TMI Tax Updates - e-Newsletter
September 14, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Articles

1. Reversal of Cenvat credit on waste and scrap of Capital Goods, Spares and accessories

   By: JAMES PG

2. Lower/Nil rate of tax deduction certificate for works contractors under Punjab VAT Act, 2005

   By: AMIT BAJAJ ADVOCATE

3. Alternate Dispute resolution and cases pending trails in various courts in india

   By: Ayyasamy Rengarajan

4. TRANSPORT OF PASSENGER SERVICES.

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Exports for August 2012 Stood at USD 22.3 Billion.

2. Anand Sharma Addresses State Chief Secretaries and Industry Secretaries on Manufacturing.

3. The Government is Intensively Engaged with Industry on the Constraints that Affect Industrial Production and Will Continue its Efforts to Find Practical Solutions to the Problems: FM

4. CBDT explains the rationale behind APA scheme

5. Czech Republic to be the Partner Country in the India Engineering Sourcing Show 2013.

6. Dr. M. Veerappa Moily Launches a Legal Compliance Manual Aimed at Increasing Compliance among Companies.

7. Anand Sharma to Discuss Measures to Reboot Manufacturing Sector With States, Industry Tomorrow.

Notifications

Central Excise

1. 34/2012 - dated 10-9-2012 - CE

Regarding the withdrawal of duty exemption in respect of goods required for initial setting up or substantial of Mega/ Ultra mega power projects.

Customs

2. 50/2012 - dated 10-9-2012 - Cus

Regarding inclusion of Inland Container Depot (ICD) Irungattukottai in the list of ports permitted for exports and imports under Export Promotion.

3. 49/2012 - dated 10-9-2012 - Cus

Seeks to amend Notification 12/2012-Customs, dated 17-03-2012, regarding the withdrawal of duty exemption in respect of goods required for initial setting up or substantial of Mega/ Ultra mega power projects.

Circulars / Instructions / Orders

Income Tax

1. [F.No. A.50050/95/2012-Ad.I] - dated 1-9-2012

Constitution of an Expert Committee on GAAR to undertake stakeholder consultations to finalize the guidelines for General Anti Avoidance Rules (GAAR) - Scope of terms of Reference of Expert Committee on GAAR expanded

FEMA

2. 29 - dated 12-9-2012

Overseas Direct Investments by Indian Party – Rationalisation

3. 30 - dated 12-9-2012

Comprehensive Guidelines on Over the Counter (OTC) Foreign Exchange Derivatives – Cost Reduction Structures

4. 26 - dated 11-9-2012

ECB Policy – Repayment of Rupee loans and/or fresh Rupee capital expenditure – USD 10 billion scheme .

5. 27 - dated 11-9-2012

ECB Policy – Bridge Finance for Infrastructure Sector.

6. 28 - dated 11-9-2012

Trade Credits for Import into India.

Customs

7. F.No. 405/2/2001-Cus.III - dated 4-9-2012

Order of the Supreme Court in Writ Petition (Civil) No. 657 of 1995 in the matter of Research Foundation for Science, Technology & Natural Resource Policy Vs Union of India (UOI), relating to Ship-breaking- regarding.

Companies Law

8. Letter [F. No. 1/1/2003-CL.V (Pt. File)] - dated 30-8-2012

Delegation of powers to Regional Directors

Highlights / Catch Notes

Income Tax

• Expert Committee Formed to Finalize GAAR Guidelines, Expands Scope for Comprehensive Stakeholder Engagement and Input.

  Circulars : Constitution of an Expert Committee on GAAR to undertake stakeholder consultations to finalize the guidelines for General Anti Avoidance Rules (GAAR) - Scope of terms of Reference of Expert Committee on GAAR expanded - Order-Instruction
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• Assessing Business Income: Is the Assessee an "Agent" or an "Arm" of the State for Tax Exemption?

  Case-Laws - AT : Assessment of business income - whether the assessee should be held to be an “agent” of the State or an “arm” of the State and exempt from assessment of income? - AT
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• Commissioner Can Revise Faulty Assessment Orders u/s 263 to Protect Revenue Interests.

  Case-Laws - AT : Revision u/s 263 by CIT(A) - It is settled position of law that failure to make enquires which are required in the facts of the case would itself make the assessment order erroneous and prejudicial to the interest of the revenue. - AT
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• Rental Income Not Trade/Business Income if Services Provided Are Insignificant and Incidental to Property Use.

  Case-Laws - AT : Rental income from the property - the income does not become income from trade or business if the hiring is inclusive of certain additional services such as heating, cleaning, lighting or sanitation, which are relatively insignificant and only incidental to the use. - AT
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• Mutuality Principle: Member Welfare Focus Keeps Entity Status Unchanged by Non-Member Income.

  Case-Laws - AT : Principle of Mutuality - as predominant object of the assessee has been found the welfare of its members and in the process if any income is received from a person other than the members it would not change the status of the assessee - AT
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• Cash Purchases from Arhatiyas Exceeding Rs 20,000 Disallowed u/s 40A(3); Not Agents u/r 6DD(k.

  Case-Laws - AT : Addition u/s 40A(3) - cash purchases above Rs 20,000 - assessee made final purchases from the Arhatiyas (commission agents / traders) and same cannot be treated as agents of the assessee firm within the meaning of Rule 6DD(k). - AT
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• Court Considers Best Judgment Assessment After Rejection of Accounts and Trading Addition Due to Lower G.P. Rate.

  Case-Laws - AT : Best judgement assessment - rejection of books of accounts - trading addition made on ground of decrease in G.P. rate - Explanation of the assessee can not be rejected in totto. - AT
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• Section 80IC Deduction: Allowed for Custom-Specified Manufactured Items with Assembled Components, Including Paints.

  Case-Laws - AT : Deduction u/s 80IC - items were being manufactured at the specification of the customers and certain bought items were put together for supply the complete unit, i.e. certain paints - deduction allowed. - AT
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• Section 54EC Tax Exemption: Fund Tracing Not Required for Asset Purchase Deduction Under Income Tax Act.

  Case-Laws - AT : Exemption u/s 54EC - once money is deposited in the bank account it gets merged with other funds of the assessee and it is impossible to locate which funds have been used for purchase of specified assets because the normal businessman would keep on doing various transactions in the bank account. Deduction allowed - AT
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• Interest on Borrowings for Land Acquisition Non-Deductible Due to Capital Nature Classification.

  Case-Laws - AT : Since the acquisition of land is of capital nature and therefore, interest paid for borrowings for the purpose of purchasing of such land is not allowable. - AT
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• Dispute on Fair Market Value for Long-Term Capital Gains Settled; Expenses for Cost of Improvement Unsubstantiated.

  Case-Laws - AT : Long term capital gain - dispute regarding computation of fair market value(fmv)as on 01.04.1981 - Valuation as per registered valuation accepted - however with regard to cost of improvement, assessee has miserably failed, to prove the factum of incurring of the expenses - AT
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• India-UAE Tax Agreement Under Fire: DRP's Handling Sparks Concerns Over Taxpayer Harassment and Prolonged Litigation.

  Case-Laws - AT : DTAA between India & UAE – casual attitude of the DRP leads to harassment of the assessee and drag them to protracted litigation - AT
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• AO and CIT(A) Misstep: Revenue Flow Not a Prerequisite for Establishing Business Operations' Commencement.

  Case-Laws - AT : Commencement of business - 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 - AT
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• Section 35AB Governs Technical Know-How Agreements, Excludes Section 37; Supreme Court Clarifies Tax Treatment in Recent Rulings.

  Case-Laws - SC : Technical Assistance Agreement - Acquiring of know-how - Once Section 35AB of the Act comes into play, then Section 37 of the Act has no application - SC
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• Supreme Court Rules Section 194H Inapplicable to Cash Discounts for Stamp Vendors; Not TDS on Commission or Brokerage.

  Case-Laws - SC : TDS - commission or brokerage to the persons carrying on the business as “stamp vendors“ - bulk quantity - said discount is in the nature of cash discount - Section 194H has no application - SC
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• Immunity Granted from Penalty u/s 271(1)(c) Due to Lack of Proven Default and Time Limit in Section 132(4).

  Case-Laws - SC : Penalty u/s 271(1)(c) - ince Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4) no default proved - immunity from penalty granted - SC
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• Court Rules Beechcraft Super King Air B-200C Qualifies as Aeroplane for 40% Depreciation Claim.

  Case-Laws - HC : Depreciation on Aeroplane-Aeroengines - whether the "Beechcraft Super King Air B-200C" purchased by the assessee fell within the description of aeroplane? - Depreciation allowed @40% - HC
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• High Court Rules Interest Income from Loans Taxable in Profitable Years for Borrowing Companies.

  Case-Laws - HC : Interest income from loans - accrual of interest - in the year under appeal in which the borrowing companies were making handsome profits - held as taxable - HC
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• Court to Decide if Agricultural Land Sale Profits Are Business Income or Capital Gains: Adventure in Trade Case.

  Case-Laws - AT : Profit on sale of agricultural land - income from business OR capital gain - the assessee with a sole motive of dealing in land acquired the land and sold the same which can be nothing but adventure in the nature of trade - AT
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• Income from MIPL, MLIL, and SIPL not taxable as Fees for Technical Services under India-Denmark DTAA.

  Case-Laws - AT : India-Denmark DTTA - The amount in question received by the assessee from MIPL, MLIL and SIPL was not in the nature of FTS and the same being part of the income from shipping business was not taxable in India - AT
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• Non-eligible unit losses can't offset profits of section 10A eligible undertakings; interest income ineligible for section 10A deduction.

  Case-Laws - AT : Deduction u/s.10A - he losses from non eligible units cannot be set off against the profit of the undertaking eligible for deduction u/s.10A - interest income will not be eligible for deduction u/s.10A - AT
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• Penalty Notice Issued Post-Survey Proceedings u/s 133A Invalid Due to Jurisdictional Defect.

  Case-Laws - HC : Penalty notice has been issued not in the course of survey proceedings u/s 133A but after its closure. - Thus, there is jurisdictional defect in assumption of jurisdiction for levy of penalty, which cannot be cured. - HC
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• Stock Valuation Key in Tax Assessments: Must Reflect True Economic Conditions Even if Books Are Rejected or Accepted.

  Case-Laws - AT : Best judgement assessment - the correct value of stock has to be adopted even if books are not rejected. - AT
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• Co-operative Credit Society qualifies for tax deduction u/s 80P(2)(a)(i), distinct from Co-operative Banks per Banking Regulation Act.

  Case-Laws - AT : Co-operative Credit Society is distinct and separate from the Co-operative Bank nor it can be said as a Primary Co-operative Bank within the meaning of Banking Regulation Act, 1949. Hence, the assessee being a Co-operative Credit Society is entitled for deduction u/s. 80 P(2)(a)(i) - AT
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• Tribunal Order Rectification Denied: Debatable Legal Point Not a Mistake u/s 254.

  Case-Laws - AT : Application u/s 254 to rectify order of Tribunal on ground of mistake apparent from record - A decision on a debatable point of law is not a mistake apparent from the record. - AT
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• Non-Resident Consultancy Fees for Offshore Oil Projects in Nigeria Not Taxable as Indian Income.

