TMI Tax Updates - e-Newsletter
September 13, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise Indian Laws

Articles

• GOODS TRANSPORT AGENCY -SERVICE TAX IMPLICATIONS
• NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA) – Part 2

News

• Income Tax Department Sends Letters to Another Batch of 35,000 Non-Filers to File Returns and Pay Taxes Thereon; Letters Issued in 2,45,000 Cases So Far

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• RBI and Bank Branches to remain open on September 14 - 15, 2013

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• RBI sets up Expert Committee to revise and strengthen Monetary Policy Framework

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• Investor Awareness Programmes During the Current FY

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• RBI Reference Rate for US $ and Euro

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• The new Company law has the Potential to Unleash Huge Economic and Social Value – Sachin Pilot

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• Notification for Extension of date for receipt of ITR-Vs in CPC. Bengaluru, for the cases of AY 20I2-13 and 2011-12 received in e-filed in FY 2012-13.

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• Government of India's consent to enter into the Special Private Placement Bonds arrangement with International Bank for Reconstruction and Development

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• Providing capital funds to Export-Import Bank of India during 2013-14

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• Proposal to provide capital funds to India Infrastructure Finance Company Ltd. (IIFCL)

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• A Centre of Excellence and Ethics to be Set up at Ajmer

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• Ministry of Corporate Affairs issues Notification for Commencement of 98 Sections of the New Act

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Notifications

Companies Law

• 1/15 /2013-CL. V - dated 12-9-2013 - Co. Law
  Commencement Notification Of Companies Act 2013

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Income Tax

• F. No. HRD/CM/102/1/2013-14/2028 - dated 5-9-2013 - IT
  Implementation of Cadre Restructuring – ACRs/APARS of Officers and Officials in your Region-reg.

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Highlights / Catch Notes

Income Tax

• Chit Funds - Addition u/s 41(1) - ceasation of liability - Defaulted subscription - addition on account of chit lien which was not actually disbursed to the defaulters - there is no question of invoking the provisions of section 41(1) - additions deleted - AT
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• Deduction u/s 10A or 10B - alternative claim - The intention under Section 10A being clear and that there is no specific prohibition or even by inference to an industrial unit formed by transfer of entire business - Revenue's plea that by transfer of machinery, the assessee would be disentitled to the relief under Section 10A rejected - HC
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• TDS deduction u/s 195 - Purchase of software - A copyrighted article is nothing but an article which incorporates the copyright of the owner, the assignee, the exclusive licensee or the licensee. - So, when a copyrighted article is permitted or licensed to be used for a fee, the permission involves not only the physical or electronic manifestation of a programme, but also the use of or the right to use the copyright embedded therein. - TDS liable to deducted - AT
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• Deemed Dividend u/s 2(22)(e) - receipt of loan -mount received by the Assessee will have to be considered as deemed dividend but only to the extent of accumulated profits of KDPML as on the date of granting of loan/advance - AT
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• Taxability of retention money - taxable in the year of receipt or on accrual basis - the retention money has to be brought to tax in the year in which the same has actually been received by the assessee from the contractees. - AT
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• Disallowance of revenue expenditure - Non commencement of business - When that happened, the revenue is taking a stand that there should be flow of revenue on supply of water and only then it can be said that the business of the Assessee has been set up. - stand of revenue cannot be accepted - AT
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• Deduction u/s 80-IB(10) - The balcony areas, which were added as forming part of the built of area of the 16 flats which were considered as exceeding the built up area of 1500 sq.ft., were common areas and had to be excluded while measuring the built up area - AT
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• Exemption of Gross Interest u/s 10(15) - exemption under section 10(15) was to be allowed on gross interest and not on the net interest - AT
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• Exemption u/s 10(23G) – infrastructure capital company - exemption of interest income - investment in bonds of SSNNL and GIPCL - the assessee was entitled to exemption u/s. 10(23G) in respect of the investments made prior to 1-6-1998 - AT
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• Payment of Interest for Sales Tax Default - interest paid by the assessee to the sales tax department on arrears of sales tax/purchase tax was an admissible deduction - AT
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• Nature of Income - Dealing in vegetable seeds - Agricultural Income OR Business Income - the percentage of margin earned on sale of agricultural produce cannot be the basis for bifurcating margin from business activity and margin from agricultural activity when whole of the expenditure is allowable by the Assessing Officer as for carrying out agricultural operations - AT
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• Rejection of books of account - accounting for scrap - When no defect was pointed out in the books of account even during the course of scrutiny assessment and when the valuer’s report was not accepted by the AO, there was no reason for rejection of books of account u/s 145(3) - AT
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Customs

• Refund of duty due to wrong application of exchange rate – before filing of the refund it was not required for the assessee to challenge the assessment order - the order upholding the rejection of the refund claim was not sustainable and was liable to be set aside - AT
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• Confiscation and penalty - deliberate violation of policy prohibitions cannot be laid at the doors of the assessee especially in view of the fact that there was no allegation of mis-declaration of description of the goods by the assessee at all. - AT
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• Import of Crude Palm Stearin - Concessional Rate of Duty - assessee was prima facie entitled for the benefit of concessional rate of duty under serial No. 30(A) of Notification No. 21/2002 - the bond executed by the appellant before the Assistant Commissioner was valid and it cannot be cancelled without any rationale basis. - AT
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Service Tax

• Management, Maintenance or Repair Service - Retreading of tyres - The appellant was not eligible for the benefit of notification No. 12/03-ST and was liable to discharge service tax liability on the gross amount charged for the transaction for the period on or after 16-6-05 along with interest - AT
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• Conduct of adjudicating authority in passing order pursuance of remand order - refutation of the judgment of this Tribunal, the adjudicating authority now holds that the earlier adjudication order was a well reasoned and a just and legal order, again overruling this Tribunal's judgment - Not acceptable - AT
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• Construction Activities – Duty Liability - discharge of VAT on a particular value cannot be conclusive proof that the value of material involved corresponded to the value on which VAT was paid - Prima facie the service tax authorities have every right to look into the issue whether the value had been correctly split - AT
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Central Excise

• Benefit of Notification No.56/2002 - area based exemption - Whether assesse was entitled to self-credit or was required to pay duty in cash out of their PLA - stay granted - AT
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• Whether the manufacturer of goods is Job-worker or not - The suppliers were chosen by the assessees from a panel furnished by TUPPERWARE does not mean that the actual suppliers were authorized by TUPPERWARE to supply the materials to the assesses - AT
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• Valuation - Job Work - The job-worker was retaining the scrap and selling the scrap and retaining the sale proceeds of such scrap with himself - Scrap value was liable to be added in the value of the job-worked product which had been returned to the principal-manufacturer on payment of duty - AT
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• Whether duty paid u/s 35F (as pre-deposit) is available as Cenvat Credit - Cenvat Credit of duty paid against the stay order by the assessee from the supplying unit of goods against supplementary invoice was availed at the receiver unit - Revenue had not been able to show any loss of revenue or any unjust enrichment or any reasonable ground for denying such credit - AT
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Case Laws:

• Income Tax

• 2013 (9) TMI 377
  Disallowance of interest - Disallowance of ex gartia interest - CIT(A) made an observation that the claim made under ex-gratia may not be covered under section 43B - However, confirmed the disallowance on the ground that the same was not paid before the due date for furnishing the return - Held that:- CIT(A) having held that ex-gratia is not covered by section 43B, is not justified in upholding the disallowance relying on the decision of Hon'ble Madras High Court in the case of CIT vs. Mettur Chemicals & Industrial Corporation Ltd. (1998 (3) TMI 69 - MADRAS High Court) as the amount of ex-gratia cannot be regarded as bonus and requirements of section 37 are fully satisfied - Decided in favour of Revenue. Disallowance of interest - Diversion of funds - Held that:- issue should be remitted back to the file of the Assessing Officer with a direction to verify whether the investments made by the assessee is out of its own funds or from the borrowed funds. In case the investments are found to have been made from out of non-interest bearing own funds, there is no justification for any disallowance of interest in relation to such investment. Only in case it is found that the assessee does not have non-interest bearing funds of its own, disallowance out of interest claimed has to be worked out and made accordingly. We accordingly set aside the impugned order of the CIT(A) on this issue and restore the matter to the file of the Assessing Officer. The Assessing Officer shall re-decide the issue in the light of our above observations and in accordance with law, after giving due opportunity of being heard to the assessee - Decided in favour of Revenue.

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• 2013 (9) TMI 376
  Chit Funds - Addition u/s 41(1) - ceasation of liability - Defaulted subscription - The assessee contended before the Assessing Officer that though the chit is closed and amounts become payable to the subscribers, since they are standing as 'guarantor' to other subscribers, the amount payable to them is withheld for appropriation against any default in case of the principle subscriber. The Assessing Officer observed that the amounts kept as "chit lien" are not actually disbursed to the defaulters even within the time allowed by the Chit Fund Act. - Held that:- the assessee has not claimed as a deduction in respect of these liabilities while computing the income of the assessee in any assessment year and also it cannot be said that there is cessation of liability. Being so, there is no question of invoking the provisions of section 41(1) of the Act. The addition made by the Assessing Officer is not justified and the same is deleted. - Decided in favor of assessee. Bad debts - bid loss - writing off the bid loss - Held that:- Sometimes, successful bidder fails to furnish the surety and necessary documents during the stipulated time. In that event the bid claim of the bidder would be forfeited and the assessee has to conduct fresh auction of the respective chit. In the course of fresh auction, the assessee incurs certain loss i.e., the assessee receives lesser amount than the original bid amount. This amount has been claimed by the assessee as bid loss. This loss arose in the course of assessee's normal business and incurred wholly and exclusively for the purpose of its business and it cannot be considered as non- business expenditure and it is to be allowed u/s. 37 of the Act, as the amount is incurred wholly and exclusively for the purpose of its business - Decided in favour of assessee. Disallowance of inadmissible expenditure - expenditures like donations, marriage gifts, festival expenses, Enams, etc. - Held that:- the assessee is a business concern. In the course of its business, the assessee has to incur certain incidental business expenditures. That expenditure is to be allowed except expenditure in the nature of capital expenditure or expenditure of personal nature and the expenditure incurred which is oppose to the public policy. Considering these facts we direct the Assessing Officer to disallow donations and expenditure in the nature of capital expenditure - Decided partly in favour of assessee. Capital receipt or Revenue receipt - sale of land - capital asset or agricultural asset - transaction in the nature of trade - Held that:- land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the AO has not brought on record any evidence to show that the agricultural land was used for non-agricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property nor the surrounding areas were subject to any developmental activities at the relevant point of time of sale of the land. One of the essential elements in an adventure of the trade is the intention to trade; that intention must be present at the time of purchase. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade - when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income - Decided in favour of assessee.

