Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 14, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Total income u/s 2(45) versus Income u/s 11(1) - charitable institution - benefit of standard deduction under income from house property for the purpose of accumulation of income - the question of allowing any statutory deductions as contemplated by the different provisions of the IT Act dealing with different heads of income cannot arise while deciding the percentage of application or accumulation under section 11 - AT
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Cessation / waiver of interest liability - addition u/s 41(1) - earlier interest was capitalized as part of cost of assets and depreciation was claimed - Depreciation claimed on the capital assets are not at all covered under provision of section 41(1) - No addition - AT
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Cancellation of registration u/s 12A of the Income Tax act – The ground of cancellation is that the school had violated the conditions imposed at the time of allotment of land by the Ministry of Urban Development, Government of India, according to which the assessee should have admitted students belonging to the weaker sections to the extent of 25% and granted free-ship to them - Action of DIT(E) not correct - AT
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Transfer pricing adjustments - ALP - The proviso to sub. Rule 4 of Rule 10B does not mandate that always consider two more years' data of comparables in such analysis; but has a limited role only when the data of current year reveal some exceptional facts which could have influenced on determination of the Act in relation to the transaction being compared. - AT
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Allowability of deduction u/s 80IB, if the return is not filed u/s 139(1) but u/s 153A – The rider provided in section 80AC does not apply to the present cases, as the returns filed by the assesees under section 153A have been considered as returns filed under section 139(1) within time. - AT
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Claim of deduction u/s 80IB of the Income Tax Act – Small scale industry - whether being “located in an industrially backward State“ of Pondicherry, there is no need to fulfil the requirements of SSI - Held yes - AT
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Nature of receipt - whether transfer of right or transfer of asset - Capital gain on transfer of bridge named ‘Yanam Project' to subsidiary company - ownership - the finding of the Commissioner of Income-tax that there is no capital asset to be transferred cannot be accepted - AT
Customs
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Demand of differential duty - re-determination of value - when NIDB data of comparable goods are available, value is to be adopted on the basis of NIDB data, not from the retail sale price of authorized service centre - AT
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Clearance of goods without MRP - Import of chocolates, candies, toffees, fruit flavoured jellies and other confectionery items - stay granted partly - AT
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SEZ units - Procurement (import) of goods - authorized operation - the confiscation ordered by the adjudicating authority of the goods which are as per LOA is incorrect and beyond his powers to do so - AT
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SEZ units - Procurement (import) of goods - the Customs authorities, on suspicion, could inspect the consignment and on the inspection, if they find any items which are not allowed or entitled to be imported into SEZ, they are within their powers to seize the goods and act in accordance with the law. - AT
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Misdeclaration of goods - In the absence of any concrete evidence produced by the Revenue at the time of importation of car that there was navigation system installed - it cannot be presumed that navigation system was installed at the time of importation of car. - AT
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Misdeclaration of goods – The meaning of the expressions “melting scrap” or “re-rollable scrap” were not defined in the Customs Tariff or HSN notes though the HSN notes makes a mention that waste and scrap which can be rolled into other products without melting to recover metal was excluded from Heading 72.04. - AT
Service Tax
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Software Development Service OR Manpower supply Service - No doubt there were clauses relating to deliverables and quality of work in the contracts but these by themselves do not indicate that the appellants are providing information technology software services to TCS and Infosys - stay granted partly - AT
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Commercial and Industrial Construction Servcie - Revenue’s argument that construction of schools and colleges will come within the meaning of Commercial or Industrial Construction could not be accepted - stay granted - AT
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Infrastructure and supporting services u/s 65 (105) (zzzq) r.w. 65 (104c) – As BCCI had been paying said amounts even prior to advent of IPL and had been also making payment to state associations which were not organizing IPL - stay granted partly - AT
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Non payment of service tax on Provision of expenses as Balance Sheet of 31.3.2008 - The reconciliation statements annexed to the Chartered Accountant's certificate on various issues are unexplained. - stay granted partly - AT
Central Excise
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Activity Manufacture OR Not – Goods Marketable OR Not - processing of waste oil - process of dehydration, distillation, clay polishing and filtration etc. - prima facie case is against the assessee - HC
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CENVAT credit on Capital Goods - balance 50% of credit availed during subsequent years before the machinery put to use - The phrase, “in possession and use of the manufacturer of final products" was clear and unambiguous - The phrase calls for one and only one interpretation and does not call for any external aid to cull the meaning of the said phrase - Demand confirmed - HC
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Penatly - default in payment of duty - provisions of Rule 8(3A) of the Central Excise Rules, 2002 - penalty under Rule 27 only can be imposed - no penalty under Rule 25 of the Central Excise Rules - AT
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CENAVT credit - Credit availed based on only Invoices - Reasonable steps - The manufacturers / manufacturing units cannot shirk away from the responsibility of availing the ineligible Cenvat credit on the face of it. - penalty confirmed - AT
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Clandestine Removal of Goods – there was no reliable evidence of the actual customer/recipient of the clandestinely removed goods with their confirmation of unauthorized payment towards unaccounted purchase of goods allegedly manufactured and removed in a clandestine manner from the factory of the appellant - demand set aside. - AT
Case Laws:
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Income Tax
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2013 (9) TMI 412
Non Resident - Rate of Tax 10% or 15% - treaty (DTAA) with UK - Fees for Technical Services - Receipts from supply planning services - Assessee entered into Sightholder Contract 2008-2011 in the name of "Supplier of Choice, Sightholder Contract 2008-2011" - Held that:- It is both surprising and unfortunate that AO/DRP, who are specially chosen to for making of these specialized assessment involving international transactions, have ignored the basic fact of applying the appropriate SPS Agreement 2008-11 for the AY 2009-10. The fact is that the Revenue Authorities have not examined the issues and not made the additions of this magnitude in the light of the correct contract with Sightholders. It is surprising to notice despite the supply of the relevant contract 2008-2011 to the AO, the relevant assessment order refers to the provisions of the old contract with Sightholders and contents of para 3 of page 4 of the assessment order witness these basis avoidable mistakes. It is for the AO and the DRP to come to the fresh conclusions on a quality of services rendered by the assessee under the new contract and they constitute technical services for qualifying the provisions of Article 13 of the India UK Tax Treaty. Additional Evidence - Assessee filed certain invoices in the form of additional evidences to demonstrate the above facts for the first time before us. As per the assessee, these papers were not asked for by the AO, therefore, they were not filed. We find no reason to disbelief the arguments of the assessee in this regard. In our opinion, considering the provisions of Rule-29 of the ITAT, admitting these papers would help for passing a proper assessment order and will enable Assessing Officers to go into the facts in the right perspective as to whether the grading services include inscription services or not. Accordingly, we set aside the order of the AO and the DRP on this issue and remand the matter to the files of the AO for fresh adjudication after considering the additional evidences and the decisions of the Bombay High Court in the case of Diamond Services International (P) Ltd (supra), wherein it was held that the grading fees paid by the assessee to Gemological Institute of America (GIA) for the activity of certification and grading of diamonds, do not fall within the expression "royalty" under Article 12 of DTAA - Decided against assessee. Interest u/s 234B - Held that:- Assessee being a non resident, the duty is cast on the payer to pay the tax at source and on failure, no interest u/s 234B of the Act is imposed on the payee-assessee. Accordingly, we direct the AO to reduce the relatable interest u/s 234B of the Act - Decided in favour of assessee.