  Case-Laws - AT : Consultancy charges/fees for technical services paid to not residence working in overseas off shore oil and gas exploration projects it Nigeria - cannot be deemed to accrue or arising in India. - AT
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• Court Invalidates Reopened Tax Assessment; AO's Suspicion Doesn't Meet "Reason to Believe" Standard u/s 147.

  Case-Laws - AT : Validity of reopening of assessment - AO has merely proceeded on surmises, conjectures and suspicion to observe that income of the assessee has escaped assessment which in law cannot constitute a reason to believe for invoking section 147. - AT
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• Taxpayer Allowed to Claim Remaining 50% Depreciation Next Year for Assets Used Less Than 180 Days.

  Case-Laws - AT : Since assets were put to use for less than 180 days, depreciation claimed only 50% of 15% - Balance additional depreciation was claimed by in instant assessment year - Law does not prohibit that balance 50% will not be allowed in succeeding year - AT
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Customs

• Assessee Exempt from Rent or Demurrage Charges for Goods Seized by Officer.

  Case-Laws - AT : If the goods are seized or detained by the proper officer, the assessee shall not be charged with any rent or demurrage on the goods - AT
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• Non-filing of Bill of Entry within 30 Days Not a Contravention u/s 117, Customs Act 1962.

  Case-Laws - AT : Section 48 is not a contravention of the nature prescribed under Section 117 of the Customs Act, 1962 for non-filing of bill of entry within 30 days under Section 48 of the Act - AT
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• Individuals Seeking Fine Refunds Must Prove Their Case; No Presumption of Financial Burden Transfer Exists.

  Case-Laws - AT : Refund - burden of proof – Where a person claims refund of fine or penalty, there can be no presumption that he has passed on this incidence to any other person - AT
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• Supreme Court Grants Partial Stay on Penalties Pending 203 Crore Deposit.

  Case-Laws - SC : Confirmation of demand and imposition of penalties by invoking extended period - SC granted stay partly on deposit of 203 crores - SC
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• Duty Drawback Claims: No Penalty for Misclassification Without Evidence of Intentional Wrongdoing.

  Case-Laws - CGOVT : Export of the goods - claim of duty drawback - Mere allegation of wrong classification without proving intentional mala fide cannot lead to imposition of penalty - CGOVT
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• Inland Container Depot Irungattukottai Approved for Exports and Imports, Enhancing Trade Efficiency and Economic Growth.

  Notifications : Regarding inclusion of Inland Container Depot (ICD) Irungattukottai in the list of ports permitted for exports and imports under Export Promotion. - Notification
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• Duty Exemptions Withdrawn for Mega Power Projects Setup in Proposed Amendments to Notification 12/2012-Customs.

  Notifications : Seeks to amend Notification 12/2012-Customs, dated 17-03-2012, regarding the withdrawal of duty exemption in respect of goods required for initial setting up or substantial of Mega/ Ultra mega power projects. - Notification
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FEMA

• FEMA Circular Simplifies Overseas Direct Investments for Indian Entities, Streamlining Compliance and Boosting Ease of Doing Business Abroad.

  Circulars : Overseas Direct Investments by Indian Party – Rationalisation - Circular
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• ECB Unveils $10B Plan to Aid Rupee Loan Repayment and Capital Expenditure Under FEMA Regulations.

  Circulars : ECB Policy – Repayment of Rupee loans and/or fresh Rupee capital expenditure – USD 10 billion scheme . - Circular
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• ECB Policy Enables Bridge Finance for Infrastructure Projects via External Commercial Borrowings; Ensures Compliance and Transparency.

  Circulars : ECB Policy – Bridge Finance for Infrastructure Sector. - Circular
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• FEMA Circular Updates Import Trade Credit Rules, Streamlines Process for Compliance and Financial Management in India

  Circulars : Trade Credits for Import into India. - Circular
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Service Tax

• Appellant's Non-Registration Under Finance Act Deemed Reasonable; No Section 76 Penalty Imposed Due to Section 80 Leniency.

  Case-Laws - AT : Non registration - as the cause explained by the Appellant not to follow the provisions of the Finance Act, 1994 is reasonable no penalty u/s 76 is levied in view of the provisions of Section 80 - AT
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• Extended Service Tax Assessment Period Not Applicable to Agent Due to Bona Fide Doubt from 1997 to 1999 Activities.

  Case-Laws - HC : Clearing and forwarding agent - 16-7-1997 to 31-8-1999 - case of the assessee comes within the definition of bona fide doubt and in that event, the extended period is not applicable - HC
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• CBEC: No Proceedings for Assessees Who Paid Full Service Tax and Interest; Penalties Waived u/ss 76 and 77.

  Case-Laws - AT : Penalties under Sections 76 and 77 - CBEC has directed not to commence proceedings where the assessee discharges full amount of service tax and interest - penalty waived - AT
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• Service Tax Demand with Interest Remanded to Adjudicating Authority After RTI Information Surfaces for Further Review.

  Case-Laws - AT : Demand of service tax with interest - information received by the appellants after passing of the adjudication order, under the RTI Act, is relevant to the facts of the present case - matter remanded to adjudicating authority - AT
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• Street Taxi Operators Exempt from "Rent-a-Cab" Scheme Taxation.

  Case-Laws - AT : Ordinary taxi-operators on the street are not brought under tax net under the entry for “Rent-a-Cab” scheme - AT
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• Air Travel Agents' Service to Airlines Classified as Business Auxiliary Service, Subject to Service Tax per Regulations.

  Case-Laws - AT : Service provided by CRRS is to the Airlines and the Air Travel agent is promoting the service provided to Airlines - service provided by the Appellants to CRRS is business auxiliary service and service tax is payable on the same. - AT
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Central Excise

• Cenvat Credit Rule 6(1) Denies Credit for Fuel Used in Producing Exempted Goods; Applies Only to Taxable Goods Production.

  Case-Laws - AT : Cenvat Credit - Rule 6(1) shall apply in respect of goods used as fuel and on such application, the credit will not be permissible on such quantity of fuel which is used in the manufacture of exempted goods. - AT
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• Rebate Claim Rejection Overturned: Merchant Exporter's Name Missing on CT-I Certificate Not Grounds for Denial.

  Case-Laws - CGOVT : Rebate claim – rejection of claim for non-endorsement of the name of the merchant exporter in the CT-I Certificate - substantive benefit cannot be denied for procedural lapses - CGOVT
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• Government Must Refund Duty Paid on Exempted Goods, Rules Court; Re-credit Allowed for EHTP Unit's Claim.

  Case-Laws - CGOVT : Refund / Rebate claim – EHTP unit - payment of duty on exempted goods – Government cannot retain the amount collected without authority. - Re-credit allowed - CGOVT
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• Duty Exemptions Withdrawn for Mega Power Projects Setup and Expansion, Impacting Cost Planning and Stakeholders.

  Notifications : Regarding the withdrawal of duty exemption in respect of goods required for initial setting up or substantial of Mega/ Ultra mega power projects. - Notification
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• Supreme Court Upholds Classification of Goods as Complete Television Sets Under Tariff Entry 8528 Despite Later Disassembly.

  Case-Laws - SC : Classification - 'Parts of Television Receivers’ under heading 8529 OR ‘Television Receivers’ under Tariff Entry 8528 - Revenue had rightly classified the goods- product as complete Television set even though it was subsequently disassembled - SC
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• Fire Bricks Grog Classified as Non-Excisable Waste, Not Subject to Duty Under Central Excise Rules.

  Case-Laws - AT : Manufacture of fire bricks grog - goods are sold in gunny bags in loose condition held as Waste and scrap of fire bricks to be non-excisable / dutiable - AT
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• Rebate Claims Valid Despite Notification or Circular Errors if Exports are Genuine, Says Legal Position.

  Case-Laws - CGOVT : Rebate claim – Procedural infraction of Notification, circular, etc. are to be condoned if exports have really taken place, and the law is settled now that substantive benefit cannot be denied for procedural lapses - CGOVT
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• Understanding Bonds: Export Oriented Unit vs. Provisional Release of Seized Goods under Customs Act Sections 58 & 65.

  Case-Laws - AT : The purpose of executing bond under Sections 58 & 65 of Customs Act, 1962 is entirely different - there is distinction between a bond executed for working as EOU and a bond executed for provisional release of seized goods. - AT
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Case Laws:

• Income Tax

• 2012 (9) TMI 335
  Disallowance of service charges - services agreement between the assessee and its holding company - allegation of clear intention of reducing the tax liability of the assessee and increasing the non-taxable profits - Held that:- CIT (A) has identified some of the expenditure on electricity, rent advertisements etc which is selective and not appropriate according to the facts. - considering the extent of expenditure in both the cases and the fact that in both the companies are reporting the above amount as service charges recovered/paid from/to each other, no reason to doubt that assessee has not incurred the expenditure and the other company has not provided any services - also levy of service tax exists in each month's bill at 12.5% as if only tax avoidance is main issue in allocation of expenditure to assessee, there is no need for allocating the expenditure to assessee paying service tax at 12.5% directly on the gross amount - direction to AO to allow the expenditure - in favour of assessee. Disallowance of deputation charges - common services in the areas of Finance, Accounts, Taxation, Legal, Administration, HRD, education, Training, Research etc. - Held that:- the expenses on account of deputation charges as well as other expenses are not covered under the aforesaid agreement. The other reasons given by the AO for making the impugned disallowance cannot also be sustained - in favour of assessee. Non deduction of TDS while making payment towards purchase of software - Disallowance u/s 40(a)(ia) - the payment in question is in the nature of Royalty as per AO - Held that:- Following the view expressed by the Hon'ble Dellhi High Court in the case of DIT v. Ericsson AB (2011 (12) TMI 91 - DELHI HIGH COURT) that consideration paid merely for right to use cannot be held to be royalty which is favourable to the Assessee to hold that the consideration received by the Assessee for software was not royalty. Admittedly the Assessee who is a non resident does not have a permanent establishment and therefore business income of the Assessee cannot be taxed in India in the absence of a permanent establishment - as the assessee was asked to explain whether the facts involved in assessee's own case (payments to non residents) wherein payments made to non-residents has held that the amounts are royalty in nature are similar to the payments made to the Indian Companies where the assessee expressed inability to furnish the details immediately and has no objection if the matter is examined by AO direction to AO to examine the issue afresh in the light of facts before the Hon'ble High Court of Karnataka and the facts involved in payments made to Indian Companies and decide the issue fresh after giving due opportunity to assessee. Disallowance of an amount u/s 14A while computing the book profits under section 115JB - Held that:- Once AO has made the disallowance on account of interest expenditure, it was for assessee to produce evidence that the investments were made out of free surplus funds of assessee and that no part of the interest bearing funds had been used for the purposes of making the investments. As the assessee failed to prove the disallowance of the proportionate interest expenditure has to be necessarily made by the mandatory method prescribed in Rule 8D - No reason to interfere with the orders of the authorities for disallowing proportionate expenditure under section 14A and consequent to the above disallowance, the same is also to be disallowed under section 115JB working as well - against assessee.