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• 2013 (9) TMI 375
  Deduction u/s 10A or 10B - alternative claim - industrial undertaking - transfer of entire business including machinery from old unit to new - Held that:- A reading of the order of the Assessing Officer as well as the Commissioner of Income Tax (Appeals) shows that even though the assessee originally claimed relief under Section 10B, it was cautious enough to make an alternative plea under Section 10A in view of the fact that the assessee's vendor had the benefit under Section 10A. It is not denied by the Revenue that the assessee had the whole business transferred to its favour and that the factum of transfer was also intimated to the Software Technology Park of India. Thus, as a Software Technology Park, the assessee is entitled to place his claim under Section 10A. In any event, even assuming for a moment, the assessee had not referred to the Section correctly, the fact remains that if the claim could be favourably be considered under any of those special deduction provisions and on the conditions specified therein being satisfied, we do not think that there exists any justifiable ground for the Revenue to contend that the assessee shall not be entitled to have the benefit of Section 10A. A cursory reading of the above Section shows that where an undertaking is formed by splitting up or reconstruction of business already in existence then the said undertaking would not be entitled to claim deduction under Section 10A. The other conditions is that the industrial undertaking should not be formed by transfer of plant and machinery already used for any purpose. Thus, what is prohibited in Section 10(A)(2)(iii) is that the transfer of used machinery and plant to a new business undertaking and forming of an industrial undertaking by splitting or reconstruction of the existing industrial undertaking. The intention thus under Section 10A being clear and that there is no specific prohibition or even by inference to an industrial unit formed by transfer of entire business, we have no hesitation in rejecting the Revenue's plea that by transfer of machinery, the assessee would be disentitled to the relief under Section 10A. As already pointed out, the fact herein is that the transfer was not that of plant and machinery alone but of sale of whole business unit to the transferor company which was primarily only of export of articles or things. In the circumstances, going by clear provisions of Act, we reject the Revenue's plea - Following decision of CIT v. SONATA SOFTWARE LIMITED [2012 (4) TMI 99 - BOMBAY HIGH COURT] - Decided against Revenue.

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• 2013 (9) TMI 374
  TDS deduction u/s 195 - Purchase of software - Scope of term Copy Right - DTAA with Australia - Whether purchases of software or payment of Royalty be liable for deduction of TDS - Held that:- It is no doubt true the provisions of the DTAA overrides the provisions of the Income-tax Act. In the DTAA the term 'royalty' means payments of any kind received as a consideration for the use or the right to use any copyright of literary, artistic or scientific work whereas in the Income-tax Act, royalty means consideration for the transfer of all or any rights including the granting of a licence. Therefore, under the DTAA to constitute royalty there need not be any transfer of or any rights in respect of any copyright. It is sufficient if consideration is received for use of or the right to use any copyright. Therefore, if the definition of royalty in the DTAA is taken into consideration it is not necessary there should be a transfer of any exclusive right. A mere right to use or the use of a copyright falls within the mischief of Explanation (2) to clause (v) of sub-section (1) of section 9 and is liable to tax. - Decided in favour of Revenue. The definition of "royalty" in the Income-tax Act, 1961 is, consideration for the transfer of all or any rights (including the granting of a license) in respect of a patent, innovation, model, design, secret formula or process or trade mark or similar property. Consideration for grant of the use of any of the above is also royalty. It also takes in the consideration for the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work. License is not confined to an exclusive license. When a software, over which a copyright is acquired and thus owned, is licensed for use to another or sold to another for his own use, the licensee or the purchaser gets the right to use the software without being held guilty of infringement of the copyright. The words within brackets, "including the granting of a license" indicate an expansive definition. The word "includes" is an inclusive definition and expands the meaning. Therefore, license cannot be restricted to transfer of a right dealt with earlier by the provision and should be understood as taking in the grant of a license simpliciter. A copyrighted article is nothing but an article which incorporates the copyright of the owner, the assignee, the exclusive licensee or the licensee. So, when a copyrighted article is permitted or licensed to be used for a fee, the permission involves not only the physical or electronic manifestation of a programme, but also the use of or the right to use the copyright embedded therein. It is clear that under various agreements, what is transferred is only a licence to use the copyright belonging to the non-resident, subject to the terms and conditions of the agreement, as referred to above, and the non- resident supplier continues to be the owner of the copyright and all other intellectual property rights. It is well settled that copyright is a negative right. It is an umbrella of many rights and licence is granted for making use of the copyright in respect of shrink wrapped software/off-the-shelf software under the respective agreement, which authorizes the end user, i.e., the customer to make use of the copyright software contained in the said software, which is purchased off the shelf or imported as shrink wrapped software. The same would amount to transfer of part of the copyright and transfer of right to use the copyright for internal business as per the terms and conditions of the agreement. Therefore, the contention that there is no transfer of copyright or any part thereof under the agreements entered into by the Reliance with the non-resident supplier of software cannot be accepted. Under these circumstances, payment made by the Reliance to LTGL/ other suppliers can be said to be payment for the use of or right to use of copyright and does amount to royalty within the meaning of Artilce- 12(3) of the DTAA. It is accordingly held that the AO was justified in directing to deduct the tax at source u/s.195. Since we have come to the conclusion that the amount paid by Reliance is to be treated as Royalty chargeable under the Act of the Income Tax, the order of the AO to that extent are upheld - Following decision of Agagrwal Chamber of Commerce Ltd. vs. Ganapat Rai Hira Lal [1957 (11) TMI 1 - SUPREME Court] - Decided in favour of Revenue. Existence of Permanent establishment (PE) - LTHPL entered into an agreement for supply of hardware, software and also installation and that company is an Indian company. After entering into an agreement supply of software was assigned to the assessee Lucent by way of the Tripartite agreement between Reliance and LTHPL and assessee Lucent. Eventhough, installation was on Indian company there is no evidence of either deputing personnel of assessee Lucent to India nor there is any evidence in the record for invoking Service PE as in other case. Moreover for invoking Agency PE , facts do not support AO's contentions. The agreement entered is an independent agreement, entered on principle to principle basis and nowhere the Indian company has authorized or has undertaken any responsibility of the assessee Lucent. On the facts of the case we are of the opinion that there do not exist any PE, more so of agency PE. It is also not the case of the Revenue that the assessee deputed its personnel to India so as to invoke Service PE as per Indo-US DTAA. In view of the above, we hold that there is no PE to the assessee company in India and as there is neither any office in India nor it has any business connection in India nor carried out any business activities in India. Assessee's company is a standalone legal independent entity - Decided in favour of assessee.

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• 2013 (9) TMI 373
  Deemed Dividend u/s 2(22)(e) - receipt of loan - assessee contended that since the accumulated profits was not sufficient to cover the transaction, the same should not be treated as deemed dividend. - Held that:- Assessee is a shareholder of KDPML owning more than 10% of its equity. - amount received by the Assessee will have to be considered as deemed dividend but only to the extent of accumulated profits of KDPML as on the date of granting of loan/advance. - matter remitted to the file of AO to determine the extent of ccumulated profits as deemed dividend u/s 2(22)(e) - Following decision of CIT vs. P.K. BADIANI [1970 (2) TMI 3 - BOMBAY High Court] - Decided in favour of Revenue. Disallowance of wages - AO has disallowed the expenses mainly for the reason that the details of wages were not submitted in the format asked for, P.F was deducted only in cases of 53 employees though the Assessee had stated to have employed 197 employees. Further according to the Assessing Officer, there was no co-relation between wages and production figures. - Held that:- Assessee submitted that the wages in proportion to production for A.Y. 2008-09 was Rs.0.7265 per kg. whereas for the year under appeal it was Rs. 0.7297 per kg which is more or less comparable. The Assessee has further stated that the PF was deducted in the cases where it was applicable. Before us, the Revenue could not point out any instance where though the Assessee was required to deduct PF but the same was not deducted. Further the Revenue could not controvert the calculation of wages with respect to the production as submitted by the Assessee. - deduction allowed - Decided against Revenue. Disallowance of packing expenses - Held that:- The non production of details is surprising more so in the light of the fact that Assessee could obtain the tax Audit report of CPC Trading for year ended 31.03.2009. Further just confirming the transaction without any supporting evidence cannot be said to discharging of onus by the supplier. It is also a fact that in the line of business of the Assessee packing material would have been used by the Assessee for supply of goods. - some addition needs to be made in the present case to meet the ends of justice. We therefore feel that a lump sum disallowance of Rs. 25 lac would meet the ends of justice instead of Rs. 1.25 crore being the disallowance of entire purchase made by Assessing Officer. We therefore direct accordingly - Decided partly in favour of Revenue. Unexplained sale of wood - Held that:- Assessee has stated to have purchased the goods on credit. However, no supporting evidence of purchases of credit has been filed by the Assessee either before Assessing Officer or CIT(A). Before us, the learned A.R. could not satisfactorily explain the outstanding of sales for more than one year more so when as per the agreement the payment was to be made immediately. It is not the case of the Assessee that the parties with whom it had entered into transaction are related or known parties which resulted in giving of unusually long credit. - the action of Assessing Officer in disallowing 5% of the sales amount to be justified. We thus upheld his order on this ground - Decided in favour of Revenue. Disallowance of brokerage expenses - Held that:- CIT(A) noticed that certain details called for by the Assessing Officer were filed before him. From the details furnished and placed on record, it is seen that the rate of brokerage in most of the cases was 0.75% except in two cases. Assessee has also placed on record, the copy of confirmations received from the brokers which contains their PAN numbers and address. CIT(A) while deleting the addition has noted that though the remand report was called vide letter dated 21.03.2012 but was received on 13.07.2012 i.e. adequate time was available with the Assessing Officer for examining the evidence. In the time made available by CIT(A), the Assessing Officer had not brought out any material on record to controvert the submissions of Assessee. Further CIT(A) has noted that the brokerage payment is not excessive as compared to earlier years - Decided against Revenue.

