dated 01.03.2005. - Held that:- Etymologically the words supplied and provided are closely associated words. Provided also means to supply; furnish. Supply bears a similar connotation. The word used is structurally associated (in the Explanation) with the earlier two words and the three words are employed to define the meaning of the expression gross amount charged, an expression that occurs in the preamble to Notification No. 15/2004-ST. The word use variously means cause to act or serve for a purpose; avail oneself of; exploit for one s own ends; the right of power of using. The word use therefore has multiple connotation and bears different meanings depending upon the context. The word used is therefore per se ambiguous or obscure. Since in its preambular context, the expression gross amount charged (as our analysis has concluded) means an amount charged on the service recipient, received by the provider and accruing to the benefit of the later in relation to the taxable service provided and the Explanation seeks to define gross amount charged, an expression occruing in the preamble, by employing three words to contextualise the definition supplied, provided, used, we are satisfied that application of the noscitur principle could be gainfully employed to identify the legal meaning of the word used from several grammatical/ literal meanings of the said word, by employing the associational context. It is true, as contended by Revenue, that even if one of the literal meanings of the expression used, namely free supplies used is considered as the legal meaning as well, construction service providers may not be handicapped as they may seek benefits under Notification No. 12/2003-ST. In our view however the fact that the assessee have an alternative recourse to avoiding the rigour cannot be the criterion for interpreting the Explanation. This contention by Revenue proceeds on a fallacious comprehension of Notification No. 12/2003-ST. The benefits under this Notification are only in respect of the value of goods and materials sold by a service provider to the recipient of a taxable service. In the case of free supplies by the recipient there is no sale or transfer of title in the goods and materials in favour of the service provider, at any point of time. Therefore when free supplied goods and materials are incorporated into the construction would be no sale by the provider to the recipient either. Notification No. 12/2003-ST would therefore be inapplicable. Board Circular dated 16.02.2006 (a circular issued subsequent to the introduction of the Explanation in Notification No. 15/2004-ST) and in the context of an identical Explanation introduced in Notification No. 18/2005-ST, clarified that gross amount charged shall include the value of goods and materials supplied. This circular constitutes contemporanea expositio of the meaning of the Explanation in Notification No. 18/2005-ST. The value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of the later expression in Section 67 of the Finance Act, 1994; Value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-ST, including the Explanation thereto as introduced by Notification No. 4/2005-ST. 2013 (9) TMI 292 Wrong Utilization of CENVAT Credit - Lapsed Credit - The department was of the view that the appellant could not have utilised the Cenvat Credit as the credit which accumulated prior to 01/06/2007 lapsed and therefore, utilisation of lapsed credit was wrong under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73 of the Finance Act, 1994 - Held that:- There was no specific exclusion of any inputs/input services under Rule 6(3) or under Rule (3) of the Cenvat Credit Rules - There was no provision of law to come to such a conclusion - The CBE and C's Circular also confirmed that the accumulated credit would not lapse and Rule 6 (3) does not bar utilisation of accumulated credit and therefore, the department should not deny utilisation of the accumulated credit by the assessee after 01/04/2008 – Waiver of Pre-Deposit - The appellant had made out a strong prima facie case for grant of stay - unconditional waiver from pre-deposit of dues was allowed and stay granted during the pendency of the appeal – Decided in favour of Assesse. 2013 (9) TMI 291 Applicability of service tax - Insurance Service - The appellant was registered with the Service Tax department under ‘Insurance Auxiliary Service', ‘Life Insurance Service', ‘Renting of Immovable Property' and ‘Business Support Services' - the appellant had not included income earned in the nature of – (a) Recovery of Agency Processing Fees, (b) Lapse Charges, (c) Back Dating Alteration Charges, (d) recoveries on Look in and (e) Policy Reinstatement Fees, in the gross taxable value - Held that:- When the Service Tax levy was imposed on life insurance policy, the Hon'ble Finance Minister in his budget-speech before the Parliament had categorically stated that he was imposing Service Tax on life insurance service to the extent of risk premium - The instructions