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• 2012 (9) TMI 334
  Interest u/s 234A/234B - Whether the interest levy is mandatory ? - Held that:- As decided in CIT Versus Anjum M. H. Ghaswala And Others [2001 (10) TMI 4 - SUPREME COURT] the Board has issued circulars by Notification No. F. No.400/234/95-IT(B), dated May 23, 1996 as per which it has empowered that the Chief Commissioner of Income-tax and Director-General of Income-tax may waive or reduce interest charged under sections 234A, 234B and 234C beneficial to assessees, such benefit can be conferred on assessees who have approached the Settlement Commission under Section 245C on such terms and conditions as contained in the circular. As this aspect has not been considered in the present case by the High Court in its impugned order it need to be set aside directing the Tribunal to consider whether the assessee would be entitled to waiver of interest under the Circular - in favour of assessee by way of remand.

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• 2012 (9) TMI 333
  Reopening of assessment - claim for depreciation at the higher rate at 40% - Held that:- In the scrutiny assessment, AO with respect to depreciation claimed has raised a specific query and called upon the petitioner to justify the claim by giving details of vehicles on which depreciation at the rate of 40% was claimed. In reply to such question, the assessee made a detailed representation stating that company had purchased and leased commercial vehicles during financial years between 1.4.1994 to 31.3.1995 and 1.4.1995 to 31.3.1996. Details of such purchases were provided. It was also pointed out that the company was claiming depreciation at the rate of 40% on the commercial vehicle. It was stated that on certain vehicles, the company had claimed depreciation at the rate of 20% having reference to the vehicles purchased by the company during the second half of the year and therefore, half of otherwise available depreciation could be claimed. As the assessee company had placed full facts before the AO in the original assessment itself and also during the course of scrutiny assessment detailed submissions were given as despite commercial vehicles have been leased out, higher rate of depreciation was justified. This is therefore, not a case where income chargeable to tax can be stated to have escaped assessment for the reason of assessee failing to disclose truly and fully all material facts - in favour of assessee.

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• 2012 (9) TMI 332
  Disallowance of expenditure in connection with VRS - Held that:- this question of fact viz. whether the payments had been made under the Voluntary Retirement Scheme had been raised unnecessarily by the Commissioner of Income Tax (Appeals). The Assessing Officer had not disallowed the same on this ground. - even assuming that the appellant is entitled to raise this issue in appeal, it would not raise a substantial question of law. MAT - book adjustment - ITAT hold that the extraordinary items in the form of Rs.30 crores representing profit on transfer of land for development and Rs. 73 crores representing reversal of provisions for construction cost credited by the assessee in its accounts should be excluded from the net profit as per books which is computed as per Part II and Part III of Schedule VI to Companies Act on the ground that no income can be included in the “book profit” under section 115JA based on mere book entries? - Decision of ITAT sustained. VRS payment of Rs.27.92 crores, made to workers for closure of factory - It is pertinent to note that before the Tribunal, the appellant had not contended that the decision of this Court in the matter of Commissioner of Income-Tax Versus Bhor Industries Ltd.( 2003 (2) TMI 20 - BOMBAY HIGH COURT) is inapplicable to the present facts in fact, in it's appeal to the Tribunal the appellant-Revenue had urged that Bhor Industries is inapplicable only because the decision has not been accepted by the Department. Therefore, it is not open to urge a new ground or facts in third appeal.

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• 2012 (9) TMI 331
  Assessment of business income - whether the assessee should be held to be an “agent” of the State or an “arm” of the State and exempt from assessment of income in his hands - Held that:- The entire case of the assessee in the instant case, hinges on clause (2) or clause (3) of Article 289 of the Constitution of India - The basic purport of Article 289(2) is to neutralize clause (1)which says “The property and income of a State shall be exempt from Union Taxation”, but with a rider that, if there is any “trade or business” done on behalf of the Government or any operations connected therewith or any property issued or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. To make this clause effective, even for Government / State, conduct of “trade or business” is necessary, which simply means involvement of commercial and profit motive for the vendor. The observation above read together with section 113(3A) of MR&TP Act, 1966, shall emerge that the activity so performed by the assessee is nothing but an act of State without any profit or commercial motive attached with it. The only clause left for our consideration then would be clause (3), which shall come into play once clause (2) is disbanded which operates only if “Parliament may by Law declare to be incidental to the ordinary functions of Government”. Here, in the instant case, we have to read “Parliament” as “State Government” because in the instant case, it is the State Government which has authorized the assessee to perform the development projects at Navi Mumbai, Vasai- Virar, Waluj and such other places - as soon as the “Project” is complete, the project gets handed back to the State, i.e. when there is a development project, as per phases, and in the case of local authority, as and when the authorizing committee is satisfied, the reins are transferred to the municipal boards, from whom, the project was taken over, as we have seen from Resolution no. 10375 dated 06/08/2010. No agreement with the argument of the DR that there is no document which has drawn out the Agent-Principal relationship, because the very first Resolution dated 18th March, 1970 mention in para no. 2 that “…………… which would act as an “agent” of Government for the development of the areas with a view to secure the above objective”, and in para no. 3 of this Resolution clearly say, “The subsidiary company will work under the control and supervision of the State Government in the General Administrative Department”. Thus the first Resolution itself makes it clear that the assessee is to be an agent, but functions as an arm of the State Government, because, if the assessee can only work under the control and supervision of the State Government, meaning thereby that the assessee cannot make / take any decisions suo moto, then, in such a case authority for performance of all activities lie somewhere else. In any case, as per this Resolution, it clearly makes the assessee an “agent” of the State - looking into the financial functions of the assessee it is founded that all dealings have to be routed through authorizations by the Government and all funds receivable shall be in compliance and with intimations to State Industrial and Investment Corporation of Maharashtra Ltd. Bombay - as the department has been assessing the assessee as a State Government undertaking for the last three years, therefore, even this cannot be called as an afterthought and applying the ‘rule of consistency’ the department cannot be allowed to take a distinctive approach in the current year - in favour of assessee.

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• 2012 (9) TMI 330
  Unexplained investment - addition on account of peak credit available in the account - Held that:- As CIT(A) has rightly permitted the assessee to place on record bank statement, copies of the DDs and copy of the invoices exhibiting purchase of medicines by M/s. Shiva Distributors. However, from the record no conclusive evidence could be found showing that assessee is having a proprietaryship concern which is running a medical store in the name of Shiva Distributors. The only evidence produced by the assessee is that DDs were issued from his account to the suppliers of medicines coupled with the sales bills raised by those suppliers upon Shiva Distributors, thus these documents are insufficient to say that assessee was running Shiva Distributors. Thus looking to the nature of bank account that amounts have been deposited and withdrawn systematically which suggest that there is circulation of the money. As only credit sides are not to be considered as unexplained investment the benefit of set off representing the withdrawals has also to be granted to the assessee, in such situation, the learned first appellate authority has rightly held that peak credits in the bank account is to be assessed as income of the assessee - against assessee.

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• 2012 (9) TMI 329
  Invoking revision powers u/s 263 by CIT(A) - cancelling the assessment order passed u/s 147 r.w.s. 148 - investment in the house property - Held that:- As the revenue was in possession of information that the assessee had purchased various lands which were not reflected in the return and once the issue was reopened to investigate the purchase of various lands then the AO was duty bound to make enquiries to examine the purchase of these land as well as the sources for the same - as AO has simply issued notice u/s 142(1) and 143(2) which is standard for format of the notice and had never bothered to call for copies of various agreements of sale, the AO has proceed to make assessment u/s 143(3) r.w.s. 147 merely on the basis of statement of affairs and made addition in respect of amounts stated in the statement of affairs which could not be proved. This clearly shows that the AO has not examined what was actual consideration for purchase of land and what were the sources. It is settled position of law that failure to make enquires which are required in the facts of the case would itself make the assessment order erroneous and prejudicial to the interest of the revenue. As in the notice the issued, Commissioner recorded that the AO had accepted an addition in house property at Rs. 7.02 lakhs without holding any enquiry and as from the report of CBI, ACB Gauhati that according to CBI investment made in the aforesaid house property was made by one Shri Moti Lal Datta son-in-law of the assessee and according to the CBI, the cost of acquisition of the house was Rs. 16,16,500/-. On these facts the Ld. Commissioner in the notice issued recorded his opinion that the assessment in question being without necessary enquiries was erroneous and prejudicial to the interest of the revenue. As the revisionary order has been passed in respect of assessment order passed u/s 143(3) r.w.s. 147 on 31.12.2009 the power u/s 263 is available to CIT(A) to revise any order passed by the assessing authority and re-assessment order within from the end of Financial Year in which the order has been passed i.e. 31.3.2010 and would expire on 31.3.2012 whereas the order challenged here has been passed before 28.3.2012 i.e. well within time limit prescribed u/s 263(2). Therefore, the order is very much within the limitation period, thus order passed u/s 263 need to be uphold - against assessee.

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• 2012 (9) TMI 328
  Rental income from the property 'Income from house property' versus ‘Profits however where house property is given on lease or licence basis for earning income therefrom, the true character of the income derived is income from property. The said character is not changed and the income does not become income from trade or business if the hiring is inclusive of certain additional services such as heating, cleaning, lighting or sanitation, which are relatively insignificant and only incidental to the use. A mere glance at the impugned order for the year under consideration, reveals that the order passed by the CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi- judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. ‘Decision’ does not merely mean the ‘conclusion’. It embraces within its fold the reasons forming basis for the conclusion. In view of the foregoing, especially when the CIT(A) have not passed a speaking order, matter is restored to file of CIT(A) to bring out clearly as to whether or not the assessee derived income from exploitation of property as a commercial asset or as a owner – Decided in favor of assessee for statistical purposes

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• 2012 (9) TMI 327
  Principle of Mutuality - CIT(A) allowed it - revenue appeal - Held that:- As decided in assessee's own case for the assessment year 2006-07 on similar facts the Tribunal held that the assessee is a mutual concern as there is complete identity between the contributors and participators - the assessee is a society of industries of hazardous nature and the object is the treatment of waste produced by these industries to keep environment clean. The observation of the AO that it is not mentioned in the return that the principle of mutuality applies to the assessee has been held having no merit because what is important is the actual conduct of the assessee even if it is not mentioned in the return, it makes no difference to the status of the assessee - as predominant object of the assessee has been found the welfare of its members and in the process if any income is received from a person other than the members it would not change the status of the assessee - in favour of assessee. Addition on account of membership contribution - CIT(A) deleted it - Held that:- As decided in assessee's own case for the assessment year 2006-07 on similar facts CIT(A) has deleted the addition made on account of membership subscription on the basis that the assessee is covered by the doctrine of mutuality - as doctrine of mutuality proved in favour of assessee addition need to be deleted - in favour of assessee. Interest earned on fixed deposits made out of subscription money received - CIT(A)treated it as income of the assessee - Held that:- As decided in assessee's own case for the assessment year 2006-07 the Tribunal held that the decision of CIT(A) in respect of treatment of interest income are contradictory. He had deleted interest income of Rs. 1,34,234/- on the basis of concept of mutuality but had upheld the addition of interest income of Rs. 247113/- and Rs. 23,506/- - thus following the same direct the AO to delete the addition on interest on fixed deposit made out of the subscription money received from subscribers - in favour of assessee.