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• 2013 (9) TMI 372
  Taxability of retention money - taxable in the year of receipt or on accrual basis - assessee is following mercantile system of accounting - Held that:- the retention money has to be brought to tax in the year in which the same has actually been received by the assessee from the contractees. - However, the claim of the assessee of having offered the retention money to tax in the year in which the same has actually been received, is required to be ascertained, before the addition made in the year under appeal is deleted. - matter remanded back - Following decision of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971 (8) TMI 10 - SUPREME Court] and Dy. CIT V/s. Deccan Mechanical & Chemical Industrial (P)Ltd., (2005 (6) TMI 267 - ITAT PUNE-B) - Decided in favour of Revenue. Depreciation on technical know how - Held that:- It is evident from the material on record that there was transfer of technical know-how in favour of the assessee company, whereby the assessee company the came the owner of such technical know-how, which was used by it in its business. In the facts and circumstances of the case, we agree with the CIT(A) that the two ingredients for grant of depreciation, viz. ownership and user of the asset, are clearly fulfilled, and the assessee is entitled for depreciation on the technical know - Decided against Revenue. Disallowance of revenue expenditure - Repayment of assets taken on finance lease - Held that:- principal repayment of assets taken on finance lease is clearly an expenditure of capital nature and the Assessing Officer has correctly allowed depreciation alone on such amount capialised. The CIT(A) has not given any valid reason for substantiating his finding, while allowing the claim of the assessee - Decided in favour of assessee. Disallowance of warranty provision - Held that:- item of disallowance, viz. warranty provision, is merely a provision and not an expenditure already incurred and laid out for the purpose of business. Unless the liability for such expenditure crystalises, assessee is not entitled to calim for deduction in respect of such expenditure. The CIT(A) has not given any valid reason for substantiating his finding, while allowing the claim of the assessee. We accordingly, set aside the impugned order of the CIT(A), and restore the disallowance made by the Assessing Officer in this behalf - Decided in favour of Revenue. Disallowance of advance given to subsidiary - Held that:- CIT(A) has deleted the addition made by the Assessing Officer on account of the interest attributable to the advance made by the assessee to its subsidiary, accepting the contention of the assessee that it has already charged interest on the advance made to the subsidiary company, M/s. Progen Systems & Technologies Ltd. This fact, which weighed with the CIT(A) while deleting the addition made by the Assessing Officer, requires verification at the end of the Assessing Officer, who has arrived at an opposite conclusion. We accordingly set aside the impugned order of the CIT(A) on this issue, and restore the matter to the file if the Assessing Officer with a direction to redetermine the issue relating to disallowance of interest after verifying the correctness of the contention of the assessee before the CIT(A) that it has already charged interest on the amounts advanced to the subsidiary company. The Assessing Officer shall pass appropriate orders on verification of the contentions of the assessee on this aspect, in accordance with law and after giving reasonable opportunity of hearing to the assessee - Decided in favour of Revenue. Liability for payment of liquidated damages - accrual of liability - Held that:- Since the very contracts entered into by the assessee with various parties for execution of works, categorically specify not only the liability to liquidated damages, but even mode of computation of the same for each week of delay in the completion of the work, it cannot be said that the liability to liquidated damages has not crystalised. - The CIT(A) in our considered opinion was justified in accepting the claim of the assessee in this behalf and deleting the addition made by the Assessing Officer. - Decided in favor of assessee.

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• 2013 (9) TMI 371
  Disallowance of revenue expenditure - Non commencement of business - the appellant company was of preoperative nature and the commencement of the business would start only when the appellant company starts exploitation of the project - Held that:- The main object of the Assessee as per Clause 3(A)(10) of the Memorandum of Association is to "To promote Schemes for irrigation and water supply in the State for utilization of water from the Sardar Sarovar". Thus in the light of the facts prevailing in Assessee's case, it can be said that the Assessee by supplying water through its main canal had in fact achieved the purpose for which it was established. One of the purpose for which the Assessee was set up was to supply water through canals. The canal was complete in respect of part of the stretch and that enabled supply of water through such canal to certain destinations. The fact that the entire stretch of canal up to the desired destination was not completed would not be sufficient to hold that the Assessee's business was not set up. The AO as well as CIT(A) have misdirected themselves in this regard by laying emphasis on flow of revenue as a condition precedent for coming to a conclusion that business of the Assessee has been set up as the flow of revenue from supply of water is not relevant as has been laid down in the case of CIT v. Sarabhai Management Corpn. Ltd. (1991 (8) TMI 6 - SUPREME COURT ). - In fact in the past the revenue has been taking a stand that flow of water through the canal would be the point of time when the business of the Assessee can be said to be set up. When that happened, the revenue is taking a stand that there should be flow of revenue on supply of water and only then it can be said that the business of the Assessee has been set up. This apparent contradiction in the stand taken by the Revenue is not acceptable, thus the stand taken by the revenue regarding absence of flow of revenue would be irrelevant. As the business of the Assessee was set up on 21.2.2001 when water was supplied through the main canals and all revenue expenditure after that date have to be allowed as deduction. As on pursuing the details of Schedule-I to the Balance Sheet as on 31.3.2001 which gives the break of the incidental expenditure pending capitalization. The salary, wages, gratuity and allowances and other employee costs, rent electricity would be in the range of Rs. 122 crores , the interest and discount on deep discount bonds is Rs. 566.99 crores and Rs. 148.10 Crores respectively. The interest income sought to be brought to tax by the revenue in this assessment year is Rs. 26,13,28,117/-. If business of the Assessee is held to be set up on 21.2.2001 then the proportionate expenses as set out above for the period from 21.2.2001 to 31.3.2001 would be much more than the interest income brought to tax. Therefore the other issues raised by the Assessee in its appeal do not require any adjudication in view of our above conclusion on the commencement/setting up of business - Following decision of Sardar Sarovar Narmada Nigam Ltd. Versus Assistant Commissioner of Income-tax, Gandhinagar Circle [2012 (9) TMI 300 - ITAT AHMEDABAD] - Decided in favour of assessee.

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• 2013 (9) TMI 370
  Bogus Purchases - Business of Supplying Fabrics OR Not – Maintaining Stock Register - Weather the CIT (A) had erred in deleting the addition made by AO on account of bogus purchases by ignoring details and if the purchases were genuine when the suppliers, who had supposedly sold the material had confessed to the fact that they were not in the business of supplying fabrics - and was it correct in basing his findings on stock statements submitted by the assessee when the assessee did not maintain quantitative stock register and had been unable to link purchases with corresponding production and sale - Held that:- Additions have been solely based on the statement of few parties - Two parties had filed affidavit making the averments that the statements obtained from them were obtained under duress - Furthermore, statement of Sh. Rakesh Gupta was obtained behind the back of the assessee - Assessee was never given an opportunity to cross examine him, despite requests - profit disclosed by the assessee were comparable profits and there was no evidence to establish the bills represented bogus bills - The assessee had also furnished bill wise, details of fabric and its utilization in manufacturing garments alongwith the corresponding invoices issued and money realized subsequently from the purchasers in the bank account of the assessee - CIT (A) had given a reasonable order touching upon all the aspects raised by the Assessing Officer - There was no infirmity in the order of the Ld. Commissioner of Income Tax (A). As regards the statement of Sh. Rakesh Gupta was concerned, it emanates that assessee has wanted an opportunity to cross examine - But that opportunity was not given by the Assessing Officer - Hence, statement of Sh. Rakesh Gupta cannot be the sole basis of addition - As regards the statement of Sh. Rajeev Gupta and Sh. Parmesh Kumar Garg was concerned, when assessee was confronted the assessee immediately filed affidavits of both the persons wherein they have clearly stated that the statements were recorded under duress and undue pressure - Hence, the same cannot be the basis of treating the purchase as bogus - It is further noted that Sh. Sat Narayan Gupta, the proprietor of M/s Chaavi Trading Company and Sat Narayan & Sons (HUF) had not given any statement - Hence, purchases from these companies cannot be treated as bogus. Applicability of Precedents – Whether the Commissioner of Income Tax (A) was correct in holding that the assessee’s case was not covered by the ratio of the judgement of Hon’ble Supreme Court in the case of Sumati Dayal vs. C.I.T. [1995 (3) TMI 3 - SUPREME Court] - The assessing officer relied on the case of Sumati Dayal v Commissioner of Income tax [1995 (3) TMI 3 - SUPREME Court] -mentioned that if all, the surrounding circumstances indicated that the apparent was not real, the ratio of Hon'ble Supreme Court would apply - Decided against Revenue.

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• 2013 (9) TMI 369
  Transfer pricing adjustments - ALP - Commission Received – Whether commission @ $ 30 per MT received by the assessee from its AE, its parent company is at ALP - Held that:- The benchmarking adopted by the TPO as well as the DRP treating the assessee itself as a comparable was not correct - The assessee was involved in the manufacturing activity also and marketing its own products i.e. iron powder - The assessee was importing iron product and marketing the same that was a trading activity - Nothing had been brought out on record by the DRP as well as the TPO that the assessee has to incur cost for the sales achieved by the parent company as in the case of its own marketing - the risk involved and asset employed by the assessee-company compared to its own marketing with that of the marketing of the parent company, of which commission was paid, was unmatched. The principles for determining the ALP were well settled by different judicial pronouncements - What was to be considered while adopting the comparable were the functions performed, capital utilized and risks assumed - It was pertinent to note here that the DRP as well as TPO had not questioned the nature of the functions to be performed by the parent company - The assessee's claim was that there was a minimal risk and no cost was involved for acquiring the business by the parent company, for which assessee was paid commission - The sale price of the product was not considered but weight was considered - The assessee received commission which worked out to 1.49% to the sales achieved by the parent company i.e. Hoganas AB Sweden minimum risk was involved as the assessee was not directly involved in any of the sale transactions by the parent company. As per the agreement with Hoganas AB Sweden, the sales directly made by the parent company in India and other Asia region, the assessee had to receive commission @ $ 30 per MT - The assessee-company worked out the profit level indicator as operating profit or operating revenue of the aforesaid distribution activity at 15.37% and according to the assessee the arithmetic mean of the profit level indicator of the comparable trading companies was at 1.96% only - While filing the working before the TPO as well as the DRP, the assessee aggregated the sales of the manufactured goods and traded goods and accordingly worked out the percentage of SADA – Decided in favour of Assessee.