issued by the CBE&C at the time of imposition of Service Tax on life insurance service also made it clear that Service Tax was leviable on that portion of the service, which pertains to the risk element ad in the case of composite policy - the taxes were applicable only on the risk premium and not on the premium for saving. In 2008 also at the time of introduction of Investment Management Service provided under ULIP, it was clarified that consideration for management of the segregated fund can be computed as the difference between the total premium and the sum of premium for risk cover plus amount of segregated fund - It was also pointed out that in the case of ULIP, risk premium attributable to risk cover was taxed under ‘Insurance Service' and management of investment was taxed under the new levy of ‘Investment management Service'. The budget-speech of the Hon'ble Finance Minister and the circulars issued by the Board at various points of time, what emerged so far as the life insurance is concerned is that prior to 1.5.2011 the Service Tax was leviable on the risk premium and nothing else - If that be so, the various charges collected by the insurer in addition to the risk premium cannot be taxed under ‘Life Insurance Service'. Various contentions raised by the appellant had not been examined in detail by the adjudicating authority - who had simply made a sweeping observation that the agency processing fees, lapse charges, backdating alteration charges and policy reinstatement charges were recovered in relation to the life insurance service provided by the noticee and these charges were linked to the risk cover of the policy – the observation of the adjudicating authority was without examining the matter in detail and without taking into account the IRDA guidelines on the subject. Commissioner of Central Excise, Guntur Vs. Andhra Sugar [1988 (10) TMI 38 - SUPREME COURT OF INDIA] - Due weightage should be given to the clarifications given by the administrative department, when a new levy was imposed - The adjudicating authority had not examined the matter in proper perspective taking into account the instructions issued by the Board from time to time - the matter had to go back to the adjudicating authority for fresh consideration in the light of the observation made after considering all the submissions made by the appellant - Since the matter was being remanded waiver from pre-deposit was granted – Decided in favour of Assessee. 2013 (9) TMI 290 Laible for penalty on delayed service tax or not – section 78 provides for imposition of equivalent amount of penalty on account of collusion, suppression, willful mis-statement of facts with intent to evade payment of service tax – Held that:- Appellant is not liable to any penalty in terms of Section 78 appellant had made a mistake in not including the TDS amount for the purpose of payment of service tax liability which shows that they do not have any intention to evade service tax - there should be a mens rea on the part of the appellant to evade tax – there is no intention to evade service tax – penalty waived – appeal decided in the favour of the assessee. 2013 (9) TMI 289 Penalty on service tax u/s 76 - appellant paid service tax with interest thereon some time before issue of the show-cause notice. - Held that:- No penalty under any of the provisions of the Act or the rules made thereunder shall be imposed in respect of payment of service-tax under the sub-section and interest thereon – as per section 73(3) explanation (2) - Sub-section 3 enables a person to quantify the amount of service tax to be paid by him and to pay it up under intimation to Central Excise Officer - sub-section (3) restrains the Central Excise Officer from issuing any notice under sub-section (1) of section 3 to the assessee in respect of the amount of service tax paid by him - penalty is uncalled for and set aside - appeal allowed in the favour of the assessee. Central Excise 2013 (9) TMI 282 Classification of goods - Classification of 'dry concrete mixture', loose or packed, manufactured by the appellant – Classification under heading 3824.20 or under heading 3824.90 - Held that:- As per the decision in Unitech Prefab Ltd. vs. CCE, Mumbai III [2004 (8) TMI 171 - CESTAT, MUMBAI], The words "plastic condition" can only mean a shape taking condition, a forming condition. A dry mix of cement sand and stones cannot be in plastic condition. Water and other plasticizers give that essential characteristic to Ready Mixer Cement to achieve a 'forming condition'. - Tribunal observed that the dry mix of cement stones and sand though cleared in mixture trucks to the site, cannot be held to be 'ready mix concrete' inasmuch as there was no plastic condition, or setting and hardening quality on account of any addition of water. As such, the Tribunal accepted the assessee's contention in that case that 'dry mix cement' cannot be held to be 'ready mix cement' – Goods to fall under 3824.90 -'dry mix concrete' and not under 3824.20 -Ready mix concrete. 