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• 2012 (9) TMI 326
  Treatment of TDS amount as actual income of the assessee company - Addition by applying 4% commission on debit and credit entries - the assessee did not conduct land development work for M/s. PACL India Ltd. and PGF Ltd. - CIT deleted the additions - Held that:- It is an established proposition of law that result of past years under similar facts is the best guidance for estimating the income, thus under these circumstances the CIT(A) was justified to take assistance of the immediately previous assessment year to estimate the profit of the assessee. There is no dispute that in the assessment year 2007-08 on identical issue arose wherein CIT(A) has deleted the addition made in respect of TDS amount and addition made on account of commission has been restricted to 2.24% of the gross receipt shown in the profit and loss account from M/s. PACL India Ltd. and others. As the revenue has not questioned the first appellate order for the assessment year 2007-08 on an identical issue under similar facts before the Tribunal, thus the CIT(A) has rightly deleted the addition made on account of TDS treating the amount claimed from M/s. PACL India Ltd. and PGF Ltd. as real income of assessee and in restricting the addition made on account of 4% commission on debit and credit entries regarding providing accommodation entries to the said companies to 2.24% of the gross receipt shown in the profit and loss account keeping in view the precedent of last assessment year 2007-08 under similar facts which remained unquestioned by the revenue - in favour of assessee.

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• 2012 (9) TMI 325
  Penalty u/s 271(1)(c) - undisclosed income - Notices u/s 153A - Held that:- In case of a search initiated on or after 1.6.2007 as provided in Explanation 5A, the assessee will be liable for penalty/s 271(1)(c) both in respect of assets as well as any income based on any entry in any books of account or other documents or transactions. But no such provision relating to entries was in existence in Explanation 5 prior to insertion of Explanation 5A in section 271(1). Hence the scheme of assessment till insertion of Explanation 5A and section 271AAA by the Finance Act, 2007 gave immunity to the assessees in respect of undisclosed income based on entries recorded in seized material In the case of the assessee the search was conducted on 22.11.2006 and cash of Rs. 1,11,45,350/- was found from the possession of the assessee. The assessee had undisclosed commission income as well as purchases and sales as seen from the statement of affairs made by the assessee based on seized material. The assessee had drawn cash flow statement for the entire period of six years in order to determine undisclosed income based on seized material for each of six assessment years. Explanation 5 to section 271(1) of the Act cannot be invoked in assessment year 2004-05 merely on presumption that the assessee might have been in possession of cash throughout the period covered by search assessments. The income offered to tax u/s 153A for assessment year 2004-05 is based on entries recorded in the seized material. Unlike provisions of Explanation 5A, the provisions of Explanation 5 cannot be invoked in assessment year 2004-05 in respect of entries recorded in seized material - in favour of assessee.

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• 2012 (9) TMI 324
  Addition u/s 40A(3) - cash purchases above Rs 20,000 - business of commission agency and trading of vegetables and foods - Held that:- CIT(A) has correctly held that the case of the assessee is not covered either under Rule 6DD(f) or Rule 6DD(k) of Income-tax Rules, 1962. Firstly, Rule 6DD(f) is applicable only in the cases when the payments are made in cash for the purchase of the agricultural produce directly to the cultivators, growers or producers of the agricultural produce, whereas in present case, appellant has made no such payments to the cultivators, growers or producers of the agricultural produce. Secondly, appellant has made final purchases from the Arhatiyas (commission agents / traders) and same cannot be treated as agents of the assessee firm within the meaning of Rule 6DD(k). Circular No. 34 dated 5.3.1970 makes it clear that the payment to Arhatiyas do not fall for exclusion under above sub clause. Thirdly, there is no material on record to show that there was exception or unavoidable circumstances for making payments in cash. Payments to same party were made by cheques and by cash also. Therefore, invoking the provisions of section 40A(3) of the Act was justified. On contention of assessee that authorities below have not doubted the genuineness of the payments made in cash it is held that those genuine and bonafide payments could not be taken out of purview of section 40A(3) after amendment of the Rules by the Finance Act, (1995) which was clarified vide Board's Circular No. 117 dated 14.8.1995 - Decided against assessee

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• 2012 (9) TMI 323
  Best judgement assessment - rejection of books of accounts - trading addition made on ground of decrease in G.P. rate - cash payments made on account of purchase - self made vouchers maintained - purchase not fully verifiable as no stock register was maintained - Held that:- In view of facts, rejection of books of account were justified since certained purchases remain unverifiable. However, trading addition at Rs.1,79,919/- is on higher side. It is seen that AO has not asked the reason for decline in GP rate. Further, making payment in cash does not attract any trading addition if it is not found that purchases are inflated. It was explained before CIT(A) that turnover was pursistently decreasing & there was a stiff competion in the market as market was flooded with the cheap Chinese furniture, therefore, turnover as well as profit was on decreasing side. It is further seen that though assessee has made purchases from few parties in cash however Vat was paid and bills were received & payments has also been made by cheque. Explanation of the assessee can not be rejected in totto. In view of aforesaid and decreasing trend of the profit, trading addition of Rs.40,000/- is sustained that will meet the end of justice - Decided partly in favor of assessee

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• 2012 (9) TMI 322
  Validity of reopening of assessment earlier framed u/s 143(3) after expiry of four years from the end of the relevant AY - assessment reopened on ground that amount surrendered on account of excess stock and excess cash is an unexplained investment in the stock and unexplained money and is deemed income of the assessee u/s 69 and 69A - assessee had claimed remuneration to the partners against the income surrendered by the assessee firm at the time of survey operation u/s 133A(1) - Held that:- At the very outset, it is observed that initiation of re-assessment proceedings was based on change of opinion of the AO which is not permissible in law. It is an admitted fact that the assessee has fully and truly disclosed all material facts necessary for assessment at the time of filing of return and also during the course of assessment proceedings and the assessment was completed u/s 143(3). It is well settled law that re-assessment proceedings cannot be initiated merely by fresh application of mind of the Assessing Officer to same set of information which is nothing but change of opinion, which is not permissible under the law. There was no material or information which had come to possession of Assessing Officer after completion of the original assessment to justify the reopening - Decided in favor of assessee

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• 2012 (9) TMI 321
  Deemed Dividend - partnership concern constituted of two partners C & H - said C was also Director of M/s V having 23% share holding in the said company - addition made on premise that holdings of the partners of the erstwhile partnership concern were more than 10% and hence provisions of S2(22)(e) were applicable - Held that:- Where the conditions laid down in S2(22) with regard to minimum shareholding by the shareholders in the assessee company were not fulfilled, the shareholding of various different persons could not be clubbed to decide the issue of fulfillment of condition laid down in section 2(22)(e). Undoubtedly the assessee had business relations with M/s V and over and above the sales amount, the said company had given cheques to the assessee. The said transactions though were in the nature of advances or loans, but no shareholding was held by the assessee partnership concern in the Indian company and in the absence of the same, the provisions of section 2(22)(e) were not attracted, which comes into operation only when there is shareholding of more than 10% of voting power and there is interchange of funds for non-business purposes - Decided in favor of assessee.

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• 2012 (9) TMI 320
  Deduction u/s 80IC - partial dis-allowance - assessee engaged in the business of steel fabrication and manufacturing of prefabricated structure, mainly supplied to the Defence and Paramilitary Organization - units at both Chandigarh and Baddi - profits of the Baddi unit claimed as deduction u/s 80IC - deduction claimed u/s 80IC restricted partially on account of three components - apportionment of administrative and general expenses in certain ratio between the Chandigarh unit and the Baddi unit - ineligibility of deduction u/s 80IC on ground of profit earned from civil works contract - Trading vs. Manufacturing activities Held that:- In view of the admission of the assessee during the assessment proceedings as evidenced by the recalculation of the allocation of the ratio between Baddi unit and Chandigarh unit, addition to the extent of Rs.4,03,445/- is upheld. Further allocation of Rs.2,02,213/- to the Baddi unit on account of exclusion of excise duty from the sales turnover of Chandigarh unit for computing percentage ratio is also upheld. Consequently, the deduction u/s 80IC being reduced to the extent of Rs.6,05,658/- is upheld. Profit earned from civil works contract - Admittedly, assessee is not entitled to deduction u/s 80IC on the profits arising on civil contract work carried out by the assessee. However, following the principles of natural justice, we remit this limited issue back to the file of the AO to determine the profits from work contract. Trading vs. Manufacturing activities - Held that:- Merit is found in the plea of the assessee that the assessee was engaged in the business of manufacturing of prefabricated sheets/cabins as per order received from the Ministry of Defence. The said items were being manufactured at the specification of the customers and certain items were not manufactured by it, but were put together for supply the complete unit, i.e. certain paints were bought and supplied alongwith manufactured items, final coat of paints was not put on the sheds as the said items were being transported for a long distance and only on being erected the paints were put by the army itself and the said items were not sold by the assessee, but were part of the contract deal of supply of the manufactured items. Therefore, it is held that assessee is entitled to benefit of claim of deduction on the said bought out items and there is no need to rework the deduction u/s 80IC Dis-allowance u/s 40(a)(ia) - non-deduction of tax at source from payment of erection charges - Held that:- In case amount has been paid as on the close of the year, no disallowance is warranted u/s 40 a(ia) in view of the ratio laid down in case of ACIT V. Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM). However, in case the said payment has been made after the close of the year then the said amount is dis-allowable. Further, where the amount is disallowed, the said is added back to the profits of the business and the assessee is entitled to the claim of deduction u/s 80IC on the said profits being eligible profits for claiming the said deduction. Matter remitted back to file of AO for requisite verification

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• 2012 (9) TMI 319
  Registration u/s 12AA - rejected on invocation of Section 13(1)(ii) and lifelong membership of the trustees and assessee being both society and Trust - assessee Trust running a school - Held that:- CIT while granting registration U/S 12AA has to look into the objects of the Trust and whether the Trust is carrying on the said objects of the Trust. See Surya Educational & Charitable Trust(2011 (10) TMI 47 - PUNJAB AND HARYANA HIGH COURT). Objects of the present assessee Trust were in the line of Education and the assessee was running both school and college. Once a Trust is engaged in the activities of providing Education by way of setting up school and college, which is one of the recognized object of charitable activity and no evidence having being brought on record, that the said activities of the Trust were not genuine, the said Trust is entitled to Registration u/s 12AA. The satisfaction of conditions of Sec. 11 to 13 is to be gone into by AO, while determining the income of Trust at the time of assessment and not to be gone into by CIT, while granting registration U/s 12AA. On objection that assessee is both Trust and society is recognized system and once it is registered as Trust, provision of election are not applicable to Trusts. The next objection that Trustee and their successor were lifelong member and hence activities of trust being not genuine are not correct, it is held that Rule against perpetuity is not applicable in case of Public charitable Trust, as per section 18 of Transfer of Property Act. CIT directed to grant Registration U/S 12AA - Decided in favor of assessee

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• 2012 (9) TMI 318
  Deduction u/s 80IC - dis-allowance - manufacturing of foundation anchor rods for windmills on its own behalf and on behalf of the third party - dis-allowance - Held that:- Issue stands covered by the order of the Tribunal in assessee's own case relating to AY 2005-06 wherein it was held that activity carried on by the assessee amounts to manufacture and the profits earned by the assessee from carrying on the manufacturing activity are eligible for the deduction u/s 80IC Addition made on account of technical knowhow charges taking the same as income of the assessee from undisclosed sources, not eligible for deduction u/s 80IC - Held that:- Issue raised in the present appeal is identical to the issue raised in the earlier years and following the same it is held that bifurcation in the income from business and income from undisclosed sources has been carried out by the AO only on presumptions, which have no basis. No merit in the said estimation of income from undisclosed sources. Deduction u/s 80IC is allowed - Decided in favor of assessee