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2013 (9) TMI 411
Concept of Mutuality - residential housing co-operative society - receipt of transfer charges - Held that:- contributors, by virtue of their membership, obtain a valuable capital asset in their own hands, i.e., the leasehold right in the plots allotted to them, as well as the interest in the super structure. No doubt, the said structure has only been funded by them, but then it is only on the land leased to them by the society, so that independent of the rights in land, leased to them on a 998 year lease, the same is of no value. It is this that they may encash or capitalize on or even trade on, as say by letting the property. Such valuable rights that inure to the members, i.e., separate and distinct from the rights that vest in them as a part of the class of contributors, militates against the very notion of mutuality, which in its concept and operation cannot yield any income to them in their individual capacity. In fact, they have practically all the rights, and at a cost, and which they may leverage to generate income for themselves. To exemplify, consider this: a member, to whom a plot is allotted, lets out the house built thereon, earning a monthly rent. Of course, the rent he receives is his income, and has nothing to do with the society or its income. So however, it is only by virtue and on account of he being a member of the housing society that he could generate the rental income. This, thus, is our basic objection, inasmuch as a mutual concern, by its very nature and concept, cannot lead to any profit, on the basis of contribution to and participation therein, to the contributor/participant. We have deliberately taken an everyday example of letting, and independent of the transfer and TDR premium issues which dog such cases, and is the bone of contention between the parties, only to clarify our objection, which goes to the root of the matter, though is at heart, very simple. There is no creation of any Fund at this stage, i.e., when the society is formed and the members are enrolled; the society charging the members for granting lease what stands charged to it (on getting 999 years lease from the Government). The arrangement, thus, in its design and concept, is not a mutual arrangement, even as independent and apart from the said rights, the plot owners or members may organize themselves for any mutual activity, even if it arises or is consequential to their holding the said rights, as the maintenance activity referred to earlier. As such, any income, be it in the form of transfer fees or TDR premium, that arises to the society/association on account of the said arrangement would, by definition, be ineligible for mutuality. The assessee's alternate plea for all the years is for being allowed expenditure in case 'transfer fees' and/or 'TDR premium' is considered as income subject to tax. The same has been denied by the Revenue in the absence of any relation between the expenses with the impugned receipts. Before us no improvement in its case could be made by the assessee. Without doubt, only the net income (on any activity or source or account) is to be taxed, so that the expenditure incurred in its respect would in principle warrant deduction. However, it is incumbent on the assessee to show as to how the expenditure being claimed against the stated receipts is related thereto or is in its respect, and which it has completely failed to. The expenditure has apparently no correlation therewith, viz. for AY 1996-97, being in the main on Navratra expenses, get together expenses and magazine expenses. Even if such expenditure, which may also include for other years general and administration expenses, or for maintenance expenses, is shown to be funded from the said receipts, the same would only be application of income, and not expenditure thereagainst. The ld. AR before us was at loss to explain as to how the said expenditure could be claimed as a deduction. The assessee's claim is wholly without basis and, thus, stands rightly rejected by the Revenue - Decided against assessee.
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2013 (9) TMI 410
Unexplained income - Suppressed sale of oil recovered from the two ships - undisclosed sale of various scrap items. - Held that:- While passing the order AO had not considered the details of oil sold, as pointed out by the FAA. Page no.1 of annexure-2 of the assessment order speaks about the item sold by the assessee company - AO has mentioned the sale of oil sold (in barrel),but in the narration he has mentioned furniture in place of furnace oil. - FAA has verified the sale bills along with the details of purchasers and quantity of oil sold - No additions - Decided in favour of assessee Suppressed sales of 4 Anchors - Held that:- assessee had not challenged the ownership of anchors - anchors would have some realisable value. No ship will take a risk of not having a proper anchor, till it is dismatanled - FAA was very fair in his approach while deciding the appeal filed by the assessee. He has granted partial relief to the assessee and confirmed the addition that appears to be reasonable - Decided against assessee.
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2013 (9) TMI 409
Computation of the capital gains - Block of assets exists or not after Sale of the premises - Computation u/s 50 - Balance of WDV after sale of asset - Held that:- underlying presumption in the foregoing computation of the WDV, as well as in the manner of computing the capital gain u/s.50, is that all the assets comprising the block for the time being continue to be business assets and, thus, eligible for being considered as a part of the relevant block of assets. However, when a capital asset, as the Nariman Bhavan property in the instant case, is let by the assessee, the same no longer qualifies as a business asset. That is, it becomes ineligible for being considered as part of the relevant block of assets. The question of computing either depreciation or capital gains with reference to its value, therefore, just does not arise - no depreciation for the relevant year would be eligible on the said block in that case despite a positive WDV. This is for the reason that the block ceases to exist, with one asset being sold out and the other removed from the block by being let, and not for the reason of non-user, as stated by him. Where, one may ask, is the question of user, when the asset itself is no longer a business asset? To clarify this aspect further, take the example of three, instead of two, assets comprising the block as at the beginning of the year. While one stands sold, the second is let out and the third continues to be retained in and used for business. Could depreciation be claimed with reference to the block comprising the two remaining assets? Clearly not, and an adjustment for the asset let, as it no longer forms part of or qualifies as an asset of the business, has necessarily to be made, in computing the WDV or the capital gain, on the asset sold or the depreciation on the sole remaining business asset, as the case may be, as under the scheme of the Act it would be an either or situation, and both cannot obtain. The asset let would be akin to any other independent capital asset owned by the assessee, though the fact of it having been used for business purposes and depreciated in the past would impact its date and cost of acquisition. The assessee’s case clearly falls u/s. 50(2); the only asset, namely, the property at Arun Chambers, Mumbai, constituting the block at the relevant time, being sold in September, 2005, with no subsequent additions to the block. It would, we may though clarify, again, not matter if the other property rented out was so done subsequently, and not prior thereto in July, 2005. This is as the question of applicability of sec. 50(1) or s. 50(2) is to be seen as at the year-end, whereat only the depreciation u/s.32 as well as capital gain u/s.50 is to be computed, taking the entire transactions during the year into account. The WDV of the block, adjusted for the removal of the property let out during the year in July, 2005, is to be taken into account for computing the STCG u/s.50. - Decided in favour of Revenue.
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2013 (9) TMI 408
Transfer pricing adjustment - Selection of comparables - Abnormal expenses - Low capacity utilization - Held that:- adjustment in case of the manufacturing segment has been made on the total turnover and not limited to transactions with AE. The sales of AE was Rs. 7,88,70,082/- and, therefore, the AO is required to compute the cost of such sales by applying margin in case of the assessee which was (-)5.41%. Thereafter, PLI of 9.49% is required to be added to the cost of sales to arrive at the market value of the international transaction. The AO is directed to make the adjustment only to the international transaction and not to the entire turnover. The assessee had selected seven comparables, which have been rejected by the TPO holding them not comparable as being not engaged in trading of diamonds and on account of related party transactions in some cases. The TPO selected ten comparables giving mean margin of 3.47%. The assessee objected to six of comparables selected by TPO and the objections were rejected after giving specific reasons in respect of each comparables as mentioned in para 4.3 earlier. The assessee in the appeal before us has also raised objections in relation to some of the comparables. However we find, that the submission made by the learned AR was quite general in nature not supported by any evidence. No details of P&L account and balance sheet or annual reports were filed in respect of some comparables to substantiate the claim. The objection raised in relation to comparables is therefore rejected. However we find substance in the additional ground raised by the assessee requesting for benefit of +/-5% margin. The additional ground has already been admitted by us being a legal ground. We, therefore direct the AO to allow the benefit of +/- 5 % benefit to the assessee, which has also not been objected to by the learned DR before us - Decided partly in favour of assessee
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2013 (9) TMI 407
Disallowance u/s 14A - Disallowance of interest expenditure - Held that:- if there is sufficient material on record to establish that investment in shares/units was made out of non-interest bearing funds, then no disallowance has to be made out of interest debited to Profit & Loss account, even if there is dividend income from such investment. Where the expenditure incurred could not be related to exempted income, the provisions of section 14A would also not be attracted. It is also a settled law that the theory of apportionment of expenditure between taxable and non-taxable income, has been accepted. However, Assessing Officer has to satisfy himself and such satisfaction must be arrived at on the objective basis. If benefit arising from investment in shares out of interest-bearing fund is the dividend income exempt u/s.10(34) of the Act, the related expenditure has to be disallowed - fact of the present case was that the Assessing Officer had not enquired the issue in the light of the above legal pronouncements. Specially the pronouncement of the Hon'ble Bombay High Court was not available at that time, hence, the Assessing Officer's assessment order was devoid of merits as also applicable law. Now we have got certain guidelines, though can not be said to be exhaustive or complete, but on these lines, the Assessing Officer is expected henceforth to compute the correct disallowance, needless to say after providing an adequate opportunity of hearing to the assessee - Following decision of Commissioner of Income Tax-II Versus M/s Hero Cycles Ltd. [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT] - Decided in favour of assessee. Disallowance of foreign travel expenditure - Held that:- although written notices were furnished before the AO but the details of the expenditure, purpose of the expenditure and the business connection of those expenditures could not be established. Certain expenditures which were stated to be incurred for the visit of Ms. Year R. Amin, were restaurant expenditure, florist expenditure, etc., which is bearing at page 37 of the paper book. Likewise on page 91, there is a short note about the purpose of the visit but the assessee is required to produce the direct evidence to establish the genuineness of the claim. We, therefore, restore this ground also back to the stage of the AO, so that the assessee can avail this opportunity to produce certain evidences through which it could be established that the foreign travel was in fact undertaken for the purpose of the business of the assessee - Decided in favour of assessee.