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• 2013 (9) TMI 368
  Revision u/s 263 - erroneous or prejudicial to revenue order - Disallowance of Free Airtime to Distributors u/s 40(a)(ia) – Held that:- The issue had not at all been examined by the Assessing Officer in the course of assessment proceedings for the assessment year 2007-08 - No reference thereof was there in the assessment order – the Assessing Officer had not issued any query in this regard and not obtained necessary details - Hence, it cannot be said that the Assessing Officer had applied one of the two views possible - It was observed that assessee was liable to TDS on these payments under section 194H but has failed to do so – Following CIT v. Idea Cellular Ltd. [2010 (2) TMI 24 - DELHI HIGH COURT] - it was the submission of the assessee's counsel that on these issues, there were case law in favour of the assessee at that time. Hence, the Assessing Officer had applied one of the two views possible - Hence, the order cannot be said to be erroneous and prejudicial to the interests of the Revenue. Disallowance of Roaming Charges Paid u/s 40(a)(ia) - Held that:- The Assessing Officer had mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry - Similarly, no evidence had been placed that the claim made by the assessee was objectively examined or considered by the Assessing Officer either on record or in the assessment order – Following Arvee International v. Addl. CIT [2006 (1) TMI 173 - ITAT BOMBAY-High court ] - The perusal of the assessment order passed by the Assessing Officer does not show any application of mind - It is simply says in one line that loss returned by the assessee is accepted - It was held that no greater evidence is required than the mere reproduction of the aforesaid order from the assessment order to establish that it was a case where the Assessing Officer has mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry - No evidence had been placed that the claim made by the assessee was objectively examined or considered by the Assessing Officer either on record or in the assessment order - It was because of such non-consideration of the issues on the part of the Assessing Officer that the loss claimed by the assessee stood automatically allowed without any scrutiny - The assessment order was clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee - The Assessing Officer had completely omitted the issue in question from consideration and made the assessment in an arbitrary manner. Gee Vee Enterprises v. Addl. CIT [1974 (10) TMI 29 - DELHI High Court] - the Income-tax Officer should have made further enquiries before accepting the statements made by the assessee in his return - The Assessing Officer in this regard had not made any enquiry and had accepted the statements made by the assessee in his return. Revisional Jurisdiction u/s 263 - The Assessing Officer had completely omitted the issue in question from consideration and made the assessment in an arbitrary manner - it was a fit case for the Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order, in view of the above two issues, after giving reasonable opportunity of hearing to the assessee and make a speaking order.

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• 2013 (9) TMI 367
  Disallowance of Expenditure on TDS u/s 40(a)(ia) - the issue was as to the disallowance of claim of expenditure on the basis that the assessee deducted the tax but not deposited in the Government account within the period as prescribed under the statute and section 40(a)(ia) of the IT Act - Held that:- The amendment by Finance Act, 2010 to section 40(a)(ia) cannot be applied to the assessment year in dispute i.e., 2009-10 - Because of difference in judicial opinion, the case was referred to the Special Bench and the Tribunal Special Bench, Mumbai after considering the entire issue in the case of Bharati Shipyard Ltd. vs. DCIT [2011 (9) TMI 258 - ITAT MUMBAI ] - amendment to section 40(a)(ia) made by Finance Act, 2010 was with retrospective effect from 1st April 2010 extending the time limit for depositing of tax deducted at source in the case of one category of cases was neither aimed at removing any unintended hardship to the assessees nor it was curative or declaratory of the provisions of law and, therefore, it cannot be given retrospective effect - the issue raised in the Revenue appeal in was decided in favour of the Revenue and against the assessee. Expenditure u/s 40(a)(ia) - Disallowance due to non deduction of TDS - whether the provisions of section 40(a)(ia) applied only to that expenditure which is payable as of 31st March and not to the expenditure which had already been paid during the year itself - Held that:- The order of M/s. Merilyn Shipping & Transports vs. ACIT [2012 (4) TMI 290 - ITAT VISAKHAPATNAM ] was suspended by the High Court for the time being - Matter remitted back to AO – Decided in favour of Revenue. Difference in TDS as per Form no. 26AS and as claimed in the return - Confirmation of Addition on the Ground Of Price Variation - Held that:- The assessee failed to reconcile the figures mentioned in Form No. 26AS and Profit & Loss Account - The assessee had not been able to file any confirmation from the contractors regarding the price variation claimed - it cannot be denied that as per Form No. 26AS, the assessee had itself shown the gross receipts.

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• 2013 (9) TMI 366
  Condonation of Delay - Held that:- There had been no willful neglect on the part of the Assessee - In such matters the advice of the professional would be the point of time at which the Assessee would begin to explore the option of exhausting all legal remedies - The advice was given by the counsel who appeared on behalf of the Assessee before the Hon’ble High Court - The decision of the Hon’ble High Court was rendered on 28.2.2012 - Following the Principles of Collector, Land Acquisition v. Mst. Katiji & Ors. [1987 (2) TMI 61 - SUPREME Court] - substantial justice should prevail over technical considerations - a litigant does not stand to benefit by lodging the appeal late - every day’s delay must be explained does not mean that a pedantic approach should be taken. The doctrine must be applied in a rational common sense and pragmatic manner - The appeal had been filed by the Assessee before the Tribunal on 26.3.2012 - by condonation of delay there was no loss to the revenue as legitimate taxes payable in accordance with law alone would be collected - the reason given for condonation of delay in filing the appeal was accepted - The delay in filing the appeal is accordingly condoned. Deduction u/s 80-IB(10) - To be eligible for exclusion from the built up area, whether the common areas have to be shared with all the residents, who have occupied the residential units, or even if it was shared with one, the assessee would be entitled to the said benefits - Held that:- The Assessee should get the benefit of the provisions of Sec.80IB(10) which were exemption provisions - the Assessee would be entitled to deduction u/s.80-IB(10) of the Act on the profits of the 16 flats which were excluded by the CIT(A) in the order - The fact that it was not common area for all the flats in the building cannot be the basis to apportion the area of covered balcony in measuring the area of the two adjoining flats to which the covered balcony was common. The definition of the built up area in the provisions of sec.80-IB(1) does not speak of common area for all flats in a housing project. The balcony areas, which were added as forming part of the built of area of the 16 flats which were considered as exceeding the built up area of 1500 sq.ft., were common areas and had to be excluded while measuring the built up area - There was covered balcony area in the 16 flats and such covered balcony could be used by two adjoining flats and was common between them - The DVO in measuring the area of these flats divided the covered balcony area and apportioned them between the two flats - The definition of built up area for the purpose of Sec.80-IB(10) of the Act excluded area which are meant for common use – Decided in favour of Assessee.

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• 2013 (9) TMI 365
  Reopening of Assessment - reason to believe - change of opinion - Held that:- The Assessing Officer had miserably failed to show that there was any tangible material to hold that there was escapement of income from assessment - Assessing Officer not only examined the documents/evidence originally submitted by the assessee but had asked for further documents – The notice issued under section 148 of the Act was nothing but mere change of opinion - The issues which have already been considered in the original assessment cannot be reappreciated in reassessment proceedings under the garb of income escaping assessment - If the Assessing Officer had not given any finding after considering the evidence on record, it cannot be said that the income had escaped assessment on account of concealment of income of the assessee. Relying upon Kelvinator of India Ltd.[ 2010 (1) TMI 11 - SUPREME COURT OF INDIA ] - the Assessing Officer had power to reopen the assessment provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment - the information was supplied by the assessee, if the Assessing Officer fails to take note of the same or does not appreciate the evidence from all dimensions in the first instance, he cannot be permitted to reopen the assessment under section 147 of the Act to cover up his own folies - Once the entire evidence as required by the Assessing Officer was submitted by the assessee, duty was cast upon the Assessing Officer to take cognisance of the evidence and pass assessment order under section 143(3) of the Act - The Assessing Officer cannot review his own order under the guise of section 148 and reappreciate the evidence which was already before him at the time of original assessment – Decided against Revenue. Method of accounting in certain cases - Whether u/s 145A the excise duty element cannot be added to the value of closing in stock on the last day of the accounting year - Following Loknete Balasaheb Desai S. S. K. Ltd. [2011 (6) TMI 48 - BOMBAY HIGH COURT] - central excise liability was not incurred and consequently the addition of excise duty made by the assessing officer to the value of the excisable goods was liable to be deleted - The assessee had provided for excise duty on closing stock in accordance with AS 2 - The assessee in its letter had categorically stated that the amount appearing in annexure 10B of tax audit report represents excise duty provision on the closing stock of finished goods as on March 31, 2005 - This amount was paid before the clearance of goods from the factory prior to the date of tax audit report as certified by the tax auditors - An amount was debited in the profit and loss account under the head "manufacturing and other expenses" - This amount represents difference between opening provision of excise duty on stock as on April 1, 2004 and the excise duty on closing stock as on March 31, 2005. The Assessing Officer has erred in coming to the conclusion that since the sale is net off excise duty, the debit towards excise duty in the profit and loss account cannot be allowed. With regard to compliance with the provisions of section 43B was concerned, the assessee had stated that the amount of excise duty debited in the profit and loss account had been paid in the next year before the due date of filing of return and therefore, disallowance on this ground was not warranted.