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• 2012 (9) TMI 317
  Exemption u/s 54EC - dis-allowance - LTCG on sale of properties - sale consideration deposited in Bank out of which FDR was purchased and some money was given loan to certain persons - later REC bonds purchased - this sum according to the AO had been received by way of transfer from another bank account of the assessee - dis-allowance on ground that investment in purchase of REC bonds were not out of capital gain - Held that:- Only requirement u/s 54EC is that investment in specified assets should have been made within a period of six months from the date of transfer of such capital asset. This condition has been complied by the assessee and there is no further condition that the funds should be given out of capital gain. Otherwise also once money is deposited in the bank account it gets merged with other funds of the assessee and it is impossible to locate which funds have been used for purchase of specified assets because the normal businessman would keep on doing various transactions in the bank account. Deduction allowed - Decided in favor of assessee

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• 2012 (9) TMI 316
  Interest paid for acquisition of capital assets for existing business or expansion of business - violation of section 36(1)(iii) - addition - Held that:- Since the acquisition of land is of capital nature and therefore, interest paid for borrowings for the purpose of purchasing of such land is not allowable. As far as other items are concerned, it was stated that no business purpose is there. Order of CIT(A) upheld confirming addition on account of interest dis-allowance - Decided against assessee Addition u/s 40(a)(ia) - non-deduction of tax at source from amount paid as repair and maintenance - Held that:- Since the payments have already been paid, provisions of section 40(a)(ia) are not applicable. Addition is directed to be deleted. See ACIT V. Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) - Decided in favor of assessee

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• 2012 (9) TMI 315
  Long term capital gain - dispute regarding computation of fair market value (fmv)as on 01.04.1981 - assessee contending rate of Rs.50/- per sq. ft against Rs.36/- per sq. ft adopted by Revenue - Held that:- Adoption of the rate by the AO and subsequent reduction of the same by the CIT(A), cannot be sustained, in view of the relevant documentary evidence filed by the assessee in the form of report from the registered valuer and a comparable case. Therefore, impugned rate shown by the assessee is founded, on relevant documentary evidence - Decided in favor of assessee Non-consideration of cost of improvement in building in AY 88-89 and 89-90 - Revenue contended non-furnishing of evidence by assessee in support of same - Held that:- Assessee merely referred to certain pages of the diary, which cannot be construed as credible and reliable evidence. The submission made by the assessee is not plausible and in the absence of cogent and corroborative evidences, the same cannot be accepted. Needless to say that the onus to prove the incurring of expenditure, on renovation squarely lies on the assessee and the assessee has miserably failed, to prove the factum of incurring of the expenses - Decided against assessee Addition u/s 68 - Cash deposits in bank accounts - Held that:- From records it is evident that deposit has been made from the withdrawals made from the banks. Therefore, CIT(A) rightly deleted the addition made on this ground - Decided in favor of assessee.

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• 2012 (9) TMI 314
  DTAA between India & UAE – assessee (UAE company) engaged in the business of shipping operations of running feeder line between India and Dubai – taxability of ‘slot hire charges’ – assesse contended non-taxability in view of Advance Ruling (AAR) in the appellant’s own case - Held that:- The assessee's main contention that its case is covered by AAR ruling, has not been analyzed at all. In impugned AAR ruling there is a categorical averment that income derived by the assessee by operations of ships in international traffic would be governed by Article 8 of the DTAA. It is evident that the assessee's submissions and objections have been brushed aside without giving any proper reasons and sufficient consideration. This casual attitude of the DRP leads to harassment of the assessee and drag them to protracted litigation In view of aforesaid, order is set aside and matter remitted to the file of the DRP to consider the objections of the assessee and pass a proper and speaking order giving direction u/s 144C – Decided in favor of assessee for statistical purposes.

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• 2012 (9) TMI 300
  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 - in favour of assessee.

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• 2012 (9) TMI 299
  Technical Assistance Agreement - Acquiring of know-how - deduction u/s 37 OR amortized u/s 35AB - Held that:- As directed to assessee in his own case in CIT Versus Drilcos (India) Pvt. Ltd. [2003 (12) TMI 32 - MADRAS HIGH COURT] payment was required to be considered only u/s 35AB & not entitled to have the amount paid for acquiring know-how as an item of revenue expenditure allowable as a deduction u/s 37. As Section 35AB says that the expenditure should have been incurred for the purposes of the business of the assessee, in the present case, the Technical Assistance Agreement was entered into between the assessee and the American company for acquiring know-how which was, in turn, to be used in the business of the assessee. Once Section 35AB of the Act comes into play, then Section 37 of the Act has no application - against assessee.

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• 2012 (9) TMI 298
  Non deduction of TDS - commission or brokerage to the persons carrying on the business as stamp vendors - Held that:- As satisfying with the decisions taken in assessee s own case in [2002 (6) TMI 32 - GUJARAT HIGH COURT] that 0.50% to 4% discount given to the Stamp Vendors is for purchasing the stamps in bulk quantity and the said discount is in the nature of cash discount, thus concluding that the impugned transaction is a sale and consequently, Section 194H has no application - in favour of assessee.

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• 2012 (9) TMI 297
  Penalty u/s 271(1)(c) - search and seizure - assessee claimed immunity under clause (2) of Explanation 5 to Section 271(1)(c) - Held that:- The assessee is entitled to immunity from payment of penalty under clause (2) of Explanation 5 to Section 271(1)(c) as all the three conditions as defined under the section are satisfied by assessee as decided in assessee' sown case in 2004 (7) TMI 86 - RAJASTHAN HIGH COURT. As the statement was made by the Karta (assessee) during the search which concluded on August 1, 1987 that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income before expiry of time specified in Section 139(1), thus satisfying first condition - second condition was satisfied as the assessee had specified in his statement under Section 132(4), the manner in which such income stood derived - for satisfying third condition the only requirement stipulated for the assessee to "pay tax together with interest" as in the present case the assessee has paid tax with interest upto the date of payment, since Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4) no default proved - decided in favour of assessee

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• 2012 (9) TMI 296
  Disallowance u/s 14A - ITAT deleted it - Held that:- Considering law having been declared in Maxopp Investment Ltd. s judgment does not disclose any error as regards interpretation of Entry III(3)(i) of the Depreciation Rules and its upholding the depreciation allowable in the present case to the tune of 40% cannot be termed as unjustified or unwarranted - in favour of assessee. Claim of cash payment as deductible expenditure under Rule 6DD(k) - Held that:- As the charges payable and claimed by the assessee were in respect of the route navigational and parking charges for an aircraft required by Airport Authority of India there can be no dispute that the Airport Authority of India is a statutory body entitled to claim its dues and even entitled to frame Rules and Regulations under the parent Act in such an eventuality, once the authority required that cash had to be paid as a condition for flight clearance required by the assessee, it had really no choice in the matter. The interpretation urged by the revenue is far removed from reality - in favour of assessee.

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• 2012 (9) TMI 295
  Interest income from loans - accrual of interest - Non inclusion in computation of income as that the borrowers were in a weak financial position - ITAT held it in favour of assessee - Held that:- As the debtor-companies were not loss making companies in the relevant previous years, that they were actually making profits and in this view of the matter, he held that the AO was justified in charging interest. Tribunal had decided the dispute in favour of the assessee for the assessment years 1997-98 and 1998-99 because in those years the borrowing companies were in a bad financial position making it impossible to realize any interest from them, whereas that fact-situation does not obtain in the year under appeal in which the borrowing companies were making handsome profits, thus these loans could not be treated as non-performing assets - against assessee.

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• 2012 (9) TMI 294
  Profit on sale of agricultural land - income from business OR capital gain - Held that:- The main object clause suggests that the assessee's main business is to deal in real estate and the assessee carried on the activity of buying and selling of lands and in each case the land was not subjected to cultivation by the assessee - the argument of the assessee on an assumption the land is fit for agriculture and was used for agriculture purpose by somebody on behalf of the assessee is not acceptable as it is on record that there is a series of transactions by which the assessee bought the land and sold for profit. The land purchased by the assessee in the present case is subject matter of trade and it has purchased at regular intervals and it cannot be considered as investment activity of the assessee. Even after purchasing the agricultural land, the assessee cannot be said to be carrying on any agricultural operation. There were no activities connected with the land. Though the assessee taken a plea that the land was leased for agricultural operations, the evidence brought on record does not suggest that the agricultural operation was actually carried on the said land. Though the assessee shown the land as an investment in the Balance Sheet it cannot change the character of land as stock-in-trade. The entry in the books of account is not conclusive to hold that the assessee has not dealt with in land. The facts of case suggest that the assessee with a sole motive of dealing in land acquired the land and sold the same which can be nothing but adventure in the nature of trade and that the land dealt by the assessee is a stock-in-trade. Unable to appreciate this contention of the assessee that AO accepted the income arising out of sale of such land as income from agriculture in earlier year as each assessment year is a separate unit of assessment and principles of res judicata did not apply to the income-tax proceedings - against assessee.

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• 2012 (9) TMI 293
  India-Denmark DTTA - amount received towards assessee's share of shared IT Global Portfolio tracking system - assessee in the present case is a non-resident company incorporated under the laws of Denmark - Held that:- The payments received by the Assessee are for providing a facility to its agents as that the payment received is nothing but a payment by way of reimbursement of the cost for providing a particular facility - AO in coming to the conclusion that the payment was for fee for technical services has relied on the fact that there has been use of sophisticated equipments, this by itself will not be sufficient to holding technical services being rendered. As decided in CIT v. Bharati Cellular Ltd.(2008 (10) TMI 321 - DELHI HIGH COURT) that to call a payment as fee for technical service, the payment should be for use of human skills and where only machines perform or give some services that would not be enough to call a payment a payment for FTS - As submitted by DR that the basic data is entered by human effort and therefore the payment should be treated as FTS cannot be accepted because ultimately the machine only performs and no human element is involved - that the huge cost for installation of the system and the huge payment made by the Assessee by itself is an indication that the payment is FTS is without any merit as the percentage of payment received by the Assessee towards reimbursement compared to the total receipts in the form of freight etc., from shipping business in India is less than 1%. Thus the receipt in question cannot be considered as Fees for Technical services rendered. The amount in question received by the assessee from MIPL, MLIL and SIPL was not in the nature of FTS and the same being part of the income from shipping business was not taxable in India as per Article 9 of the DTAA since the place of effective management of the assessee company is situated in Denmark - in favour of assessee.