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2013 (9) TMI 406
Deduction u/s 80IC - New manufacturing unit - whether the profits earned by Parwanoo Unit really represented profits from manufacturing activity at Parwanoo Unit or not. - AO observed that that the Unit at Parwanoo does not appear to have been established physically. Therefore, the assessee was asked to show cause as to why deduction claimed u/s 80IC of the Act should not be disallowed. - Held that:- The major objection of the Assessing Officer was that in such a short period of four months without the help of technical people, it was not possible to achieve the said turnover. We do agree with the Ld AR that assessee had every document to support that unit was established and we also agree with Ld AR that turnover was intimated to Sales tax authorities but the important question remains whether the entries of sales and purchases were any book entries or actual entries. The doubt of book entries is further corroborated by the fact that out of turnover of ₹ 1,34,39,000/- during the year an amount of ₹ 1,06,53,550/- remained invested in sundry debtors and out of purchases of ₹ 51,19,374/- an amount of ₹ 33,48,468/- remained unpaid upto 31.3.2005. Though Ld CIT(A) has mentioned that money was received from debtors but the fact remains that turnover was made hurriedly in a period of four months that to without realizing the debtors. The profiles of buyers of assessee needs to be investigated to ascertain as to whether these persons actually dealt in the goods purchased from the assessee and further sellers profiles also needs to be investigated to ascertain as to whether they really dealt into the items sold by them to assessee. - Decided in favor of revenue for statistical purpose.
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2013 (9) TMI 405
Resassessment u/s 147 - Notice u/s 148 issued - Purchase advance or provisional purchase - Held that:- In a situation when a notice u/s. 148 was admittedly issued within four years from the end of the relevant assessment year then in our opinion the scope of jurisdiction u/s. 148 is very wide. The Section 147 of IT Act prescribes that "If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). The aforesaid provisions of Section 147 have been changed w.e.f. 1.4.1989 applicable from assessment year 1989-90. Majority of returns filed by the assessee are accepted as such. The assessment proceedings have, therefore, been simplified in such a situation if later on the AO has "reason to believe" that any income chargeable to tax has escaped assessment then he can re-compute the income by reopening the assessment. If the notice is within four years then under this new provision the power is much wider and can be exercised even if the assessee had disclosed fully and truly all material facts. However, in a case where four years, as prescribed, have expired then failure on the part of the assessee to disclose true facts is to be established by the Revenue - opinion has to be formed only by the AO, therefore, a re-assessment must be based upon the belief of the AO and not of the Commissioner. In the present case, there was a sufficient material in the knowledge of the AO and that material was based upon the accounts of the assessee already on record through which the AO had reason to believe that the impugned purchases expenditure had escaped the assessment. Facts of the case has also revealed that there was no opinion formed at the first round of assessment, therefore, there is no question of change of opinion - Decided against assessee. Business income - Inflated purchases - Held that:- assessee's version was that the goods were received, however bills were not received till 31.03.2003. But contrary to this; vide an another reply dated December, 2008 vide paragraph 2.2 it was informed to the ITO, Ward 4(3), Ahmedabad that the goods were received after the year end and the entry was made on the strength of the purchase bills - Discrepancy should be removed and the correct facts should be brought on record. Hence, the assessee is hereby directed to place the evidence of actual dates of delivery of goods. The AO can demand for evidence such as transport bills etc. As far as the provisional booking of an expense is concerned the same is not admissible unless and until crystallized during the year. In that condition, the AO has to first ascertain that there should not be double deduction of such expenditure - AO has to examine the dates when the sales have been actually executed in respect of these purchases. Thus, in the result, this ground is hereby restored back to the AO for fresh adjudication - Decided in favour of assessee.
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2013 (9) TMI 404
Accumulation of income - 'total income' 2(45) versus 'Income' u/s 11(1) - charitable institution - benefit of standard deduction under income from house property for the purpose of accumulation of income - Deduction u/s. 24(a) - Computation of income of trust - Held that:- While Sec.2(45) of the Act specifically defines "total income" the expression used in section 11(1) is only income. Accordingly, it would be incorrect to assign to the word 'income' used in section 11(1)(a), the same meaning as has been specifically assigned to the expression 'total income' in Sec.2(45) of the Act. The income from property held for charitable or religious purposes cannot be equated with the income which is computed under the general provisions of the IT Act in respect of other assessees. In a case where an assessee-trust has income from different sources and a part of such income comes within the ambit of taxation, it will not be possible to earmark any part of such income to a particular head. Such income has to be computed in a normal commercial manner. Therefore, the question of allowing any statutory deductions as contemplated by the different provisions of the IT Act dealing with different heads of income cannot arise while deciding the percentage of application or accumulation under section 11 - Following decision of DIT Vs. Girdharilal Shewnarain Tantia Trust [1991 (6) TMI 8 - CALCUTTA High Court] - Decided in favour of Revenue. Disallowance of depreciation - Held that:- If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income - Following decision of CIT v. Market Committee, Pipli [2010 (7) TMI 374 - Punjab and Haryana High Court] - Decided against Revenue.
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2013 (9) TMI 403
Cessation / waiver of interest liability - Deemed income u/s 41(1) - Applicability of section 41(1) of the Income Tax Act, when waiver of interest amount treated as capital receipt being related to preoperational period of the company - Assessee-company had raised loans from the Banks to start its business. Subsequently due to heavy losses the company was in trouble and a settlement with the Banks had saved it from a deep crisis. As per this agreement the Banks gave a waiver of interest amount to the company - Banks decided to waive a sum of ₹ 22,74,85,511/-, during the year under consideration against the overdue interest accumulated over the years including ₹ 7,31,55,195/- which pertained to pre-operative period. It was argued that the interest pertaining to pre-operative periods of ₹ 7,31,55,195/- was not offered for taxation because the company had neither claimed nor got deduction of this amount - Interest pertaining to pre-operative period was capitalized to the respective assets and deduction of depreciation on such assets had been claimed on the basis of written down value (WDV) of different block of assets – Held that:- 'Depreciation' claimed on the capital assets are not at all covered under provision of section 41(1) of the Income Tax Act – As per requirement of sec. 41(1) it is required that the assessee must have made a claim and it must have been either (i) allowed or (ii) deducted in any previus year. This allowance/deduction must relate to loss, expenditure or trading liability, incurred by the assessee as the case may be. This 'benefit obtained must be by way of 'remission' or 'cessation' of such loss, expenditure or trading liability – Hence, it is incorrect to say that amount of interest relating to the pre-operative period became part of trading operation of business and any benefit received on account of waiver of interest is in the nature of profits and gains of business in terms of provisions of section 28(iv) – Decided in favor of Assessee.