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• 2013 (9) TMI 364
  Disallowance u/s 14A - Earlier CIT(A) held that interest on nostro account is Not taxable - later decision of CIT(A) reversed - Held that:- Once the income itself was chargeable to tax, there can be no question of computing any disallowance under section 14A, the mandate of which operates to disallow deduction for expenses incurred in relation to income which does not form part of the total income under the Act - The interest income on nostro account was liable to be included in the total income - Accordingly, grounds raised by the assessee against the enhancement done by the learned Commissioner of Incometax (Appeals) by invoking the provisions of section 14A were also consequently allowed. Allowability of Broken Period Interest as Expenditure – Held that:- The interest paid in respect of the broken period be set off against the interest received in respect of the broken period - following its decision for the assessment year 1991-92, had decided this issue against the Revenue. Exemption of Gross Interest u/s 10(15) - the issue was against the exemption in respect of "gross interest" earned from tax-free security under section 10(15) of the Act – Held that:- Exemption under section 10(15) was on gross basis and in the facts and circumstances of the case, there can be no disallowance under section 14A qua the investment in taxfree securities - Following Dresdner Bank AG v. Addl. CIT [2006 (10) TMI 175 - ITAT BOMBAY-F] - it becomes apparent that exemption under section 10(15) was to be allowed on gross interest and not on the net interest - East India Pharmaceutical Works Ltd. v. CIT [1997 (3) TMI 5 - SUPREME Court] - if there be interest-free funds available to the assessee sufficient to meet its investment and at the same time loan has been raised, it can be presumed that the investments were made from interest-free funds and resultantly no disallowance of interest can be made – Decided against Revenue. Deduction u/s 44C – Following The Joint Commissioner of Income-tax Versus M/s. American Express Bank Limited [2012 (8) TMI 371 - ITAT MUMBAI] - Exclusive expenses incurred by the head office for Indian branch were outside the purview of sec. 44C and only common head office expenses were governed by this section - Once the amount was found to be incurred exclusively by H.O. towards the Indian branch, the same was required to be allowed in terms of section 37(1) without any reference to section 44C. Interest Received u/s 244A – Held that:- Interest under section 143(1)(a) was assessable to tax in the year in question. The proposition as raised by the learned authorised representative is about the rate of tax which should be applied on such interest – Relying upon CIT v. Clough Engineering Ltd. [2011 (5) TMI 562 - ITAT, DELHI ] - the claim for refund of income-tax cannot be said to be effectively connected with the receipts of permanent establishment and hence interest on refund of tax was taxable under article 11(2) of the Double Taxation Avoidance Agreement between India and Australia and not under article 7 read with article 11(4) - if the Assessing Officer was directed to adopt the rate at which such interest on income-tax refund should be charged by examining the relevant clauses of the Double Taxation Avoidance Agreement between India and France, in conformity with the aforenoted Special Bench order.

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• 2013 (9) TMI 363
  Exemption u/s 10(23G) – infrastructure capital company - exemption of interest income - investment in bonds of SSNNL and GIPCL - Held that:- Following Gujarat Power Corpn. Ltd. Versus ACIT [2010 (11) TMI 626 - ITAT, Ahmedabad] and VBC Ferro Alloys Ltd. v. Asst. CIT 2005 (9) TMI 253 - ITAT HYDERABAD-B] - Explanation 2 to section 10(23G), as introduced by the Finance Act, 1999 was declaratory and had to be construed as retrospective as it was retroactive in nature - Therefore, the assessee was entitled to exemption u/s. 10(23G) in respect of the investments made prior to 1-6-1998 - the assessee was entitled to exemption under section 10(23G) of the Income-tax Act - there was no reason to take a contrary view in the present year - Decided in favour of assessee. Disallowance u/s 35E – extraction and production of mineral - Held that:- No serious argument was made regarding eligibility of the assessee for deduction under section 35E and a clear finding was given by the authorities below that the assessee was not eligible for deduction under section 35E because the assessee had not fulfilled the required conditions - the learned authorised representative could not controvert these findings of the authorities below and hence, the aspect was decided against the assessee - the only argument raised was that deduction should be allowed under section 37(1) of the Income-tax Act - No deduction was allowable in the present year because even if the expenditure were to be debited in the profit and loss account, the same had to be considered in the credit side of the profit and loss account also as closing stock of work-in-progress and there will be no resultant deduction in the present year – there was no merit in this ground of the assessee - Decided against Assessee. Disallowance of Deduction u/s 35D - increase in share capital - fee paid to Registrar of Companies - stamp fee - in connection with the extension of the industrial undertaking or setting up of a new industrial undertaking - Held that:- The findings of the AO were not controverted by the CIT (Appeals) or by the learned authorised representative by showing that the assessee was fulfilling the requirements of subsections (1) and (2) of section 35D of the Act and we have also discussed that in the name of rule of consistency, mistake cannot be perpetuated and, therefore, we hold that the learned Commissioner of Income-tax (Appeals) was not justified in deleting the disallowance made by the Assessing Officer under section 35D - We, therefore, reverse the order of the learned Commissioner of Income-tax (Appeals) on this issue and restore that of the Assessing Officer – Decided in favour of Revenue. The disallowance was made by the Assessing Officer by giving a specific finding that the assessee was not fulfilling the conditions imposed under subsections (1) and (2) of section 35D - Regarding the rule of consistency followed by the learned Commissioner of Income-tax (Appeals) in deleting this disallowance - the view taken by the Assessing Officer in the earlier year was a possible view then there may be a case for taking the same view in the present year as per the rule of consistency - But if the view taken in the earlier year was not a possible view then a mistake cannot be perpetuated in the name of consistency. - Decided against the assessee. Disallowance of Depreciation on Leased Assets – Held that:- Following Indusind Bank [2012 (3) TMI 212 - ITAT MUMBAI] - Principal portion of lease rent had to be excluded from the income and depreciation was not allowable to the lessor in case of financial lease - there was no serious argument was made by the assessee regarding the allowability of deduction on account of depreciation of leased assets and hence, this ground of the assessee was rejected in all the three years. Disallowance of Rates and Taxes - Held that:- The assessee was claiming deduction of this expenditure under section 37 - As per the provision of section 37(1), business expenditure not in the nature of capital expenditure or personal expenditure was allowable - But before this, one more condition was to be fulfilled that the business for which the expenditure is incurred has been set up and commenced - the land was purchased for the proposed joint venture power project and none of the power projects has commenced business - the rates and taxes before commencement of production in a project was a capital expenditure - Even if it does not enhance the value of the land in question then also it cannot be allowed as revenue expenditure because the business had not commenced and therefore, it was a preoperational expenditure – Decided in favour of Assessee.

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• 2013 (9) TMI 362
  Deletion of Bogus Purchase – Held that:- Following Nishant Housing Development Vs. ACIT [1994 (9) TMI 139 - ITAT PATNA] - if any addition was made on the ground of expenditure incurred the source of which was to be treated as unexplained, then similar amount will have to be simultaneously allowed as expenditure to earn that income - rejection of part to be also accepted - On the basis that the purchases have been entered into stock register - Although the linkage of these purchases with the sale was not ascertainable because the purchases of raw material had undergone the various processes before its sale as a finished product - The raw material and finished goods have different entity and cannot have direct link – the evidences had clearly shown the authenticity of the purchases - The addition was not justified as per law and facts of the case. Deletion of Payment of Interest for Sales Tax Deposit - Held that:- Non-payment of statutory dues like sales tax, income-tax etc. may entail penalty but late payment of the same may not necessarily attract penalty but interest for such delayed payment/deposit - interest paid by the assessee to the sales tax department on arrears of sales tax/purchase tax was an admissible deduction - Following CIT Vs. Western Indian State Motors [1988 (3) TMI 22 - RAJASTHAN High Court] and CIT vs. Lachhman Das Mathura [1980 (1) TMI 63 - ALLAHABAD High Court ] – the addition was directed to be deleted. Deletion of Deduction u/s 80IB - Consideration of interest of FDR for calculating deduction u/s 80IB – Income from Business – profit from Duty Entitlement Passbook Scheme (DEPB) and Duty Drawback Scheme – Held that:- Following M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] - Duty drawback, rebate etc. should not be treated as adjustment (credited) to cost of purchase or manufacture of goods - They should be treated as separate items of revenue or income and accounted for accordingly - for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories - duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking - Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80-IA/80-IB of the 1961 Act.

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• 2013 (9) TMI 361
  Nature of Income - Dealing in vegetable seeds - Agricultural Income OR Business Income - The solitary issue that the AO exceeded his jurisdiction to convert the total agricultural income rendered by the assessee proportionately as business income - without indicating as to how the adoption of percentage for business and agriculture separately could be held when the past history of the assessee's case had been acceptance of the entire income from agricultural operation being seeds producing farm maintained by the partners in the firm – Held that:- The Assessing Officer himself misdirected that purchases ought to have been accounted for which was never the case of the assessee - the Assessing Officer had tried to invoke his own method of carrying out the agricultural operation to compute the income from business separately but on the basis of the same facts that the activities were carried out for the purpose of germinating seeds which were certified seeds not fit for human consumption. The Assessing Officer in his enthusiasm had tried to dilute his own finding by adopting percentage method for segregating "business" activity for generating agricultural income - The books of account of the assessee were audited and the financial statements were certified as per the audit report in Form 3CB - Maintenance of records was not disputed and the expenditure incurred for the agricultural operation carried out were also not doubted - Determination of gross margin and net margin therefore do not appear to be a requirement of agricultural operation when the assessee is reaping the nature's bounty. The denial made by both the authorities in not accepting the actual version of the assessee in spite of finding from spot verification which the Inspector of Income-tax Department in earlier years had noted that agricultural operations were being carried out by the assessee could not be changed to earning of income from trading of seeds, when the assessee was able to maintain three crops in a year dealing in vegetable seeds alone - the assessee has submitted the copies of the orders of the authorities below for the assessment years 2003-04 and 2007-08 passed under section 143(3) when exemption under section 10(1) has been granted to the assessee. No specific defects have been found out in the books of account therefore could not be a material for determining correct income involving the provisions of section 145(3) by changing the nature of the very income claimed exempted under section 10(1) - The expenditure incurred for carrying out agricultural activity would yield agricultural produce and the percentage of margin earned on sale of agricultural produce cannot be the basis for bifurcating margin from business activity and margin from agricultural activity when whole of the expenditure is allowable by the Assessing Officer as for carrying out agricultural operations – Decided in favour of Assessee.