2013 (9) TMI 281 MRP based Duty - Mis-declaration of MRP value - Confiscation of Goods - Penalty - Held that:- Assesse had placed before the adjudicating authority the photographs of portion of cartons where MRP was printed - Most of these photographs are illegible - The department had failed to produce aforesaid best evidence during adjudication proceedings - Cartons of seized CTVs had not been produced - However, on three of the photographs MRP printed is legible which printed MRP as seen in the photographs was tallied with the MRP declared by the assesse at the time of removal of the goods from the factory - This gives an impression that there was no mis-declaration of MRP by the assesse - order imposing penalty on the assesse on the ground of mis-declaration of MRP was not sustainable. Section 4A confers power on the Central Government to require by way of notification in the Official Gazette, the manufacturer of notified goods to declare maximum retail sale price on the goods or on its package and in that case the valuation of the specified goods for the purpose of payment of excise duty would be maximum retail price declared on the goods or on the carton - the CTVs falling under Heading 85.28 was brought under the net of MRP under Section 4A vide Notification No. 50/97-C.E. The conclusion arrived at merely on the basis of price list, particularly, when there was no evidence on record to show that during the relevant period any CTV was sold to the ultimate customer at a price higher than the price declared by the assesse to the department or that any change or modification on printed MRP was done by the dealer/distributer in terms of those price list – Decided in favor of assesse. 2013 (9) TMI 280 Cleared Goods Without Duty Payment - Revenue was of the view the appellant had processed grey fabrics and cleared the same without payment of duty in contravention of the provisions of Act and Rules - Held that:- The appellant and also the evidences in both the cases and submissions made by both sides to come to the conclusion that appellant’s case has no merit - penalty and confiscation of the goods were set-aside - only duty demand against the appellant was sustainable Demand had been raised on the basis of statement whereby an estimate of 40% of total fabrics was alleged to have been processed by the appellant - Held that:- That was only a statement made during the reply to show cause notice and personal hearing and there was no retraction of the statement by Shri Babulal Shah at any stage and a mere statement that the percentage was not acceptable without explaining any reasons or ground for the same would only be an afterthought - It was not merely a statement that had been relied upon in the case and there were many other independent evidences - Ganesh M. Verma vs. Collector of Customs (P) Mumbai [2001 (1) TMI 689 - CEGAT, KOLKATA] smuggling statement of one accomplice corroborating another was admissible evidence - In the case of Kollatra Abbas Haji vs. GOI [1983 (8) TMI 60 - HIGH COURT OF KERALA AT ERNAKULAM] - in quasi-judicial proceedings evidence of co-accused had evidentiary value. Shortage of Goods - Demand had been raised on the shortage found during the search at the appellants premise - Held that:- Excise duty was required to be paid at the time of clearance and receipt of consideration from the customer had no relationship whatsoever - If the appellant had not received the money appellant had lien on the fabrics as per law and should have utilised the same - If he chooses to violate the law and supplied goods, he had to take the consequences for removing the goods without payment of duty. Excess Quantity of Processed Fabric - Demand had been raised on excess quantity of processed fabric found in the premise of the appellant without any final entry in the RG-1 Register – Held that:- In any case if the lot was not approved by the manufacturer the same need not have been entered into any register -There was temporary entry and there were entries in raw material register and lot register, would show bonafides of the assessee - the lot of processed fabrics was pending approval from the merchant manufacturer. Demand on Seized Fabric - Demands were raised on quantities of processed fabric seized at the shop and premises – Held that:- The way appellants had followed the law as regards Central Excise law and Procedure - Decided Against Assessee. 