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2013 (9) TMI 402
Cancellation of registration u/s 12A of the Income Tax act – The ground of cancellation is that the school had violated the conditions imposed at the time of allotment of land by the Ministry of Urban Development, Government of India, according to which the assessee should have admitted students belonging to the weaker sections to the extent of 25% and granted free-ship to them - Held that:- No evidence available for non-compliance of admitting 25% of the students of EWS - The reasons consistently advanced for the shortfall of requisite percentage of admission of EWS is regard to locational aspect in the face of the evidence to the contrary as have to be accepted as where there is no alleged violation of any of the requirements either of the Urban Ministry or of the Directorate of Education the authorities under the Income tax Act cannot be said to presume to sit over in judgment for the implementation of the public policy on the judgement of the authorities empowered to implement them. No doubt to have a social conscience is a laudable human desire and the desire to ensure compliance in letter and spirit to the stated government policy necessarily ought to throb in the heart of each and every citizen. However, while adjudicating on the issues which arise for determination under the Income-tax Act which is a Central Act enshrined in “List I” of the Constitution of India the tax adjudicator/judge empowered by a Central Act cannot usurp the power and role of an authority which as per the Constitutional scheme has been entrusted upon the state Administration and in this case on the Department of Education, Government of National Capital Territory of Delhi. An authority constituted under the Central Act herein the Indian Income Tax Act cannot act on the basis of its own personal beliefs and philosophy however laudable, they may be as they have no role to play as the issues are to be decided and concluded on the basis of rules and provisions of the Income-tax Act, herein - section 2(15) of the Act. The decisions are not to be coloured or stained by personal whims and biases and are to be illuminated by the Income Tax Act. The DIT(E) in the facts of the peculiar case cannot cancel Registration in the facts of the present case for the reasons set out in the impugned order as the same amounts to usurping the Role of an authority constituted to implement the government policy. Only when there is any instance of violation of terms and conditions pointed out by the Directorate of Education and/or the Urban Ministry on the information of de-recognition of the school by the Directorate of Education. The tax authorities can take notice. The gravity of the consequences of holding a certain school as de-recognised is not to be trifled with or taken lightly and it is a powerful tool in the hands of the Directorate of Education and if it is taken away, serious consequences are visited on the school which is not a fact in the present case – Decided in favor of Assessee.
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2013 (9) TMI 401
Transfer pricing adjustments - ALP - selection of comaprables - considering single year data instead of multi year data – Rule 10B read with section 92C of Income Tax Act - Selection of appropriate comparables for an International transaction – Held that:- It is mandatory for the purpose of comparing the data of an uncontrolled transaction with an international transaction that the same should be relating to the financial year in which the international transaction has been entered into. The information, data and documents should be contemporaneous - Current year data has to be taken into consideration until and unless some exceptional circumstances are brought on record to show that one year data of comparable do not give true picture being influent by such circumstances. As per Rule 10B (4) for determining the ALP u/s 92C, the data to be used in analysing any comparability of uncontrolled transaction with an international transaction shall be the data relating to the Financial Year in which the international transaction has been entered into. Thus, it is manifest from the sub rule (4) of Rule 10B that the data of the financial year in which the international transaction has been entered into to be used for analysing comparability of uncontrolled transaction in order to determine the ALP - The proviso to sub. rule (4) of Rule 10B provides the option for considering the data relating to the period other than the financial year in which the international transaction has been entered into; but not being more than two years prior to such financial year. The proviso to sub. Rule 4 of Rule 10B does not mandate that always consider two more years' data of comparables in such analysis; but has a limited role only when the data of current year reveal some exceptional facts which could have influenced on determination of the Act in relation to the transaction being compared.
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2013 (9) TMI 400
Allowability of deduction u/s 80IB, if the return is not filed u/s 139(1) but u/s 153A The provisions of section 80AC is directory or mandatory - Assessee engaged in the business of developing and building of housing projects approved by local authorities. The assessees have not filed their returns of income for the impugned assessment years within the due dates prescribed under section 139(1) of the Income-tax Act, 1961. Meanwhile, there was a search action under section 132 conducted on the business premises of the assessees on 6-8-2009 and 17-8-2009. In pursuance of the said search carried out under section 132, the Assessing Officer issued notices under section 153A, requiring the assessees to file their returns of income for the period relevant to six assessment years. The notices under section 153A were issued on 26-7-2011 Held that:- Returns filed by the assessees under section 153A are to be treated as returns filed under section 139(1) by virtue of the law stated in section 153A(1)(a). As such, the assessees are entitled for the deduction available under section 80IB(1). The rider provided in section 80AC does not apply to the present cases, as the returns filed by the assesees under section 153A have been considered as returns filed under section 139(1) within time. Levy of interest under section 234A Held that:- Return filed under section 153A would be deemed to be a return of income under section 139 as per the express language of the provisions of section 153A(1)(a) and therefore the return of income filed under section 153A also is to be processed under section 143(1) and the income determined thereof. These are all consequences of search conducted under section 132 and the issuance of notice under section 153A. Once a recomputation in the assessment order under section 153A is done, the interest chargeable under section 234A would have to be reckoned from the date of determination of income under section 143(1), read with section 153A to the date of the recomputation of income under section 153A, read with section 143(3). This position is in tune with the law stated in section 234A(3). Levy of interest u/s 234B of the Income Tax Act Held that:- Interest under section 234B is to be levied only on the additional tax levied on the enhanced income determined under section 153A, read with section 143 and therefore the period of charge should be from the date of determination of the income under section 143(1), read with section 153A to the determination of increased total income under section 153A, read with section 143(3).
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2013 (9) TMI 399
Claim of deduction u/s 80IB of the Income Tax Act – Small scale industry - whether being "located in an industrially backward State" of Pondicherry, there is no need to fulfil the requirements of SSI - Held that:- For claiming deduction, certain conditions are to be necessarily satisfied - It is also clear that the conditions above said do not apply in case the undertaking in question is either a small scale industry or it operates from an industrially backward region and if any of the above said condition is satisfied, the concern undertaking becomes eligible for claiming deduction. Pleadings of the Revenue only challenge the status of the assessee as small scale industry and the findings of the CIT(A) that the place of assessee’s business is in an industrially backward State i.e. Pondicherry - Even if it is hold that the assessee is a small scale industry, still it is entitled for claim of deduction in view of section 80IB(4) of the “Act” since it is operating from an industrially backward State - Assessee satisfies the relevant provision of section 80IB(4) of the “Act” and arguments of the Revenue that it is not a small scale industry or it manufacture an item contained in Schedule XI of the “Act” do not hold any ground – Decided against the Revenue.