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• 2012 (9) TMI 292
  Reopening of the assessment u/s.147 - Held that:- From the perusal of the profit / losses the assessee had shown other income of Rs. 1,85,05,435/- but this schedule did not show any interest income. Further the assessee in the P & L A/c. had claimed deduction on account of net interest paid after netting the interest receipt which makes it clear that the interest income had not been shown separately in the P & L A/c. The interest income had been shown only in the Schedule M which gives the details of interest expenditure and here do full details of interest income has not been given. Thus only after making the some efforts, the interest income can be gathered from the accounts and, therefore, showing the interest receipt as part of the interest expenditure and not separately in the P & L A/c on the income side cannot be considered as true and full disclosure of facts relating to claim of deduction in respect of interest income - the assessee had failed to disclose truly and fully all the material facts necessary for the assessment in so far as the claim of deduction u/s.10A in respect of interest income is concerned, thus reopening of assessment is warranted - against assessee. Computation of deduction u/s.10A(4) - whether each units should be treated as independent unit or all the units should be taken as single unit for set-off - Held that:- As regards the set off of losses from some units against the profit of other units while computing the deduction u/s.10A is concerned, the assessee has maintained separate accounts in respect of each unit and profit and loss has been computed separately. The assessee has also filed the copies of separate P & L A/c. of each unit in the paper book and has also filed an auditors certificate in Form No.56F giving separate computation in respect of each unit. In our view, profit from each unit is eligible for deduction u/s.10A independently provided the profit could be computed separately, thus as there is no dispute that the assessee has maintained separate accounts in respect of each unit and profit has been computed separately. The losses from non eligible units cannot be set off against the profit of the undertaking eligible for deduction u/s.10A for the purpose of computation of deduction u/s.10A - in favour of assessee. Whether deduction u/s.10A is allowable in respect of other income - Held that:- As the profit directly arising from the export of articles or things or computer software will have to be considered as profit of business and not any other income which is incidental or attributable to such income while computing the profit derived u/s.10A(4). In the present case, the deduction has been claimed in respect of other income which includes dividend income, income from investment, profit from sale of assets, interest from ICD, bank deposits, interest on advance for business or to employees and other receipts, therefore, the interest income will not be eligible for deduction u/s.10A - against assessee.

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• 2012 (9) TMI 291
  Concealment of income - Penalty and demand notices issued accordingly - Criminal prosecution against assessee - Held that:- Considering date of filing of the return, date of processing the return and date of issuance of the said notice, it is evident that the penalty notice, dated 24.2.1994, has been issued not in the course of survey proceedings u/s 133A but after its closure. Thus, there is jurisdictional defect in assumption of jurisdiction for levy of penalty, which cannot be cured. Consequently, the impugned penalty notice has been issued contrary to the express provisions of section 271(1)(c) as no penalty notice under Section 271(1) (c) was issued in the course of assessment proceedings, thus the assumption of jurisdiction by the AO for initiation of impugned penalty proceedings is not valid. Since the order whereby penalty was imposed on the petitioners had been quashed by the Tribunal, the criminal prosecution of the petitioners was liable to be quashed - in favour of assessee.

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• 2012 (9) TMI 290
  Addition made on account of unexplained investment in Mutual funds and unexplained cash credits - assessee when confronted with the information received from AIR of investment in mutual funds filed revised Balance Sheet before the AO reflecting the above said investment - estimation of income without rejecting the books of account of the assessee - assessee claims to have filed the explanation before the AO which had not been accepted by latter - Held that:- From the perusal of the record we find that though the assessee had furnished various explanations before the AO and the CIT (Appeals), the same have not been considered in the proper perspective. The grievance of the Revenue is that even the CIT (Appeals) has accepted the contention of the assessee in violation of the provisions of Rule 46A of the Income Tax Rules. The plea of the assessee in this regard is that no fresh evidence was furnished before the CIT (Appeals). In view of aforesaid, we deem it fit to restore the matter back to the file of the AO to decide all the issues de-novo.

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• 2012 (9) TMI 289
  Best judgement assessment - rejection of books of account - rice mill - alleged lower yield on comparison with yield of other rice mills - undervaluation of closing stock of by product - Held that:- Simply because the yield has been marginally less in case of the assessee, the books of account could not have been rejected. The Assessing Officer has not brought any material on record to show that actual yield was higher in case of the assessee. Therefore, addition in this respect is directed to be deleted. As far as addition in respect of valuation of closing stock of husk is concerned, in our opinion, the correct value of stock has to be adopted even if books are not rejected. Since we have not upheld the rejection of books of account still addition on account of correct value of closing stock can be maintained and accordingly we confirm the order of the ld. CIT(A) in this regard. Addition u/s 40A(2) - goods sold to sister concern at lower value - Held that:- It is settled law that Section 40A(2) can not be applied for making addition for the difference in value of sales at which the goods are actually sold and the value which in the opinion of the Assessing Officer is correct value. Further, Supreme Court in case of CIT V. Glaxo Smithkline Asia (P) Ltd (2010 (10) TMI 21 - SUPREME COURT OF INDIA ) has itself agreed that certain amendments are required to be made in Section 40A(2) if Transfer Pricing Regulations were required to be applied to domestic transactions between related parties. In view of aforesaid, provisions of section 40A(2) cannot be attracted for making addition on account of difference in sale value effected by the assessee in comparison to the fair market value - Decided in favor of assessee. Undervaluation of closing stock - Held that:- Stock has to be valued at cost or market value whichever is lower and the sale value cannot be applied for valuation of closing stock - Decided in favor of assessee

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• 2012 (9) TMI 288
  Deduction u/s 80P(2)(a)(i) - Co-operative Credit Society engaged in providing credit facilities to its Member - dis-allowance on ground that in view of insertion of the of sub-sec(4) to Sec. 80P w.e.f. 1.4.2007, the said section will not apply to any Co-operative Bank - reference to Banking Regulation Act 1949 - Held that:- On plain reading of the Banking Regulation Act, 1949, nowhere it is suggested that the term "Co-operative Bank" also includes 'Co-Operative Credit Society" also. Meaning of any term or expression is to be ascertained in the context of provisions of referred Act. Interpretaion of AO that assessee Co-Operative Credit Society partakes the character of the Primary Co-operative Bank is not the correct interpretation. It is well settled principle in the interpretation of the 'taxing provisions' that the same are to be strictly construed and there is no room for any intendment. One has to fairly look into language used by the Parliament. The Parliament has adopted the definition of the Co-operative Bank by referring the same as given in the Banking Regulation Act, 1949. It is called Legislation by reference and we have to give the strict interpretation while interpreting the effect of Sub-sec. (4) to Sec. 80 P. In our opinion, Co-operative Credit Society is distinct and separate from the Co-operative Bank nor it can be said as a Primary Co-operative Bank within the meaning of Banking Regulation Act, 1949. Hence, the assessee being a Co-operative Credit Society is entitled for deduction u/s. 80 P(2)(a)(i) - Decided in favor of assessee.

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• 2012 (9) TMI 287
  Application u/s 254 to rectify order of Tribunal on ground of mistake apparent from record - Revenue contended that there are factual errors, errors on account of non-consideration of the arguments and evidence led by the Department - Held that:- It is observed that Tribunal has considered all facts in totality and has come to the conclusion and therefore, we find no mistake apparent from record. The mistake u/s 254(2) has to be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record. It is an application u/s 254(2) which has got limited application, it should be a glaring and patent mistake, the mistake should not require any long drawn process of reasoning. It does not cover the review of the order, as was the intention of the Revenue, in the present application, who had been pointing out the fault in understanding the facts of the case by the ITAT and wanted the order to be re-written. Each and every mistake pointed out by the Revenue was capable of full debate and in long drawn process which is not permitted in law. Hence, Miscellaneous Application filed by the Revenue is clearly outside the scope and ambit of the provisions of section 254(2) and are thus dismissed - Decided against Revenue

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• 2012 (9) TMI 286
  Second reopening attempted u/s 148 - exclusion of Duty Drawback and DEPB Licence values while computing deduction under Section 80-IB - First Reopening of assessment on deduction u/s 80HHC was given without invoking Section 80-IB(13) was pending - Held that:- Re-assessment was not initiated u/s 147(b) for a reason that the said section stood substituted by Direct Tax Laws (Amendment) Act, 1987 with effect from 1.4.89 giving wide power to the AO even to cover cases where the assessee had fully disclosed the material facts. No doubt, an exposition of law would declare the law as it stood all the time and could be a basis for rectification proceedings under Section 154 but, in our opinion, it cannot be a basis for resorting to a reopening where such reopening is done after the expiry of four years from the end of relevant previous year unless and until there is any failure on the part of the assessee in production of books of accounts or other evidence from which material evidence could with due diligence be gathered - the assessee has to succeed in this appeal.

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• 2012 (9) TMI 285
  Disallowance u/s 40(a)(i) - rate of TDS - whether deduction of tax at source @ 11.33% in case of payments made to nine non-residents engaged in rendering services in connection with oil exploration business which are taxable under the Income-tax Act as per the provisions of section 44BB, is sufficient compliance of section 40(a)(i) of the Act or any disallowance out of such payment is warranted u/s 40(a)(i) of the Act. - held that:- following the decision of Apex Court in GE India Technology Centre (P.) Ltd., (2010 (9) TMI 7 - SUPREME COURT OF INDIA) and Frontier Offshore Exploration (India) Ltd vs DCIT, decided in favour of assessee. Disallowance u/s 40(a)(i) - consultancy charges/fees for technical services paid to not residence working in overseas off shore oil and gas exploration projects it Nigeria - Held that:- As the payments made by the assessee to non-resident consultants, were directly related to the Nigerian projects of the assessee, the fees paid to such consultants on its projects abroad has to be considered as fees paid for services utilized in the business of the assessee outside India. Therefore, clearly Section 9(1)(vii)(b) applied and the income earned by such non-residents cannot be deemed to accrue or arising in India. Therefore, assessee had every reason to hold a bonafide belief that no part of the payment had any element of income which was chargeable to tax in India & assessee could not be put in a position where it can be visited with the rigours associated with non-deduction of tax at source. It cannot be fastened with any liability associated with non-deduction of tax at source on such payments - in favour of assessee.

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• 2012 (9) TMI 284
  Non-deduction of TDS on Wagon Facilitation Charges - TDS u/s 194I - Held that:- The assessee had entered into an agreement with Indian Railways to invest under Wagon Investment Scheme as public private partnership no lease charge payable against wagons investment in Railways and the assessee is only getting priority in allotment of rakes. Therefore, the investment in wagon Investment Scheme is only to acquire an entitlement and the assessee and other users are paying the usual freight to railways - as decided in Vodafone Essar Ltd. Versus DCIT [2010 (12) TMI 842 - ITAT, MUMBAI] Government owned machinery available for utilization cannot be at any point of time be considered as owned by the user thereof when the depletion in the license right has been held as claimed for depreciation during the license period - AO was therefore misdirected to hold that the arrangement was an arrangement as considered under the provisions of Section 194-I insofar as at no point of time the license to use the wagons could be considered for the peaceful enjoyment of the landlord being the assessee - in favour of assessee. Disallowance u/s. 43B - Outstanding entry tax payable - Held that:- Favor in the contention of the assessee to the extent that the amount which has not been claimed as deduction cannot be disallowed u/s.43B because it pertains to a liability created being a tax, cess or duty already subjected to tax. Therefore, the said disallowance is also directed to be deleted - in favour of assessee.