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• 2013 (9) TMI 360
  Rejection of books of account - accounting for scrap - AO rejected the books of account by invoking provisions of Section 145(3) on the plea that method of valuation of closing stock as adopted by the assessee was not within the accepted principle of account - Part Deletion of addition on Difference Between Generation of Scrap and Average Rate of Scrap Sale - Held that:- Periodically when the waste material accumulated, it was sorted out by the shop floor technical persons and segregated - If there was no possibility of using it that material was segregated and entered in the excise register after such segregation and then only it was sold to the scrap dealer - The price varies from item to item as well as material to material. There is a difference in selling price of stainless steel (SS) scrap, mild steel (MS) scrap, copper scrap, tube scrap etc. – no discrepancy was found in the books of account, therefore, the Assessing Officer was not justified in rejecting books of account - After giving detailed reasoning with regard to the quantum of scrap generated and the value for which it can be sold vis-à-vis valuation arrived at by the DVO, after recording detailed finding, as reproduced hereinabove, the ld. CIT(A) deleted the substantial part of the addition on account of scrap sale. - Decided in favor of assessee. The assessee was engaged in business of manufacturing and fabrication of engineering items on the basis of specific orders from its customers - Variety of raw materials were used by the assessee - The valuation of the inventory done by the DVO was much less than the valuation done by the assessee - Even the Assessing Officer has accepted the assessee’s valuation, which clearly show that DVO’s report suffers from inconsistency, mis-classification and defects and discrepancies - Even during course of valuation and assessment proceedings, the assessee has highlighted discrepancies in adoption of valuation rates of various materials including scrap by the DVO, but the same was not taken care of - When no defect was pointed out in the books of account even during the course of scrutiny assessment and when the valuer’s report was not accepted by the Assessing Officer, there was no reason for rejection of books of account u/s 145(3) and the CIT(A) had correctly observed that the Assessing Officer was not justified in rejecting the books of account u/s 145(3) - Even during the course of search, no documents or papers were found by the Assessing Officer to indicate that there was any scrap sale outside the books of account, whereas addition has been made by the Assessing Officer in all the assessment years under consideration on account of unaccounted sale of scrap, which is not only based on the estimate but also without any corroborative evidence - during scrutiny assessment, no addition was made on account of such generation of scrap and sale outside books of account. Disallowance of salary u/s 40A(2)(b) - Excessive salary - Held that:- The disallowance of salary was restricted to the extent of 50% of the remuneration so paid to Mrs. Irene Valentine – Mrs. Irene Valentine was a qualified engineer and experience in business and salary paid to her was commensurate with qualification and the services provided to the assessee company - neither there was excessive payment nor unreasonable payment was made to Irena Valentine looking to her qualification, experience and services so provided to the assessee company. The onus was on the Revenue to show that payment so made were not as per legitimate needs of the business or the benefits derived from such payment, was not according to the services so rendered - the Assessing Officer had disallowed the payment by observing that services rendered by Mrs. Irene Valentine was not substantially proved alongwith the documentary evidence - As per provisions of Section 40A(2)(a), where the assessee incurs any expenditure in respect of which payment has been made to a person referred to in clause (b) of Section 40A(2) - Keeping in to view these findings of CIT(A) vis-à-vis observation of the Assessing Officer, we direct to restrict disallowance of salary to the extent of 50% of the remuneration so paid to Mrs. Irene Valentine. - Decided partly in favor of revenue.

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• Customs

• 2013 (9) TMI 389
  Refund of duty – assessee raised invoice of the imported goods in terms of EURO - but in the bill of entry, the currency was mentioned as Great Britain Pound and value of the goods was converted into Indian currency- whether before filing the refund claim of the excess duty paid due to wrong application of exchange rate, the assessment order was required to be challenged – Held that:- before filing of the refund it was not required for the assessee to challenge the assessment order - the order upholding the rejection of the refund claim was not sustainable and was liable to be set aside – court followed AMAN MEDICAL PRODUCTS LTD. Versus COMMISSIONER OF CUSTOMS, DELHI (2009 (9) TMI 41 - DELHI HIGH COURT) - the purpose of filing refund the assessment order was not required to be challenged when higher duty was paid due to inadvertence - higher duty had been paid due to wrong application of exchange rate which was due to clerical error. Unjust enrichment - the matter was remanded to the Commissioner (Appeals) for examining the unjust enrichment angle and if the assessee produced convincing evidence that the incidence of duty whose refund was claimed by them had not been passed on by them - they would be eligible for refund – decided in favour of assessee.

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• 2013 (9) TMI 388
  Misdeclaration of goods - redemption fine - Held that:- The applicant had failed to make out a prima facie case for waiver of entire amount of penalty - there was no material available that the applicant had taken steps against the use of the name of the applicant's sister's address in the attempted export - adjudicating authority imposed penalty u/s 114AA for use of false and incorrect material and penalty u/s 114(i) was imposed for attempt to export the goods for which prohibition was in force. Waiver of pre deposit of penalties u/s 114(i) and 114 AA – applicant ordered to submit Rs. one lakh – on such submission rest of the duty to be waived – decided partly in favour of applicant.

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• 2013 (9) TMI 387
  Nature of the goods – whether the imported items on chemically test were found to be Naphtha and were imported in contravention of policy provisions since during the relevant period Naphtha was a canalized item – Held that:- Benefit of doubt had given to the assessee - items restricted/ prohibited as far as imports during the Policy period 1990-92 - the importation and subsequent utilisation by the assessee were viewed as in contravention of policy provisions during the relevant period - the policy restrictions were imposed by the Commerce Ministry and Commerce Ministry generally acts on the basis of Ministry of Petro-chemicals as well as Ministry of Finance, deliberate violation of policy prohibitions cannot be laid at the doors of the assessee especially in view of the fact that there was no allegation of mis-declaration of description of the goods by the assessee at all. Confiscation of goods u/s 111(o) – Penalty u/s 112 – Held that:- Goods were not liable to confiscation - penalty cannot be imposed - the show cause notice did not propose confiscation u/s111(o) nor did the Commissioner in the order hold that the goods were liable to confiscation - observation of the Commissioner that the goods were liable to confiscation are wrong and penalty u/s112 can be imposed only when a person rendered the goods liable to confiscation – Following the judgement of Akbar Badruddin Jiwani vs. CC. [1990 (2) TMI 50 - SUPREME COURT OF INDIA] - the burden lies on the department to show that the assesse had acted dishonestly or contumaciously or with a deliberate or distinct object of breaching the law. Assesse’s imports cannot be considered to be against the policy at the time of import nor can be considered to have been prohibited - The relevant provisions which renders the goods imported by the appellant liable to be confiscation is Section 111(o) and according to which any goods exempted subject to any condition from duty or any prohibition in respect of the import thereof in respect of which condition was not observed unless the non-observance of the condition was sanctioned by the proper officer were liable to confiscation – decided in favor of assesse.

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• 2013 (9) TMI 386
  Release of confiscated goods - Import of vessel - vessel for transport of persons / goods or vessel for pleasure - Benefit of Notification No.21/2002- Misdeclaration of Value – Undervaluation of Goods - Held that:- Almost the entire amount of duty based on the value of the vessel as determined in the show-cause notice stands paid by the appellant - only a small amount remains to be paid towards duty, which the appellant can deposit - The appellant also was said to be willing to deposit interest on duty - Considering the fact that the vessel imported by the appellant was not prohibited goods and that no offence of serious nature had been framed against them in the show-cause notice and that the substantive dispute in this case was one of classification of the vessel - Order modified to such extent - Decided in favour of assessee. After taking into account all the relevant factors - The vessel can be provisionally released to the appellant - The adjudicating authority ought not to have imposed such harsh conditions - it was without particularising the revenue interest involved in the impugned vessel that the Commissioner required the appellant to furnish bank guarantee so as to safeguard the revenue interest.

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• 2013 (9) TMI 379
  Import of Crude Palm Stearin - Concessional Rate of Duty - Notification No. 21/2002-Cus – Rule 4 of Customs Rules 1996 - The appellant were registered for import of crude palm stearin oil at concessional rate of customs duty for its use in the manufacture of industrial fatty acids - Revenue cancelled the bond executed and directed the appellant not to import crude palm stearin under Rule 4 of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 – Held that:- The appellant-assessee was prima facie entitled for the benefit of concessional rate of duty under serial No. 30(A) of Notification No. 21/2002 - the bond executed by the appellant before the Assistant Commissioner was valid and it cannot be cancelled without any rationale basis. Following Superintendent of Central Excise and Others v. VAC Met Corpn. Pvt. Ltd. [1985 (8) TMI 71 - SUPREME COURT OF INDIA ] - It was evident that crude palm stearin used in the manufacture of soaps/fatty acids and fatty alcohols was eligible for a concessional rate of duty at 10% ad valorem subject to the condition that the importer follows the procedure set out in Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 - Stearic acid manufactured by the appellant was also a fatty acid even though it may be more appropriately classifiable as an industrial fatty acid - Entry 30(C) related to all goods except crude palm oil which was used in the manufacture of soaps, industrial fatty acids and fatty alcohol - The entry was more general and applied to all variety of goods including that of crude palm stearin. Waiver of Pre-deposit - Prima facie the appellant had made out a strong case in their favour - the stay application preferred by the appellant was allowed and direct the lower authorities to continue to allow the appellant to import crude palm stearin for manufacture of industrial fatty acids in terms of serial No. 30(A) of the table annexed to Notification No. 21/2002-Cus., under the bond dated – Decided in favour of Assessee.

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• Corporate Laws

• 2013 (9) TMI 385
  Oppression and Mismanagement u/s 397 and 398 - Proceedings of the Annual General Meeting was declared null and void - Held that:- Under section 172(3) of the Companies Act non-receipt of notice will not invalidate the proceedings - That service was effected under certificate of posting was disclosed in the sur-rejoinder - In doing so CLB had acted with perversity - service of the notice of meeting cannot be disputed and the decisions taken at the meeting cannot be challenged by the respondent AKM as he abstained from the said meeting for reasons best known to him - The finding of the CLB in respect thereof was bad and was setaside. From the copy disclosed in the proceedings it appeared that not only an attempt was made to serve a copy of the notice of the meeting by hand which was the usual practice followed by the company but that such notice was also accepted on behalf of the respondent AKM - Besides the said mode of service, notice was also issued under certificate of posting and by way of pre-cautionary measure a publication was made in Financial Express Calcutta Edition - Publication was notice to all and is good service. Consideration of Accounts – The sum had been directed to be paid on the basis of no explanation given by the appellant in respect thereof, which was ex-facie incorrect as the appellants did take the plea of the audited accounts which had not been assailed and that sums had been spent on account of Travel expense of AKM and the mother - The expense borne to meet statutory requirement had also been given and in not appreciating evidence in this respect, CLB could not reach the conclusion of misappropriation and the said findings with regard to reimbursement cannot be upheld. The existence of the company continued the statutory requirements had to be complied with and for such purposes staff on job-work basis was maintained - CLB based on its reasonings in respect of misappropriation from sale of plant and machinery had reached the conclusion of siphoning of funds in respect of expenses and liabilities - This evidences non-application of mind - If the basis of the demand does not exist to grant such sums will be contrary to the tenets of all law. Allotment of Shares - Even after receipt of the notice, if respondent abstained from attending the meeting, he did so at his peril - The reason for increasing the share capital was to facilitate influx of funds –The CLB failed to consider that in the event all the parties had complied with the Family Settlement the company would have been sold and the proceeds divided amongst its heirs - The acts of the respondent created a situation which made it impossible to sell the company and to only meet the statutory requirements of a shell company expenses had to be borne by the company which had become defunct since 1999. To do so finance was required which was raised by the company by increasing its share capital by allotment of shares - The respondent did not apply for additional shares inspite of notice and cannot blame the appellant for shares allotted.