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2013 (9) TMI 398
Allowance of Depreciation u/s 32(1) of the Income Tax Act for the assets acquired in the prior period – Retrospective amendment in section 43(6) of the Income Tax Act - Assessee filed return of income on 28.11.2003 disclosing total loss of Rs.146,78,95,230/-. The assessment was framed u/s. 143(3) of the Act as the assessee has claimed depreciation of Rs.201,21,64,960/- on fixed assets comprising depreciation of Rs.194,77,57,108/- on old assets and Rs.6,44,07,852/- on assets acquired during the year under consideration. The AO while completing assessment u/s. 143(3) of the Act allowed depreciation to the extent of Rs.6,44,07,852/- in respect of those assets which were acquired during the year under consideration. But did not allow depreciation of Rs.194,77,57,108/- in respect of old assets on the ground that the required information regarding details of actual assets of written down value as on 01.04.2002 was not furnished before him – Held that:- The assessee has filed step wise working in the form of audit report dated 20.01.2010 given by a Chartered Accountant firm - Subsequent amendment carried out by the Finance Act, 2008 by inserting explanation (6) to section 43(6) of the Act with retrospective effect from 01.04.2003 - For calculating depreciation the AO has to consider the retrospective amendment carried out in the statute book by inserting explanation (6) to section 43(6) of the Act and to allow depreciation in accordance with law after making fresh calculation with reference to the book value of the assets following the retrospective amendment – Decided in favor of Assessee. Whether subsidy on account of river dredging and maintenance should be taxed in the hands of the assessee on cash basis as is being consistently followed by assessee or on accrual basis as alleged by AO – Held that:- The assessee offered for taxation the amount actually paid by government year after year against the dredging subsidy in the relevant year in which such payment was actually received and the amount sanctioned by way of dredging subsidy, which was offered for taxation in the year in which such sanction was granted on receipt of audit verification from CAG - Once the assessee is consistently following a system of accounting that actually received amount is offered for taxation year after year and it is accepted in some of assessment years, revenue cannot take a different stand in other years – Decided in favor of Assessee. Deduction u/s 80G of the Income Tax, for the donation made - Assessee Port Trust has made deduction of Rs. 4 crores to the Prime Minister’s National Relief Fund - The assessee explained that during the FY 2004-05 relevant to AY 2005-06 the said donation was inadvertently debited to suspense account and was not transferred to P&L Account drawn for 31st March, 2005. Ld. counsel for the assessee stated that this mistake was detected in FY ending 31.03.2009 relevant to AY 2009-10 and immediately donation of Rs.4 crores was transferred to P&L Account under the head prior period charge – Held that:- This is an allowable claim in the year in which the payment is made. However, these are subject to verification of AO – Subject to verification by A.O. will decide in which year it is allowable.
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2013 (9) TMI 397
Nature of receipt - whether transfer of right or transfer of asset - Capital gain on transfer of bridge named ‘Yanam Project' to subsidiary company - Ownership - bridge was created under PPP mode under BOT scheme - Whether there is transfer of asset in the transaction of transfer of BOT from the Assessee to its 100% subsidiary – Held that:- BOT asset is figuring in the Balance Sheet at net cost price and the depreciation was being allowed to the assessee consequent to the orders of the CIT(A) and ITAT. Therefore, the issue that there is no capital asset in the books of the assessee cannot be accepted, as the very same Assessing Officer, who has completed the assessment under S.153A has considered the issue and rejected claim of depreciation in all these years on the very same asset, which is purportedly under the ownership of the Government of Andhra Pradesh. Therefore, consequent to the orders of the CIT(A) and ITAT, the assessee was allowed depreciation on the very same BOT asset. Therefore, the finding of the Commissioner of Income-tax that there is no capital asset to be transferred cannot be accepted – Decided in favor of Assessee. Since, we have already considered the ownership of the asset and arrived at the conclusion that there is a capital asst, which is validly transferred to a 100% subsidiary company, there is no need to discuss the provisions of S.23 to 25 and S.65 of the Indian Contracts Act, to consider whether the agreement is void or not. In any case, an agreement does not become void only because one of the parties assigned part of the rights to its 100% subsidiary, since this is authorized by the agreement itself, Applicability of provisions of section 47(iv) of the Income Tax Act – Held that:- Assessee has right to collect toll and other fee and to develop way side facilities like advertisements, hoardings, etc. to generate revenue and also entitled to create additional structural facility to cater for the pipelines for oil, gas and water and at that time, they were envisaging establishing a pipeline for ONGC for transportation of gas by utilsiing this facility - Amount of toll collection is being assessed in the hands of GTBPL and the Commissioner has not considered the agreement as void and the toll collected thereon was not assessed in the hands of the assessee at all - There is a valid transfer to the 100% subsidiary company and since the provisions of S.47(iv) are directly applicable, this assignment can not be considered as ‘transfer' for the purpose of capital gains – Decided in favor of Assessee.
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2013 (9) TMI 396
Exemption u/s 10A - allowing deduction under sec.10A before setting off of brought forward depreciation and losses. - Held that:- This issue was considered and decided by the Income-tax Appellate Tribunal, Chennai Bench in favour of the assessee, in the case of M/s. Scientific Atlanta India Technology Pvt. Ltd. (2010 (2) TMI 658 - ITAT, CHENNAI). - Hon’ble Karnataka High Court has considered this issue and decided in favour of the assessee in the case of CIT & Anr. Vs. Yokogawa India Ltd. and Others, [2011 (8) TMI 845 - Karnataka High Court]. The specific question considered by the High Court is, whether or not on the facts and in the circumstances, claim under sec.10A is to be allowed on the profits of the EOU without setting off of brought forward losses of earlier years of the non EOU? The Hon’ble Karnataka High Court again has considered similar issue and arrived at the same conclusion in the case of CIT & Anr. Vs. Tata Elxsi Ltd. & Others (2011 (8) TMI 782 - KARNATAKA HIGH COURT) - Decided in favor of assessee. Excluding expenditure incurred in foreign currency both from export turnover and total turnover. This issue already stands covered by the Special Bench decision of the Tribunal in the case of ITO v. Sak Soft Ltd. (2009 (3) TMI 243 - ITAT MADRAS-D). The grounds raised in the appeals filed by the Revenue fail. - Decided against the revenue.
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Customs
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2013 (9) TMI 426
Demand of differential duty - notice was issued to re-determine the value of imports in respect of nine Bills of Entry filed and to re-determine the value on the basis of MRP declared by the authorized service centres and to demand differential duty - Held that:- the basis for re-determination of assessable value adopted by the adjudicating authority is the RSP at which the automobile parts of well known brands are sold by the various authorized service centres. It is seen that the parts imported by the appellant do not have brand name in many cases and have been imported from China and are duplicate in nature. Therefore, the prices of these two items i.e., the one imported by the appellants and the other sold by the various authorized service centres do not appear to be comparable, since it does not take into account, the difference in quality, brand name value and other relevant factors. The Bills of Entries were finally assessed after loading the value on the basis of comparable NIDB data. As per the data, the value loading was between 10% to 63.42%. Therefore, when NIDB data of comparable goods are available, value is to be adopted on the basis of NIDB data, not from the retail sale price of authorized service centre as discussed above. In the remaining two Bills of Entry where the goods have been provisionally released, the adjudicating authority is directed to assess both the Bills of Entry No. 953653 dated 17.06.2010 and 936753 dated 25.02.2011 finally. The assessable value of the imported goods shall be adopted on the basis of NIDB data of comparable goods. If the NIDB data are not available, the same will be assessed on the transaction value. When enhancement of assessable value of the impugned goods is based on the evidences which are not reliable therefore, penalties on the appellants are not imposable. In these terms, the penalties on the co-appellants are set aside. Order is set aside and the appeals are partly allowed and partly remanded for re-assessment – decided in favour of assessee.
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2013 (9) TMI 425
Clearance of goods without MRP - Import of chocolates, candies, toffees, fruit flavoured jellies and other confectionery items - prior to clearance from the customs the goods should be affixed with the MRP – Held that:- The stock of the goods which was seized was found to be without MRP stickers - all the dealers to whom the goods were sold had admitted that the goods were being purchased without MRP - The evidence also indicated that the correct MRP was not declared to the customs and the goods were sold at much higher MRP. Waiver of pre deposit – in the interest of revenue some amount of pre deposit was ordered to be submitted – upon such submission rest of the duty to be stayed till the disposal. - stay granted partly.