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• 2012 (9) TMI 283
  Penalty u/s 271(1)(c) - dis-allowance of alleged excessive salary - assessee contended that AO has wrongly mentioned in the proceedings dated 28.12.2007 regarding confession of dis-allowance and addition in dispute, whereas assessee has not made any confessional statement before the AO - Held that:- It is found in assessment proceedings especially dated 28.12.2007 that neither the assessee nor his authorized representative has signed the proceedings in which the assessee has admitted for disallowance of the amount in dispute. Almost in each and every assessment proceedings, the assessee or his authorized representative has signed. But on 28.12.2007, the same are not there, giving benefit of doubt as well as the plausible explanation given by the assessee on the addition in dispute that penalty has been wrongly confirmed - Decided in favor of assessee

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• 2012 (9) TMI 282
  Validity of reopening of assessment - alleged excessive deduction u/s 80IA on ground of deliberately reporting of higher profits, suppression of expenses, insufficient Plant & machinery for huge production - Held that:- AO has led no evidence whatsoever to either allege or establish that the expenses incurred were insufficient to carry out the manufacturing process. He has also led no material to assume that net profit declared was exceptionally high rate of profit. There is also no material to allege that P&M was insufficient to carry out the manufacturing process. AO has thus not relied upon any material or evidence, which could enable him to assume that income of the assessee, has escaped assessment either by understatement or expenses or overstatement of profits. He has merely proceeded on surmises, conjectures and suspicion to observe that income of the assessee has escaped assessment which in law cannot constitute a reason to believe for invoking section 147. Entire reassessment proceedings are therefore, found to be null and void and on this basis the assessment order is liable to be quashed - Decided in favor of assessee.

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• 2012 (9) TMI 281
  Sales-tax subsidy – capital or revenue - object of the incentive is to fund a part of the cost of the setting up of the factory in the notified backward area – Held that:- Sales-tax incentive allowed to it during the previous year in terms of the relevant Govt. order constituted capital receipt and was not to be taken into account in computation of total income - since object of subsidy under scheme impugned therein was to set up a new unit in a backward area to generate employment, said subsidy was clearly on capital account - Revenue failed to distinguish and make out a markable difference in basic purpose of subsidy received by assessee and subsidy received in case of Reliance Industries – subsidy received by assessee in instant case was to be held as capital receipt Depreciation on computer peripherals - disallowance of depreciation on account of computer accessories - Held that:- Peripherals such as printers, scanners, NT server etc. form integral part of the computer and, therefore, are eligible for deduction of depreciation @ 60% as applicable to the computers Ad hoc disallowance for interest and administrative expenses attributable to the earning of dividend income – Held that:- Tax-free investments had been made out of the assessee's own funds, this did not mean that there was no expenditure incurred to earn tax-free income. Even though Rule 8D did not apply to AY 02-03, the AO had to consider whether disallowance could be made u/s 14A (1) - principle of consistency would not apply as s. 14A had introduced a material change in the law - matter remanded to the file of Assessing Officer Deduction of additional depreciation- Assessee purchased new assets during preceding previous year which were put to use for less than 180 days - Since assets were put to use for less than 180 days, in preceding assessment year assessee claimed only 50 per cent of 15 per cent - Balance additional depreciation was claimed by assessee in instant assessment year – Held that:- Assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance of 50% when the new plant and machinery were acquired and use for less than 180 days - restrictions cannot divest the statutory right. Law does not prohibit that balance 50% will not be allowed in succeeding year - The extra depreciation allowable u/s 32(1)(iia) in an extra incentive which has been earned and calculated in the year of acquisition but restricted for that year to 50% on account of usage. The so earned incentive must be made available in the subsequent year - in favour of assessee Foreign exchange fluctuation loss - Held that:- Loss suffered by assessee on account of fluctuation in rate of foreign exchange as on date of balance sheet is an item of expenditure under section 37(1) – in favour of assessee

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• Customs

• 2012 (9) TMI 313
  Rent or demurrage charges on goods detained or confiscated - goods not kept in Bonded warehouse - Held that:- As the assessee were advised to shift the goods to bonded warehouse and in compliance to it he approached the bonded warehouse but as there was no space in the bonded warehouse, same was intimated to the department - as per Notification No.26/09-Cus. (N.T.) dt. 17.3.2009 clearly explicit that if the goods are seized or detained by the proper officer, the assessee shall not be charged with any rent or demurrage on the goods. Therefore, the first appellate authority has rightly held in the impugned order that respondents are not liable to pay detention and demurrage charges - in favour of assessee.

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• 2012 (9) TMI 312
  Penalty - respondents sought to file the bills of entry after a lapse of more than thirty days from the date of unloading of the imported goods – Held that:- Section 48 stipulates that, if the imported goods are not cleared for home consumption or warehoused or transshipped within 30 days from the date of unloading thereof at a customs station or within such other and with the permission of the proper officer he sold by the custodian. Thus, Section 48 of the Customs Act empowers the proper officer either to grant further time for clearance of imported goods or to permit the custodian to sell off such goods. The Section does not contain any penal consequences in the event a bill of entry is not filed or goods are not cleared within the time stipulated - appeal filed by the Revenue dismissed

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• 2012 (9) TMI 311
  Refund - burden of proof – Held that:- Where a person claims refund of fine or penalty, there can be no presumption that he has passed on this incidence to any other person - If the department seeks to deny cash refund to such a person on the ground of unjust enrichment, the burden is on them to show that the incidence of fine/penalty has been passed on by the claimant to any other person - refund is not hit by the bar of unjust enrichment – In favor of assessee

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• 2012 (9) TMI 280
  Confirmation of demand and imposition of penalties by invoking extended period - Held that:- Directions to stay the orders depositing a sum of Rs. 209 crores plus a sum of Rs. 9 crores and ten lacs, within six weeks' time from date of order as well as the demand notice issued for payment of penalty under Section 114-A of the Customs Act as directed in 2012 (7) TMI 233 - CESTAT, BANGALORE. Earlier CESTAT has decided the issue against the appellant involving various issues i.e. Jurisdiction, classification and valuation etc. relating to import of hardware, software and telecom equipment system

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• 2012 (9) TMI 279
  Export of the goods - claim of duty drawback - Confiscation of goods & imposition of Fine and Penalty – classification – Held that:- Mere allegation of wrong classification without proving intentional mala fide cannot lead to imposition of penalty - goods in question are round metallic item with circular threaded inner surface and rough/embossed out surface and as per dictionary meaning it is a female screw - goods in question is better classifiable as similar articles of screw and should not fall under description of brass builder Hardware. Under such circumstances it merits classifiable under 7415 and not under 8302, as claimed by the applicant - importer declared the complete description of goods and there is no suppression/mis-declaration and hence, action on the part of lower authorities regarding confiscation and imposition of fine and penalty liable to be set aside

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• 2012 (9) TMI 278
  Writ of Prohibition - directing the 1st and 2nd Respondents that all adjudication proceedings, to ensure that there are no divergent orders – Held that:- Department has been issuing Notification/Order under Sub-section (1) of the Section 4 and Sub-section (1) of Section 5 of the Customs Act, 1962 to appoint an officer of Customs to act as a common adjudicating authority to exercise the powers and discharge the duties conferred or imposed on the officer for the purpose of adjudicating matters relating to Show Cause Notice issued by the concerned Commissionerates/Sponsoring Authorities on the basis of their recommendation to appoint a common adjudicating authority - request from Petitioner has been received by the Board on the subject. The request is under examination - writ petition is disposed of with the direction to the respondent to decide the request of the petitioner

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• Corporate Laws

• 2012 (9) TMI 310
  Winding up of company - dispute on tenancy rights - Wacoma a company claiming to be a tenant of the self-same bungalow as against Incandescent's who went into liqudation - At one point of time Wacoma was Incandescent's subsidiary but subsequently the companies became independent of each other - Held that:- Incandescent was a tenant in respect of the property under Tivoli Park, since 1970. Admittedly, there was no evidence that the tenancy was terminated at any point of time - Unless the tenancy is terminated, it would continue to remain. If a tenant defaults in making payment of rent, the tenancy does not automatically come to an end. It would depend upon a positive consequential act of the parties. The landlord may give notice to quit. The tenant may accept such notice and quit the tenancy. If he does not do so, the landlord has to approach a Civil Court for a decree of eviction and recovery of possession. In the instant case, Incandescent was paying rent. At one point of time Wacoma was its subsidiary. Subsequently the companies became independent of each other Incandescent had gone in liquidation in September 2002. There was evidence on record to show that Incandescent paid rent even in August 2002. Wacoma claimed tenancy since April 2002, on the strength of the receipts, thus there could not be two tenancies in respect of one self-same premises. Incandescent paid rent even in August 2002 that would automatically demolish the case of Wacoma, having entered into agreement for tenancy in March, 2002. Pertinent to note, Wacoma could not produce any document except the receipts to prove their tenancy - in absence of a surrender of tenancy by Incandescent there could not be any new tenancy created in favour of Wacoma - Incandescent paid rent up to August 2002 and as it went in liquidation in September 2002. Hence, the case made out by Wacoma that they got the tenancy under Tivoli through Sutodia in March, 2002, falls to the ground. The company in liquidation admittedly does not own the property Tivoli cannot be forced either to sell or let it out to Wacoma as Court cannot create tenancy without the consent of the landlord.

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• 2012 (9) TMI 277
  Winding up petition u/s 433(e) and (f) r.w.s. 434 of the Companies Act, 1956 – acceptance of liability by respondent company, however payment not made – Held that:- Since now parties have resolved the dispute amongst themselves and the respondent has paid to the petitioner firm the said amount in full and final satisfaction of its claim, hence, petition does not survive for consideration. It is dismissed as withdrawn.

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• Service Tax

• 2012 (9) TMI 339
  Non registration under maintenance and repairing service under Clause:(zzg) and erection, commissioning and installation service under Clause:(zzd) - Revenue appeal against non imposition of penalty - Held that:- As the Appellant could not take the registration and pay the Service Tax under bona fide belief that due to changes introduced in the above-mentioned services from time to time and on being pointed out, they obtained the Service Tax Registration and paid the dues - As they also paid the Service Tax from their own pocket on not receiving anything from their clients there was no intention on their part not to pay the Service Tax within time - as the cause explained by the Appellant not to follow the provisions of the Finance Act, 1994 is reasonable no penalty u/s 76 is levied in view of the provisions of Section 80 - in favour of assessee.

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• 2012 (9) TMI 338
  Short payment of service tax - penalty u/s 70 & 76 - Held that:- As the appellants are not contesting the levy of Service Tax nor imposition of penalty under section 70 for delay in filing of ST-3 return but contested only against levy of penalty u/s 76 need to be set aside as the applicant could not pay the Service Tax due to reasonable belief that since their value of taxable service is Rs.8 lakhs therefore there was a reasonable cause for failure to pay Service Tax which they have already paid.

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• 2012 (9) TMI 337
  Extended period of limitation – clearing and forwarding agent - 16-7-1997 to 31-8-1999 - Held that:- Show cause notice under the provisions of Section 65, 66 and 67 of the Finance Act, 1994 was issued on 2-7-2002 after a period of about three years - no omission or failure on the part of the assessee to make return under Section 70 of the Finance Act, 1994 for any prescribed period or to disclose wholly and truly all material facts necessary for assessment for any prescribed period and the value of taxable service for that prescribed period has escaped assessment or has been under assessed - case of the assessee comes within the definition of bona fide doubt and in that event, the extended period as provided under Section 73 of the Finance Act, 1994 would not be applicable - appeal is dismissed.