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• Service Tax

• 2013 (9) TMI 395
  Management, Maintenance or Repair Service - Benefit of Notification No.12/2003-ST - The Respondent was engaged in retreading of tyres and had entered into a franchisee agreement - During the period 1-7-03 to 31-3-08, the appellant did not obtain any service tax registration and failed to pay service tax on the retreading activity undertaken by them - Revenue was of the view that the service was taxable under the category of "management, maintenance or repair service - Held that:- The appellant was not eligible for the benefit of notification No. 12/03-ST and was liable to discharge service tax liability on the gross amount charged for the transaction for the period on or after 16-6-05 along with interest thereon in terms of provisions of Finance Act, 1994 - Following Speedways Tyre Service Versus Commissioner of Central Excise, Ludhiana [2008 (12) TMI 98 - CESTAT NEW DELHI] and Safety Retreading Company (P.) Ltd. Versus Commissioner of Central Excise, Salem [2012 (6) TMI 719 - CESTAT, CHENNAI (THIRD MEMBER)]. The appellant would also be eligible to take Cenvat Credit of the excise duty/CVD, if any paid, on the materials used for the retreading service, in accordance with law - Since the issue involved interpretation of law and there were conflicting views on the subject matter, imposition of penalty was not warranted and the same was set aside - Invoices unilaterally raised by the appellants indicating the break-up without substantiating the amount attributable to the value of the goods supplied cannot be considered as documentary proof for purposes of notification No. 12/03-ST – Decided in favor of Revenue.

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• 2013 (9) TMI 394
  Conduct of adjudicating authority in passing order pursuance of remand order - Held that:- We find no precedent for the ld. Commissioner to have passed strictures against the Tribunal nor any authority for such brazen insubordination to the appellate jurisdiction and without comprehension of the limitation of his jurisdiction and the limits of his authority. In para 23, in further refutation of the judgment of this Tribunal, the adjudicating authority now holds that the earlier adjudication order was a well reasoned and a just and legal order, again overruling this Tribunal's judgment. The impugned order also concludes that no evidence is emerging from the discussion, and the allegations leveled in the show cause notice were categorically discussed in the earlier adjudication order, passed by his 'learned' predecessor. In para 25, the adjudicating authority reaffirms the findings in the earlier adjudication order, with regard to suppression of material facts with an intent to evade payment of service tax. Paragraphs 26 and 27 reaffirm the correctness of the earlier adjudication order and in para 28, confirmation of service tax, interest and penalty is recorded. Ld. Commissioner has wholly misconceived the limits of his jurisdiction pursuant to the specific order of remand passed by this Tribunal, vide the judgment dated 6.5.2011 and has tried to overreach and trench into the domain of this appellate authority. The impugned adjudication order is also wholly bereft of independent analysis and determination of the issues raised. Advance Payments - taxability – Advances received when service was taxable - Consultant Engineer Service - Levy of service tax on subcontract service when main contractor is payment service tax - Levy of service tax on reimbursement of expenses - expenses on behalf of client - Held that:- The adjudication order was unsustainable and was accordingly quashed - The matter was also remanded to the Commissioner, Service Tax for passing a fresh adjudication order, in strict compliance and fidelity to the earlier judgment of this Tribunal - Commissioner was directed to pass a de novo adjudication order - The Commissioner shall also issue a notice to the appellant affording an opportunity of personal hearing.

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• 2013 (9) TMI 393
  Stay Application - Denial of CENVAT credit of service tax - The appellants are manufacturers of L.P.G. stoves and these stoves were marketed through distributors of BPCL and IOCL - The appellant (manufacturer of stoves) paid lump sums annually to BPCL and IPCL, and also a commission to their distributors on the basis of the sales turnover - Paid service tax under the head "business auxiliary services" – As per revenue is that this credit is not admissible to the appellant inasmuch as it related to activities beyond the place of removal. This case is based on the definition of "input service". Held that:- Prima facie, the appellant was receiving "commission agents' services" from BPCL and IOCL and their distributors – stay granted.

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• 2013 (9) TMI 392
  Cenvat Credit of Service Tax paid on input services - on the basis of bills in the name of their Head Office who could pass on the Service Tax Credit by registering itself as an input service distributor to its various branches - Invoices issued in the name of Head Office, which is not registered - Appellant directly took the credit on the basis of Bills not permissible under CENVAT Credit Rules, 2004 – Held that:- Effect that the invoices, even in the name of head office, are eligible documents for the purpose of credit. The said defects are omissions, which are totally curable defects and are condonable - denial on the sole ground of invoices being in the name of head office, is not justified.Decided in favor of Assessee. Limitation - Show Cause Notice stands issued beyond the normal period of limitation – Held that:- There is no column or provision in ER-1 return to show as to whether the invoices are in the name of appellant or in the name of head office – Appellant not guilty of any suppression or mis-statement of facts with intent to evade duty. Extended period not applicable. Decided in favor of Assessee.

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• 2013 (9) TMI 391
  Construction Activities – Duty Liability - The appellants were engaged in construction activities and they construct both residential complexes as well as commercial and industrial complexes – held that:- Prima facie the legal question of divisibility of the contract into sale of materials and for providing construction service seems to be supported by Article 366 (29-A) (b) of the Constitution of India and Bharat Sanchar Nigam Ltd. Vs. UOI [2006 (3) TMI 1 - Supreme court ]. Even if the question was answered in favor of the appellants the question arises as to whether such division had been done in an arbitrary manner or based on evidences and if so what type of evidence - An assessee cannot choose to pay either VAT or Service Tax as he pleases (obviously who will choose to pay that tax for which the rate is lower) and discharge of VAT on a particular value cannot be conclusive proof that the value of material involved corresponded to the value on which VAT was paid - In some cases Courts and Tribunal have taken such payment as sufficient proof. Prima facie the service tax authorities have every right to look into the issue whether the value had been correctly split - This issue had not been looked into at any stage by lower authority apparently because adequate documents other than payment of VAT have not been placed before the lower authority - The issue had been argued more on questions of law rather than questions of fact before lower authority and in the hearing before the Tribunal for stay too. The matter needs to be looked into closely during final hearing of the appeal. Stay granted partly.

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• Central Excise

• 2013 (9) TMI 384
  Restoration of Appeal - Main contention of the revenue was that the appellants had not produced the correct documents and/or they have produced incorrect documents to the Tribunal which had resulted in setting aside the orders on the ground of limitation only - Held that:- The applications filed by the department were liable to be dismissed as such as there cannot be any application for restoration of appeals - At the most the applications could have been for rectification of mistakes, if any, on the face of the record - The applications filed by the department were took up as application for rectification of mistake apparent on the face of the record - The applications which were filed by the department were for the restoration of appeals which were allowed by the bench after hearing to both sides at length. Manipulation of ER-1 - Revenue was of the view that the appellant had manipulated the ER-1 returns which were produced before the Tribunal for obtaining relief on the ground of limitation - Held that:- The stand taken by the Revenue in both the applications seems to be totally erroneous and misguided and misconstrued, to such an extent that it was unsubstantiated wild allegation - The applications which were made by the department are misconstrued and were baseless as from random sample which had been taken up for verification. The assessee had indicated the quantitative discount on which no excise duty had been paid and cleared by them during the relevant period, and intimated the department - The downloaded pages from CBEC site, also indicate that the quantitative discounts were feeded in by the appellant during relevant period - before filing such an application, it was imperative on the part of the senior officers to verify the claims of the field formation, regarding such a serious allegation, as to manipulation of the returns that were filed before the Tribunal - the senior officers should have viewed, vetted the entire issue in a proper perspective and should have first understood the implication before filing the applications before the Tribunal - Decided against Revenue. Initiating Enquiry - Jurisdictional Commissioner was directed to initiate an enquiry to fix the responsibility and take appropriate action against the erring officers who had filed frivolous applications before the Tribunal.

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• 2013 (9) TMI 383
  Benefit of Notification No.56/2002 - Assesses were manufacturer of wires and cables and receive their inputs - The supplier of input was located in the State of J & K and was availing the benefit of Notification No. 56/2002 - The duty paid by the input supplier was being availed as Modvat credit by the assesses - duty actually stands paid and the dispute revolves around the legal interpretation of area based exemption notification - Whether assesse was entitled to self-credit or was required to pay duty in cash out of their PLA - Held that:- There was no merit in the prayer of the Revenue as the issue already stands decided by precedent decisions and the outcome of the dispute between assesse and Revenue would not have any effect on the present appellants and the consequence of the same would be relevant only for the purposes of deciding the liability of assesse. COLLECTOR OF CENTRAL EXCISE Versus H.M.M. LIMITED [1995 (1) TMI 70 - SUPREME COURT OF INDIA] and ARSH CASTINGS PVT. LTD. Versus COLLECTOR OF CENTRAL EXCISE, CHANDIGARH [1995 (9) TMI 156 - CEGAT, NEW DELHI] - the fact of the input supplier having taken the Modvat credit fraudulently and having utilized the same for payment of duty on their final product, will not affect the input receiver’s entitlement to the Modvat credit - The remedy lies at the input supplier’s end and not at input receiver’s end. Stay Application - There was merit in the appellants’ plea and the condition of pre-deposit of duty and penalty in both the stay petitions was waived. Difference of Opinion – Member (Technical) was not in consonance of the view of the Member (Judicial) and delivered a separate judgement against the assesse – But the majority view was into the favor of assesse – thus the stay granted unconditionally.