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2013 (9) TMI 424
SEZ units - Procurement (import) of goods - authorized operation - import of old and used clothing for mutilation and for reconditioning. - Mis-declaration and Under-Valuation of Goods - Whether the goods were covered by the Letter of Approval and required for the authorized operations and can be admitted in the SEZ - Held that:- The confiscation ordered by the adjudicating authority of the goods which are as per Letter of Approval was incorrect and beyond his powers to do so – following the decision of SHILPA CREATION PVT. LTD. Versus COMMR. OF CUSTOMS (AIRPORT), KOLKATA [ 2007 (5) TMI 520 - CESTAT, KOLKATA ] - goods which were found as per Letter of Approval in both the containers, could not be confiscated, nor their value could be determined by the CC as the said goods were going to SEZ and proper Bill of Entry was filed with the authorities. Assessment of Value - Whether the assessment of the value, the SEZ Rules, 2006 specifically vest the jurisdiction in the Development Commissioner and the Authorized officer under Rules 27(2) and 29 respectively – Held that:- Commissioner of Customs has assessed the Bill of Entry filed by the appellant-assessee before KASEZ authorities which he is not empowered to do so as per the provisions of Rule 29 of SEZ Rules, 2006 - when the goods are meant for SEZ and on going to SEZ, they are not liable for Customs duty and hence any question of valuation being determined under the provisions of Section 14 of the Customs Act, 1962 does not arise. Confiscation of Goods u/s 111(m) and 111(d) – Held that:- the confiscation ordered by the adjudicating authority of the goods which are as per LOA is incorrect and beyond his powers to do so. Accordingly, the impugned order to that extent is set aside. Regarding goods not allowed or entitled to be imported into SEZ - Held that:- the Customs authorities, on suspicion, could inspect the consignment and on the inspection, if they find any items which are not allowed or entitled to be imported into SEZ, they are within their powers to seize the goods and act in accordance with the law. In this case, since the items like leather bags, purses, jackets, and carpets, are not included in LOA granted to the appellant for import into the SEZ for authorized operations, are liable to be confiscated and we hold it so. The value of the said goods should be determined in accordance with the law and the redemption fine be imposed in proportion to the value of such goods and imposition of proportionate penalties also needs to be imposed. - Decided partly in favor of assessee.
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2013 (9) TMI 423
Misdeclaration of goods - Demand of differential duty imposing Penalty u/s 112(a) and 112(b) – Redemption fine - the vehicle was imported - the assesse declared the price of the vehicle as CIF – Held that:- The allegation that assesse had not declared the price of optional accessories at the time of importation was not sustainable in the absence of any concrete documentary evidence - The goods were examined and at the time of clearance - it was found that the type of approval certificate/COP was not submitted from the country of origin as required under import licensing Notes to Chapter 87 of ITC (HS) – the accessories were optional accessories - at the time of clearance of the car was examined by the officers of the department and as per the report the car was new one and having standard accessories – In the absence of any concrete evidence produced by the Revenue at the time of importation of car that there was navigation system installed - it cannot be presumed that navigation system was installed at the time of importation of car. Undervauation of goods - the adjudicating authority has found the value of the similar car was US $ 30,000 and in the case the appellant had shown the value of the car as US $ 42,000 – Held that:- The allegation of undervaluation was not sustainable - the demand raised on account of undervaluation of the car was set aside. Benefit of Notification No. 21/2002 – Held that:- In the absence of any concrete evidence, it cannot be said the car was old and used - the allegation that the car was old and used was not sustainable - the denial of benefit of notification No. 21/2002 was set aside - the examination report at the time of importation which clearly shows that the car was new one and there was no evidence produced on record that before importation the car was registered anywhere outside India – Decided in favor of assesse.
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2013 (9) TMI 422
Misdeclaration of goods – whether the item is a “melting scrap” or “re-rollable scrap” for the purpose of Notification 21/2002-Cus - Revenue was of the view that goods were classifiable under Customs Tariff Item 7302 10 90 in which case the exemption under Notification No. 21/2002-Cus was not available to the goods - Held that:- There was no reason to deny the classification claimed by the assesse for the goods to be under Heading 72.04 or to consider the goods not to be “Melting scrap of Iron and Steel” as described in Notification 21/2002-Cus – following the judgement of Tata Iron and Steel Company v. CCE - [1994 (12) TMI 73 - SUPREME COURT OF INDIA]. The difference in the case of used rails is that the item was specifically mentioned under Heading 72.04 for the purpose of excluding it - The meaning of the expressions “melting scrap” or “re-rollable scrap” were not defined in the Customs Tariff or HSN notes though the HSN notes makes a mention that waste and scrap which can be rolled into other products without melting to recover metal was excluded from Heading 72.04. Confiscation of goods u/s 111(d) and 111(m) – Redemption fine u/s 125 – Penalty u/s 112(a) – Held that:- Confiscation of the goods and penalty imposed in the order becomes not maintainable – Decide in favor of assesse.
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Corporate Laws
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2013 (9) TMI 421
Recovery Suit - Under the Raw Material Assistance Scheme (RMAS), the plaintiff procures raw material from canalized/govt. agencies and others, for and on behalf of the SSU by making payment directly to the supplier and delivering the said raw material to the said SSU as per their requirement – Held that:- The defendants were in breach of the agreement dated June 25, 1999 and were jointly and severally liable to pay the acknowledged sum along with interest @ 18% per annum from the date of institution of the suit till realization of the amount - There was no merit in the applications for leave to defend filed by the answering defendants - The same were accordingly liable to be dismissed - In terms of the agreement dated 25th June, 1999, which was the written contract between the parties and the foundation of the suit of the plaintiff u/O XXXVII of the Code, the admitted liability as on 25th June, 1999 - As regards interest payable to the plaintiff, this being a suit under Order XXXVII of the Code of Civil Procedure which by itself was a self- contained code, the claim of the plaintiff for the grant of interest wholly depends upon the terms of the agreement between the parties - The rate of interest as provided for in the agreement dated December 5, 1989 was to be 16% from the date of the debit of the amount till reimbursement. The suit under Order 37 was based on the written acknowledgment of the defendants and it was held by this Court that though the defendants specifically denied the written acknowledgment and alleged that the case of the plaintiff was based on a false document and the claim was barred by time, leave to defend the suit could be granted to the defendants only upon their furnishing a bank guarantee for the amount decreed by the trial court and in case of their failure to do so, the plaintiff would be entitled to pursue her execution application. National Small Scale Industries v. Novavision Electronics Pvt. Ltd. & Ors. [2006 (7) TMI 574 - DELHI HIGH COURT] - Not only has the agreement between the parties, but the RMAS also stipulated that the defendant no. 1 was required to make payments to the plaintiff from time to time - It was manifestly clear from the record that the defendants themselves gave a proposal to the plaintiff for re-scheduling of payments due from them and it was in this backdrop that the agreement dated 25th June, 1999 was entered into between the parties - Having failed to abide by the terms of the agreement dated 25th June, 1999, it does not now lie in the mouth of the defendants to allege that they have a substantial defense to the suit.
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Service Tax
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2013 (9) TMI 432
Restoration of Appeal – appeal was dismissed for non-compliance with directions of pre-deposit of dues - Held that:- there is considerable force in the argument of the Ld. Chartered Accountant that prima facie they are not required to pay any duty as major portion of the duty relates to payment of DOT which has now been accepted by other Commissionerates as proper discharge of Service Tax. - appeal restored and requirement of predeposit waived. Issue of payment to DOT by the applicant had been raised at various levels and before the Commissioners time and again. Initially the payment of DOT has not been accepted by the department as discharge of their Service Tax liability since the amount has not been paid to the Ministry of Finance, Deptt. of Revenue, after the Appellant separated from DOT. However, from the orders submitted by the Ld. Chartered Accountant, we find that the Commissionerates at Jamshedpur and Ranchi have accepted the payment made to DOT as discharge of their Service Tax liability. Also, we find in similar circumstances this Tribunal has remanded the matter to the adjudicating authority for re-consideration of the payment made to DOT as discharge of liability towards Service Tax - matter remanded back.