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• 2012 (9) TMI 336
  Penalties under Sections 76 and 77 - appellant had paid service tax promptly as soon as the omission was pointed out - appellants were under the impression that they were not required to pay interest and after paying service tax they had intimated the department on 19-12-2008. However no reply to this letter was received and the department initiated proceedings by issuing show cause notice on 12-7-2009 and even though the appellant paid the interest as soon as the show cause notice was issued - CBEC has also issued a letter dated 3-10-2007 wherein the field offices have been directed not to commence proceedings where the assessee discharges full amount of service tax and interest Penalty under Section 78 – Held that:- Where there was no need for the appellants to resort to suppression or mis-declaration since whatever service tax was to be paid, they were eligible for the credit - By evading the payment of service tax, the appellant stands to lose rather than getting any undue benefit. By delaying payment of service tax, the assessee had to pay interest on the amount which is not available as cenvat credit - in this case, suppression of fact or mis-declaration could not have been invoked for imposition of penalty under Section 78 of the Finance Act, 1994 - there is no other evidence to justify imposition of penalty - appeal is allowed

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• 2012 (9) TMI 304
  Goods transport services - Non fulfillment of Notification Nos. 32/2004-ST Dated 3/12/04 and 1/2006-ST Dated 1/3/2006 - Held that:- As from 12.03.6007 onward the declaration on every consignment note to the effect that no credit of duty paid on input of capital goods used for providing taxable service has been taken and not availed the benefit of notification No. 12/2003-S.T dated 20.06.2003 has become mandatory and prior to this date a certificate having the above declarations are also valid to avail the exemption benefit of the notifications. As the certificates produced by assessee are for the period of April 2005 to September 2006 by the appellant, as valid documents for availment of the exemption benefit of the notifications and accordingly the demand under the impugned order is set aside - in favour of assessee.

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• 2012 (9) TMI 303
  Demand of service tax with interest - business auxiliary service – Held that:- Appellants also want to produce Chartered Accountant’s Certificate in support of their claim that the appellants have not provided any business auxiliary service - information received by the appellants after passing of the adjudication order, under the RTI Act, is relevant to the facts of the present case - matter remanded to adjudicating authority

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• 2012 (9) TMI 302
  Demand of service tax - Rent-a-Cab service - contract with various units of Indian Army for making available such means of transportation against request – Held that:- Respondent is just like the services provided by any taxi-operator on the road who provides services to any person calling for taxi - Respondent is not placing any vehicle at the disposal of the army on any long term duration - Ordinary taxi-operators on the street are not brought under tax net under the entry for “Rent-a-Cab” scheme - Appeal filed by Revenue is dismissed.

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• 2012 (9) TMI 301
  Demand in respect of commission from the company providing computer reservation system - appellants contended that CRS is being used by them for their own conducting business and cannot be held to be a service to others – Held that:- Travel Agents are promoting the business of CCRS who is providing service to the Airlines and the payment received by the Travel Agent from CRRS is in consideration for such service - service provided by CRRS is to the Airlines and the Air Travel agent is promoting the service provided to Airlines - service provided by the Appellants to CRRS is business auxiliary service and service tax is payable on the same. Valuation - It is not clear whether tax is paid on the basis of basic fare as claimed by the Appellant and the Revenue is again demanding tax on the commission received for booking ticket without considering the tax already paid as per provisions of Rule of 6(7) of Service Tax Rules. Such demand cannot be justified at this stage. - Stay granted.

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• Central Excise

• 2012 (9) TMI 309
  Cenvat Credit on inputs used in manufacture of exempted final products - Low Sulphur Heavy Stock (LSHC) used as fuel in the generation of steam which was in turn used in the manufacture of exempted fertilizer - the assessee contested that exclusion of fuel-inputs from the purview of sub-rule (2) of Rule 6 would mean that such inputs are also automatically excluded from sub-rule (1) - Held that:- Sub-rule (1) is plenary and it restates a principle, namely, that CENVAT credit for duty paid on inputs used in the manufacture of exempted final products is not allowable, thus sub-rule (1) is plenary, hence, it cannot be said that because sub-rule (2) is inapplicable to fuel-input(s), CENVAT credit is automatically available to such inputs even if they are used in the manufacture of exempted goods. The cumulative reading of sub-rules (1) and (2) makes it abundantly clear that the circumstances specified in sub-rule (2), which inter alia requires separate accounting of inputs, are not applicable to the fuel-input(s). However, the said sub-rule (2) nowhere says that the legal effect of sub-rule (1) will stand terminated in respect of fuel-inputs which do not fall in sub-rule (2). Therefore, sub-rule (1) shall apply in respect of goods used as fuel and on such application, the credit will not be permissible on such quantity of fuel which is used in the manufacture of exempted goods. In view of the fact that fuel was used for generation of steam or electricity and these are not final products but intermediate products, the restrictions are not applicable and they are covered by the phrase for any other purpose. The Hon ble Supreme Court has taken the view that if the fuel is used for the manufacture of non dutiable final product, credit is not eligible. It may be seen that the Tribunal had not considered the provisions of Rule 6 and had also not considered the fact that Rule 6(1) is the plenary rule. The decision of the Apex Court in the GNFC [2009 (8) TMI 15 - SUPREME COURT] was rendered on 17.08.09 whereas the decision in the assessee's own case was rendered on 16.07.08. Not only the decision of the Apex Court in GNFC was subsequent to the decision in the assessee's own case but also in the case of GNFC, Apex Court had considered the relevant provisions of the law, applied them to the facts which are similar to the case of GSFC and came to the conclusion and therefore the ratio decidendi in that case would be definitely applicable to the present case.

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• 2012 (9) TMI 308
  Condonation the delay in filing the appeal - Held that:- As there is no power vested in the appellate authority to condone the delay of over six months in preferring the appeal, the appeal made by the assessee is hereby dismissed considering delay of 525 days in filing the present appeal - against assessee.

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• 2012 (9) TMI 307
  Maintainability of appeal – Held that:- National Litigation Policy was also published on 20-10-2010 giving instructions not to file an appeal to the High Court where the subject matter of the appeal is Rs. 2 lakhs and below - appeal is dismissed.

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• 2012 (9) TMI 306
  Rebate claim – rejection of claim for non-endorsement of the name of the merchant exporter in the CT-I Certificate, non-execution of bond on behalf of merchant exporter – Held that:- ARE-1 contains the names of manufacturer as well as merchant exporter and the Central Excise Invoice No., Mark & No. of the packages of goods - no dispute about the actual export of the goods - procedural infractions of notifications/circulars should be condoned if exports have really taken place and the law is settled that substantive benefit cannot be denied for procedural lapses - original authority is directed to accept the proof of export by ignoring the said procedural lapses – rebate claim allowed

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• 2012 (9) TMI 305
  Refund – export of goods – applicant a EHTP Unit which exported certain consignments on payment of duty and filed rebate claims which were rejected by the lower authorities that as the applicant being EHTP Unit, a export oriented undertaking, are not required to pay duty as per provisions of Section 5A(1) of Central Excise Act – Held that:- Government cannot retain the amount collected without authority. Applicant has also requested that at least the Cenvat credit may be allowed to be recredited in their cenvat account - amount so paid by the applicant is to be treated as voluntary deposit with department and same is to be returned the way it was initially paid - Government directs that the said excess paid amount may be allowed to be recredited in their Cenvat Credit Account

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• 2012 (9) TMI 276
  Taxability of goods manufactured - 'Parts of Television Receivers’ falling under Tariff Entry 8529 OR ‘Television Receivers’ under Tariff Entry 8528 - Held that:- As decided in Commissioner of Central Excise, Nagpur Vs. Simplex Mills Co. Ltd. [2005 (3) TMI 117 - SUPREME COURT OF INDIA] resort must first be had only to the particular tariff entries, along with the relevant Section and Chapter Notes, to see whether a clear picture emerges. It is only in the absence of such a picture emerging, that recourse can be made to the Rules for Interpretation. In this case, the relevant Section Note is Section Note 2 to Section XVI of the Tariff wherein the clear stipulation contained to the effect that ‘parts’ of goods mentioned in the Chapters specified therein, shall in all cases be classified in their respective heading - closer scrutiny of the unique facts of this case reveals that the goods of the appellant may not be said to be ‘parts’ as per Section Note 2 to Section XVI of the Tariff. The appellant not only used to assemble all parts of the Television Receivers and make complete television sets, but the said Television Receivers were also operated in the manufacturing unit of the appellant and thoroughly checked and only upon it being confirmed that the Television Receivers were complete in all respects, they were disassembled and along with relevant material and individual serial numbers, sent to the various satellite units. Once the Television Receivers are assembled or are made completely finished goods, the manufacturing process is over and we are not concerned as to what happens subsequently. As it is not in dispute that complete Television was manufactured by the appellant and the time of the parts of the TV set being transported from the factory of the appellant, the parts manufactured by it are already identified as distinct units, thus the Revenue had rightly classified the goods- product as complete Television set even though it was subsequently disassembled - against assessee.

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• 2012 (9) TMI 275
  Non payment of excise duty - manufacture of fire bricks grog - Held that:- As per OIO grog has been equated with refractory bricks stating that the same has been obtained after further processing like cutting to specific sizes whereas in the SCN allegation was that the grog was refractory bricks broken into pieces on certain specified sizes through grinding of refractory bricks thus finding force that the impugned order-in-original has traveled beyond the scope of the SCN on this score. As in the process of grinding and breaking, refractory bricks cannot retain its shaping and hence be excluded from the purview of Ch.69 by virtue of the restriction clause of Ch.Note 2 of Ch.69 - as concluded from the records the goods are sold in gunny bags in loose condition held Waste and scrap of fire bricks to be non-excisable/dutiable following the ratio of law laid in Birla Corporation Vs. Central Excise, Raipur [2002 (11) TMI 239 - CEGAT, COURT NO. IV, NEW DELHI] -- in favour of assessee.

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• 2012 (9) TMI 274
  Rebate claim – rejection of claim for not following the procedure laid down in C.B.E. & C. Circular No. 294/10/97-CX. – Held that:- Procedural infraction of Notification, circular, etc. are to be condoned if exports have really taken place, and the law is settled now that substantive benefit cannot be denied for procedural lapses - core aspect or fundamental requirement for rebate is its manufacture and subsequent export. As long as this requirement is met other procedural deviations can be condoned - duty paid goods have been exported in this case and rebate claim is admissible to the applicant - orders-in-appeal are hereby set aside and case is remanded back to the original authority to sanction the rebate claim after verifying the duty deposit particulars as stated in ARE-I forms

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• 2012 (9) TMI 273
  Bond – alleged that unit had executed a bond while obtaining ware-housing licence and contending that these bonds should have been enforced for confiscation and recovery of redemption fine imposable against these goods – Held that:- Goods can be confiscated only if the same are available for confiscation - goods were never seized neither available for seizure. If the goods are not seized, the question of confiscation of such goods does not arise and consequently there is no question of imposing redemption fine to release these goods Enforcing bond - unit had executed G-17 bond and all liabilities against 100% EOU are being covered by this bond - unit had executed a bond while obtaining warehousing licence and to manufacture for working as EOU – Held that:- No bond was executed for release of the goods confiscated and no redemption fine was imposed on release. Therefore, there is no question of enforcing any bond - The purpose of executing bond under Sections 58 & 65 of Customs Act, 1962 is entirely different. Needless to say that there is distinction between a bond executed for working as EOU and a bond executed for provisional release of seized goods. - Revenue’s appeal is rejected.

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