2013 (9) TMI 279 Availing Cenvat Credit of duty paid inputs, semi-processed inputs and inputs contained in the final products lying in the stock after withdrawal of exemption - earlier assessee was availing benefit of Notification No. 10/2002-C.E and paying Central Excise duty @ 4% on the value of their final product without availing benefit of Cenvat credit – Held that:- vide Notification No. 10/2003-C.E., dated 1-3-2003 the above referred exemption in the form of reduction in excise duty to the extent of 4% was partially taken away by increasing the rate of the excise duty payable from 4% to 8% ad valorem and the condition of non-availament of Cenvat credit by the assessee was done away with. Cumulative reading of the above referred two notifications clearly indicate that w.e.f. 1-3-2003 the exemption from excise duty on its final product available to the appellant prior to 1-3-2003 was partially withdrawn to the extent of 4% ad valorem by increasing the excise duty from 4% to 8%. Thus, in our view to that extent the final product of the appellant cease to be exempted from excise duty. Even as per Rule 3(1) of the Cenvat Credit Rules, 2002 the appellant is entitled to Cenvat credit on the inputs in question which were either available in stock or in process or were contained in the final product lying in stock as on 1-3-2003. Thus, viewing the problem from any angle the appellant is entitled to claim Cenvat credit under Rule 3 of the Cenvat Credit Rules, 2002. – Decided in favor of assesse. 2013 (9) TMI 278 Extended period of limitation - Captive Consumption No. 67/95 - use of material in Job work as well as own manufacturing - manufacture of printed cartons, corrugated boxes, paper labels, advertising material etc. - The appellant was also manufacturing ink and using the same captively under exemption Notification No. 67/95 - Some of the appellant’s products were dutiable and some of them were exempted - The demand stands confirmed against them at 8% of the value of the exempted product on the ground that common inputs were being used in the manufacture of the dutiable as also the exempted products. - Third member decision on the issue of period of limitation. The adjudicating authority having recorded clear cut finding that there is no suppression, mis-statement, fraud or collusion for setting aside the demand for the extended period of limitation, for all the purposes, the same findings having not been challenged by Revenue in their appeal, will apply for the entire period of the demand which is from October 1996 to March 2000, while the Show Cause Notice is issued in November 2001 - Since the entire appeal is allowed, the question of imposition of penalty under Section 11AC does not arise - Decided in favor of assessee. 2013 (9) TMI 277 Denial of Exemption Notification No. 202/88 and Notification No. l/93 - Assesses were engaged in the manufacture of rerolled products of iron and steel falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act. 1985 - They were using ship breaking material as inputs for manufacturing of their final products, which were exempted under Notification No. 202/88 and Notification No. l/93 - The issue involved in the case was regarding denial of benefit of Notification No. 202/88 on the ground that the scrap which was consumed by the respondent was ship breaking scrap and the said ship breaking scrap during the relevant period was exempted from payment of duty – Held that:- The raw materials which were inputs arising out of ship breaking material were cleared at the nil rate of duty and hence the benefit of Notification No. 202/88 will not be available - COMMR. OF C. EX., BHAVNAGAR Versus AHMEDABAD ROLLING MILLS PVT. LTD. [2008 (3) TMI 54 - CESTAT, AHMEDABAD] and Vinubhai Steel Co. Pvt. Ltd. v. CCE, Bhavnagar [2011 (5) TMI 382 - CESTAT, AHMEDABAD] - both the decisions of the Bench will be clearly cover the issue in favour of the Revenue. Assesses would not be eligible for benefit of Notification No. 202/88, the value of their clearances have to be taken into consideration for the purpose of computing aggregate value of the clearances in terms of Notification No. 1/93 - The exemption was available to the goods and material of Chapter 73 obtained by breaking up of ships, boats and other floating structures - There was no condition attached to the availability of the exemption in terms of said notification - the notification was conditional and as such the manufacturer of the raw material might or might not have availed the same, cannot be appreciated - For the purpose of classification, they were falling under different headings and sub-headings - Inasmuch as there being no condition attached to Notification No. 45/93, it had to be held that the material obtained by breaking of ships, boats, or other floating structures was exempted & the manufacturers of the same has availed said exemption. CST, VAT & Sales Tax 2013 (9) TMI 293 Escaped Assessment on Freight - Extended Period of Limitation for Reassessment – Held that:- The material discovered by the department from the returns filed by the petitioner in Central Excise Department for levy of service tax, the railway receipts, and the non-production of the document, bill books and challans, before the assessing authority, clearly established that the assesse company did not produce the relevant material to claim that the entire freight was charged separately - The Addl. Commissioner did not commit any error on fact or in law in recording the turn over on account of freight had escaped from assessment. - Decided against assesse.
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