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2013 (9) TMI 431
Software Development Service OR Manpower supply Service - stay - The appellant had entered into agreements with several clients for providing service as software development - Revenue was of the view that appellant was in fact engaged in providing manpower for development of software and therefore the services provided by them has to be treated as manpower supply service – Held that:- Following Future Focus Infotech India Pvt. Ltd. Vs. Commissioner of Service Tax, Chennai [2010 (3) TMI 190 - CESTAT, CHENNAI] - what was provided was actually ‘manpower supply service’, even though the assessee claimed it under ‘information technology service’ - No doubt there were clauses relating to deliverables and quality of work in the contracts but these by themselves do not indicate that the appellants are providing information technology software services to TCS and Infosys - Any person or organization obtaining skilled personnel had to ensure that such men deliver work of standard quality - No one would employ a person who was not skilled enough and no one would pay for shoddy work even if done by a skilled man. Waiver of Pre-deposit - prima facie case is against the assessee - stay granted partly.
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2013 (9) TMI 430
Commercial and Industrial Construction Servcie - construction of schools and colleges - Abatement under Notification No. 15/04 and 1/06 - According to Revenue, if value of materials supplied by person receiving service was not added in the gross consideration received by the provider of service, abatement under Notification No.15/04 and 1/06 could not be granted – Held that:- There was no liability on the appellant in respect of such construction, they paid service tax on the value received by them - However, no differential duty liability can arise on account of materials supplied by those schools and colleges. Waiver of Pre-Deposit - Relying upon Larsen & Toubro Ltd. Vs UOI [ 2007 (4) TMI 197 - MADRAS HIGH COURT] – Complete waiver of Pre-deposit was allowed to the Assessee - The order was an ex-parte order where there was a likelihood that all the defences of the party had come on record - the demand was worked out based on figures in Profit and loss account rather than contract-wise figures where the position regarding supply of free materials for each contract comes out clearly - The Revenue’s argument that construction of schools and colleges will come within the meaning of Commercial or Industrial Construction could not be accepted – Stay Petition allowed.
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2013 (9) TMI 429
Infrastructure and supporting services u/s 65 (105) (zzzq) r.w. 65 (104c) – The assesse were an association for prompting the game of cricket - They had been getting some money every year from BCCI - Held that:- Entire matter had been decided without taking on record the contract or the MoU between the two parties showing the terms and conditions of payments and the purpose of payment for each item - Neither the Show Cause Notice nor the reply to Show Cause Notice had brought this aspect in clear focus - As BCCI had been paying said amounts even prior to advent of IPL and had been also making payment to state associations which were not organizing IPL – Demand was only in respect of additional amounts paid for IPL which fact needs verification. Waiver of pre deposit – 50lakhs were ordered to be submitted – on such submission rest of the amount to be waived till the final disposal – decided in favor of assesse
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2013 (9) TMI 428
Condonation of delay – Application for cononation of delay was mater in issue – appellant contended that they had a fine record of having promptly filed appeals and this is the first instance of a delay – Held that:- Condonation of delay was allowed on reasonable terms and documentary evidence of the appellant having sent emails to their authorised representative promptly on receipt of the appellate Commissioner's orders is available - appellant cannot be non-suited in this case involving high stakes on the ground of delay - such statements have to be entertained in an adequate manner – application allowed in the favour of the applicant with costs.
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2013 (9) TMI 427
Non payment of service tax on Provision of expenses as Balance Sheet of 31.3.2008 - Clearing and Forwarding Agent or Business Auxiliary Services - service tax on GTA service - Held that:- The contention of the counsel for the applicant is that the difference between the amount shown in the Trial Balance and ledger account is the unpaid liability towards the GTA Service. But, it is not supported by any evidence. The reconciliation statements annexed to the Chartered Accountant's certificate on various issues are unexplained. It is pertinent to note that the applicant did not produce any evidence to establish that said amount of tax was paid at any point of time from the date of audit till date. Waiver of Pre-deposit - Assesse had failed to make out a prima facie case for waiver of pre-deposit of the entire amount of tax and penalty - assesse was directed to deposit a sum of Rs.1.5 crores – stay granted partly.
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Central Excise
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2013 (9) TMI 420
Stay - Activity Manufacture OR Not – Goods Marketable OR Not - processing of waste oil - process of dehydration, distillation, clay polishing and filtration etc. By means of the aforesaid processing, impurities etc. are being removed from the used/burnt oil. The oil so obtained from such waste/used oil is being packed and sold as base oil, lubricating oil and transformer oil etc. to the consumers - Revenue was of the view that the processing of oil amounts to manufacture in view of Note 4 of Chapter 27 - the process undertaken by the Company, in respect of the waste oil, is adoption of a treatment to render the product marketable to the consumers and hence amount to manufacture by virtue of Section 2(f)(ii) of the Act. Held that:- Note 4 of Chapter 27 provides that in relation to the lubricating oils and lubricating preparation of heading 2710, the adoption of any other treatment to render the product marketable to the consumer amounts to manufacture. The Tribunal, having regard to the entire facts and circumstances, has directed the Company to deposit only 50% of the duty and waived the pre requisite requirement of deposit of the balance amount of the duty, interest and the penalty Waiver of Pre deposit - The appellants were not able to make out a strong, prima facie case, which may warrant to allow complete waiver of the pre requisite requirement of deposit of the duty - We are further of the view that, having regard to the entire facts and circumstances, the order of the Tribunal directing to deposit 50% of the duty demanded and allowing the waiver of the balance amount of duty, interest and the penalty as also the waiver of the deposit of entire amount of penalty, the Director of the Company was wholly justified and does not suffer from any error and does not require any interference.
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2013 (9) TMI 419
CENVAT credit on Capital Goods - balance 50% of credit availed during subsequent years before the machinery put to use - What was the true meaning & scope of the expression “in the possession and use of the manufacturer of final products “in such subsequent years” in Rule 4(2)(b) of the Cenvat Rules - When Rule 4(2)(b) allowed credit provided the capital goods in question were in possession and use of the manufacturer “in such subsequent year”, whether the Tribunal erred in law in imposing a new condition that in such subsequent year the credit could not be taken prior to the date of installation of the capital goods. Held that:- The matter boils down to a narrow compass i.e. the interpretation of the phrase, “are in the possession and use of the manufacturer of final products in such subsequent years” occurring in the aforesaid Rule 4(2)(b) of the CENVAT Credit Rules, 2002 - In our opinion, the Mumbai Bench of the Tribunal was not right in reading the said phrase as, “are in the possession for use” - The law in respect of interpretation of taxing statutes was well defined and well settled - Commissioner of Sales Tax, U.P. v. Modi Sugar Mills Ltd.[1960 (10) TMI 65 - SUPREME COURT OF INDIA] in interpreting the taxing statutes, held, “In interpreting a taxing statue, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency”. The phrase, “in possession and use of the manufacturer of final products’ was clear and unambiguous - The phrase calls for one and only one interpretation and does not call for any external aid to cull the meaning of the said phrase - the phrase provided for two conditions, (1) the manufacturer should be in possession of the capital goods in the year in which it claims remaining 50% of the CENVAT credit; and (2) such capital goods shall be in use for manufacture of final products. Unless, the manufacturer satisfies both the aforesaid conditions, it cannot take CENVAT credit of remaining 50% of the duty paid by it. - Decided against the accessee.
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2013 (9) TMI 418
Stay - Demand of Ineligible Cenvat Credit – appellant submits that the appellant was not issued any show-cause-notice for the effective defence of their case before the adjudicating authority. It is his submission that in the absence of any show-cause-notice and any reply thereof, the adjudicating authority's order of confirmed demand against the appellant of an amount of Rs. 64,54,590/- is incorrect. - Penalty – Held that:- if show-cause-notices are not issued and received by the appellant herein, they could not effectively represent their matters before the adjudicating authority. In the absence of reply to SCN and; reply any conclusion reached by the adjudicating authority is an order is in violation of principles of natural justice. The impugned order being in violation of principle of natural justice and is un-sustainable only on this ground. - Matter remanded back.