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• 2013 (9) TMI 382
  Whether the manufacturer of goods is Job-worker or not - Assessable Value under Rule 10A of the Valuation Rules 2000 - Whether the goods manufactured by INNOCORP and DART (the assessees) in terms of the “Contract Manufacturing Agreements” with TUPPERWARE and cleared to the latter’s godowns during the period from April, 2007 to February, 2008 were to be valued for the purpose of assessment of duty in terms of Rule 10A of the Valuation Rules, 2000 - Held that:- The subject goods should be shown to had been produced or manufactured by the assessees qua job workers on behalf of TUPPERWARE - the manufacturing activities carried out by the assessees under the relevant agreements constituted job work for TUPPERWARE who was sought to be presented as principal manufacturer - The appellant considers the assessees as job workers of TUPPERWARE - As per Explanation to Rule 10A, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorized by him - The terms and conditions of the two agreements were undisputedly similar - The parties to the agreement declared that neither of them was an agent of the other, that their relationship was at arm’s length on a principal-to-principal basis, that neither of them had any interest in the other and that they had a buy-and sell relationship of the agreement - It was also declared that TUPPERWARE was the purchaser of the products manufactured by DART – The second conditions was also not satisfied. It was true that stringent quality standards were prescribed by TUPPERWARE to be strictly maintained by the manufacturers at every stage of the manufacture - TUPPERWARE could inspect the process of manufacture to ensure that the specified quality standards for the products were being maintained - They also had the liberty to reject the finished goods which did not conform to the specified standards - The things were part of normal commercial practice in respect of business houses who insist on the quality of their merchandise - These cannot be considerations to hold that the manufacturing activities of the assessees were under extensive control of TUPPERWARE reducing the status of the manufacturers to job workers. That the brand name of TUPPERWARE was affixed on the finished goods by the assessees was also immaterial - POONA BOTTLING CO. LTD. AND ANOTHER Versus UNION OF INDIA AND OTHERS [1981 (5) TMI 26 - HIGH COURT OF DELHI AT NEW DELHI]. The third condition also remains unfulfilled in the case - In the result, the respondents in these appeals were not manufacturing the subject goods as job workers “on behalf of” TUPPERWARE - Rule 10A was not applicable to the assessment of the subject goods - The third requirement for the assessees to be job workers of TUPPERWARE had also not been satisfied in this case inasmuch as the goods were not manufactured from any inputs supplied by TUPPERWARE or by any other person authorized by them - The suppliers were chosen by the assessees from a panel furnished by TUPPERWARE does not mean that the actual suppliers were authorized by TUPPERWARE to supply the materials to the assesses - Such materials were to be returned to TUPPERWARE - But the cost of these materials could be billed by the manufacturer to be paid by TUPPERWARE vide clause (11) of TUPPERWARE-DART agreement, which arrangement also reflected a seller-and-buyer relationship between the parties - Following COROMANDEL PAINTS LTD. Versus COMMISSIONER OF C. EX., VISAKHAPATNAM [2010 (9) TMI 315 - CESTAT, BANGALORE] The respondent can claim strong support from the decision of this Bench in Coromandel’s case - There was no merit in the grounds of the appeals.

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• 2013 (9) TMI 381
  Penalty under Rule 15 of the CENVAT Credit Rules 2004 - appellant pleaed that no penalty was attracted where the CENVAT credit in question had been reversed without utilization - Held that:- The penalty was set aside and allow this appeal by way of remand with a direction to the original authority to ascertain the correct facts and take fresh decision on the question whether the appellant is liable to be penalized under Section 15 of the CENVAT Credit Rules 2004 on the ground of contravention of Rule 10 and, if so, to what extent - Needless to say that the appellant should be given a reasonable opportunity of being heard. There was a valid reason for remanding of the case to the original authority for fresh decision on the question whether a penalty under Rule 15 of the CENVAT Credit Rules 2004 was warranted and, if so, to what extent - It appeared from the records that the penalty was imposed for contravention of Rule 3(1) read with Rule 10 of the CENVAT Credit Rules 2004. Rule 3 was a substantive provision providing for CENVAT credit as a benefit to be claimed by a manufacturer of final products or a provider of taxable service - This benefit was allowed on inputs, capital goods and input services - Rule 3 also specifies the purposes for which the credit can be utilized - There were also provisions under Rule 3 which deal with situations such as what to be done with the CENVAT credit taken on inputs or capital goods when such inputs/capital goods are removed as such from the factory – Decided in favour of Assessee.

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• 2013 (9) TMI 380
  Valuation - Job Work - The principal-manufacturer supplied the raw material on payment of duty which had been taken credit of by the job-worker - the job-worker thereafter undertakes the job-work and returns the same to the principal-manufacturer on payment of appropriate duty - Held that:- Scrap value was liable to be added in the value of the job-worked product which had been returned to the principal-manufacturer on payment of duty - The job-worker was retaining the scrap and selling the scrap and retaining the sale proceeds of such scrap with himself - It was unimaginable that a job-worker would not have taken into account the value of the scrap that he can retain while quoting his job-charges - Similarly, the principal-manufacturer while negotiating the job-work charges obviously would have taken into account the cost of scrap that the job-worker was entitled to retain and sell - Normal business prudence would compel both the principal-manufacturer and the job-worker to take into account the value of the scrap that will be retained by the job-worker which can be sold by him – Following GENERAL ENGINEERING WORKS Versus COMMR. OF C. EX., JAIPUR [2005 (3) TMI 16 - SUPREME COURT OF INDIA]. Revenue Neutrality – Held that:- The job-worker and the principal-manufacturer were separate, distinct and different legal entities and, therefore, mere availability of credit to the principal-manufacturer cannot be said to have led to a revenue neutral situation - The principal-manufacturer can take the credit of the duty paid by the job-worker, such an argument was devoid of merits - Revenue neutrality situation will arise only if the job-working unit and the principal manufacturing unit belong to the same organization. Jay Yuhshin Ltd. v. Commissioner of Central Excise, New Delhi [2000 (7) TMI 105 - CEGAT, COURT NO. I, NEW DELHI ] - revenue neutrality being a question of fact, the same had to be established in the facts of each case and not merely by showing the availability of an alternative scheme - where the scheme opted for by the assessee was found to have been misused, the existence of an alternate scheme would not be an acceptable defence and with particular reference to MODVAT scheme it had to be shown that the revenue neutral situation comes about in relation to the credit available to the assessee himself and not by way of availability of credit to the buyer of the assessee’s manufactured goods. Extended Period of Time - Waiver of Pre-deposit - Whether the Revenue could have invoked extended period time to confirm the duty demand - Held that:- This would depend on the evidence available on record and would require detailed examination which can be done only at the time of final hearing and disposal of the case - The appellants had not made out a case for complete waiver of the pre-deposit of the dues - they were required to make pre-deposit of the demand of duty within the normal period of limitation - Decided against Assessee.

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• 2013 (9) TMI 378
  Whether duty paid u/s 35F (as pre-deposit) is available as Cenvat Credit - Cenvat Credit of duty paid against the stay order by the assessee from the supplying unit of goods against supplementary invoice was availed at the receiver unit - demand of differential duty - Penalty u/s 11AC - The Appellants were manufacturers of non-ferrous metals and their by-products - Revenue was of the view that the cost arrived at was not proper and that a different cost construction method had to be adopted and that resulted in short levy of Central Excise duty - Held that:- The demand confirmed by the impugned order was not sustainable against the Appellants - There was no reason to deny the Cenvat credit for duty paid under Section 35F of Central Excise Act - In this matter the Revenue had not been able to show any loss of revenue or any unjust enrichment or any reasonable ground for denying such credit except that in some other context the Tribunal has observed in some cases that the deposit under Section 35F had a slightly different character than duty normally paid. HARINAGAR SUGAR MILLS LTD. Versus STATE OF BIHAR [2003 (11) TMI 524 - SUPREME COURT OF INDIA ] - The amount deposited had in fact been passed on to the factory which was receiving the goods and the Appellants were not claiming any refund of the deposit made under Section 35F - They were only on the limited point that as per Section 35F they were required to make deposit of duty for hearing of Appeal and what they have deposited was therefore towards duty liability they should be allowed to take credit of such duty paid - Decided in favour of Assessee.

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• Indian Laws

• 2013 (9) TMI 390
  Eligibility to enter into tender - Non compliance of tender terms - Held that:- at the material time there was no blacklisting or delisting of the Appellant-company and that in those circumstances it was not relevant to make any disclosure in this regard. The very fact that the Tendering Authority, in terms of its communication dated 22nd July 2013 had not adverted to this ground at all, lends credence to the contention that a valid argument had been proffered had this ground been raised. Regardless of the weight, pithiness or sufficiency of the explanation given by the Appellantcompany in this regard, this issue in its entirety has become irrelevant for our cogitation for the reason that it does not feature as a reason for the impugned rejection. This ground should have been articulated at the very inception itself, and now it is not forensically fair or permissible for the Authority or any of the Respondents to adopt this ground for the first time in this second salvo of litigation by way of a side wind. The impugned Judgment is indubitably a cryptic one and does not contain the reasons on which the decision is predicated. Since reasons are not contained in the impugned Judgment itself, it must be set aside on the short ground that a party cannot be permitted to travel beyond the stand adopted and expressed by it in its earlier decision. Filing of the latest Income Tax Return was a collateral term, and accordingly the Tendering Authority ought to have brought this discrepancy to the notice of the Appellant-company and if even thereafter no rectification had been carried out, the position may have been appreciably different. It has been asserted on behalf of the Appellant-company, and not denied by the learned counsel for the Respondent-Authority, that the financial bid of the Appellant-company is substantially lower than that of the others, and, therefore, pecuniarily preferable - Decided in favour of appellant. Precedent value - Held that:- Court, and even more so the High Court as well as the subordinate courts have to face lengthy arguments in each case because of the practice of citing innumerable decisions on a particular point of law. The rule of precedence, which is an integral part of our jurisprudence, mandates that this exposition of law must be followed and applied even by coordinate or co-equal Benches and certainly by all smaller Benches and subordinate Courts. We hasten to clarify that if a co-ordinate Bench considers the ratio decidendi of the previous Bench to be of doubtful efficacy, it must comply with the discipline of requesting Hon’ble the Chief Justice to constitute a larger Bench. Furthermore there are some instances of decisions even of a Single Judge, which having withstood the onslaughts of time have metamorphosed into high authority demanding reverence and adherence because of its vintage and following in contradistinction of the strength of the Bench. This is a significant characteristic of the doctrine of stare decisis. Tata Cellular has been so ubiquitously followed, over decades, in almost every case concerning Government tenders and contracts that it has attained heights which dissuade digression by even a larger Bench. The law of precedence and of stare decisis is predicated on the wisdom and salubrity of providing a firmly founded law, without which uncertainty and ambiguity would cause consternation in society. It garners legal predictability, which simply stated, is an essential. The sheer plethora of precedents makes it essential that this Court should abjure from discussing each and every decision which has dealt with a similar question of law. Failure to follow this discipline and regimen inexorably leads to prolixity in judgments which invariably is a consequence of lengthy arguments.

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