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2013 (9) TMI 417
Payment of central excise duty - as per the provisions of Rule 8(3A) of the Central Excise Rules, 2002 - After defaulting in payment of duty appellant also utilised an amount of Rs.94,638/- from cenvat credit when it was revised to be paid only through PLA as per the provisions of Rule 8(3A) of the Central Excise Rules - penalties under Rule 25, Rule 26 or Rule 27 – Held that:- As per CCE v. Saurashtra Cement Ltd. [2010 (9) TMI 422 - GUJARAT HIGH COURT], decided that penalty under Rule 27 only can be imposed - Not a case of wilful suppression with intention to evade duty – Correctly reliance placed on Manipal Springs Ltd. (supra). Therefore no penalty under Rule 25 of the Central Excise Rules and under Section 11AC of Central Excise Act, 1944 is attracted in the case. Decided in favor of Assessee.
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2013 (9) TMI 416
Admissibility of CENVAT credit - Definition of Capital Goods under Rule 2(a) - MS bars, MS plates and Sections, HR Plates etc. - The department was of the view that these items were neither covered by the definition of capital goods as given in Rule 2 (a) of Cenvat Credit Rules, 2004 nor were covered by the definition of inputs as given in Rule 2 (k) of Cenvat Credit Rules 2004 and hence the Cenvat credit in respect of these items is not admissible - Held that:- Prima facie the items used for repair and maintenance of the plant and machinery would be eligible for Cenvat credit - While the items used for repair and maintenance of the plant and machinery cannot be considered as raw material - The repair and maintenance of the plant and machinery was an activity integrally connected with the manufacture, as without regular repair and maintenance of the plant and machinery, smooth manufacturing process was not possible - In any case, scope of the term - "used in or in relation to manufacture of goods, whether directly or indirectly" was much wider than the scope of the term "used in the manufacture". Following Singh Alloys & Steel Ltd. vs. Assistant Collector [1993 (1) TMI 97 - HIGH COURT AT CALCUTTA ] and Grasim Industries Ltd. vs. Union of India 2011 (10) TMI 2 - SUPREME COURT OF INDIA - the "expression - in relation to" in the definition of 'input' had a wide connotation and the definition of input was not dependent in what ought to be used but what was commercially expedient to use and on this basis held that the ramming mass and dolomite mix used for preventing Corrosion of refractory lining of the furnace and sealing the crevices in the refractory walls so as to prevent leakage of molten metal are eligible for Modvat credit. Waiver of Pre-deposit - Prima facie the appellant had a strong prima facie case in their favour and as such the amount of Rs. 10,60,242/- already paid by them prior to adjudication was sufficient for hearing of the appeal - The requirement of pre-deposit of balance amount of Cenvat credit demand, interest and penalty was waived for hearing of the appeal and recovery was stayed till the disposal of the appeal - stay application was allowed.
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2013 (9) TMI 415
CENAVT credit - Credit availed based on only Invoices - Reasonable steps - Fraudulent Transmission of Cenvat Credit - Penalty - appellants strongly contended that the fact that M/s. Itisha was not paying duty, as reflected in the invoices issued by him, came to fore only as a result of investigations conducted by the Revenue. The said appellants have also been the victim of fraud committed by M/s. Itisha and as such, they should not be penalized. In fact, it stand specifically contended before us that neither of the manufacturer-appellant or their representative has admitted in the statements recorded during the course of investigations that they were aware of the fact of non-payment of duty by M/s. Itisha. It was pleaded that by making to reverse the Cenvat credit, they have already been penalized and further imposition of penalty on them is not justified. It is to be noted that though the provisions of Rule 7 of Cenvat Credit Rules, 2004 cannot be stretched too far, at the same time, it was the preliminary duty of the manufacturing unit to at least verify the fact of the manufacturing unit who has supplied the goods to them. Be that as it may, since it has been proved beyond doubt that the manufacturer as well as the manufacturing unit have availed Cenvat credit based on only documents and reversal thereof is not seriously challenged, it would amount to availment of Cenvat credit wrongly in contravention of provision of Cenvat Credit Rules. It is also not disputed that the extended period of limitation will apply in this case as the entire modus operandi of passing on the credit by M/s. Itisha, without having manufacturing unit, only on documentary evidence and even without paying the same to Government of India, has been un-earthed after detailed investigation, a fraud committed by M/s. Itisha. It is well settled that fraud vitiates everything and disadvantage of such fraud cannot be taken by anyone. Once there is no dispute as regards ineligible Cenvat credit availed by the manufacturers and manufacturing units and the same being reversed on being pointed out, the penalties on the manufacturing unit and the manufacturer under the provisions of Rule 15 of Cenvat Credit Rules, 2004 are correctly fastened on them. The manufacturers/manufacturing units cannot shirk away from the responsibility of availing the ineligible Cenvat credit on the face of it. All the defences raised by the ld. Counsel for appellants are very weak on the face of it. - Decided against the assessee by majority order.
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2013 (9) TMI 414
Clandestine Removal of Goods – Failure to Bring Evidences - The challenge to the orders essentially related to absence of cogent evidence in support of the charge against the appellants relating to clandestine removal of the goods, failure on the part of the Department to adduce satisfactory evidence in support of such charge and the findings having been arrived at by the authority in the absence of evidence in support - Held that:- The Revenue failed to substantiate the findings recorded in the impugned Order regarding production capacity, to persuade to reject the contention of the appellant that there was failure on the part of respondent to collect any evidence in relation to either procurement of raw materials by the appellant or production of huge quantity of final goods alleged as removed clandestinely to sustain the charge of clandestine removal - Once unaccounted production was not established, even otherwise there can be no clandestine removal thereof - Unaccounted removals have in any case not been established on the basis of the evidence available on record. What is the relevancy of the documents seized in the course of the panchnama in the case in hand. In that regard, it would be necessary to ascertain as to what were the documents those were seized by the investigation machinery, what is the relevancy of those documents to bring home the charge against the appellants and to what extent - can it be said that any credibility can be given to the so-called documentary evidence sought to be relied upon to support the charge of clandestine removal of the goods by the appellants - Neither the panchnama satisfies the minimum requirement of rules of procedure nor any credibility can be given to the materials allegedly seized in the course of such panchnama nor to the documents sought to be relied upon in the matter. The appellants were justified in making grievance of prejudice having been suffered by them on account of uncorroborative documentary evidence relied upon by the department. Ganga Rubber Industries vs. CCE [1986 (6) TMI 214 - CEGAT, NEW DELHI] - it was for the Department to establish that the entries in books recovered in the course of investigation were genuine and the fact that such verification was done had to be established by the Department - In the absence of proof about entries in the books to be representing actual clandestine removal, it cannot be said that the Revenue has discharged its burden. Sai Chemicals Pvt. Ltd. Vs. CCE[2010 (4) TMI 446 - CESTAT, NEW DELHI] - the demand cannot be sustained without any tangible evidence, based only on inferences involving unwarranted assumptions - In the entire records of proceedings, there was no evidence to indicate that there was clandestine manufacturing - There was no independent tangible evidence on record of any clandestine purchases or receipt of the raw materials required for the manufacturing of the alleged quantity of finished goods for its clandestine removal from the factory - In the entire notice and the order there was no satisfactory and reliable independent evidence as regarded the unaccounted manufacture and or receipt of the huge quantities of raw materials - The quantities of the bags dispatched from the factory would require some transportation arrangement for delivery from the factory - any reliable evidence about any vehicle coming to or going out of the factory without proper entries was not forthcoming - There was also no cogent evidence about any freight payment for any such movement. Tangible evidence of removal from factory of unaccounted goods so manufactured, by loading from factory and transportation therefrom, of alleged clandestinely removed goods – there was no reliable evidence of the actual customer/recipient of the clandestinely removed goods with their confirmation of unauthorized payment towards unaccounted purchase of goods allegedly manufactured and removed in a clandestine manner from the factory of the appellant - There was no recovery of any unaccounted sales proceeds in substantial cash in the factory or office premises or anywhere else in the control of the appellant-company, backed by any confirmation oral or written from the person giving such cash against goods removed in clandestine manner without payment of duty from the factory of appellant-company - Decided in favour of Assessee.
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2013 (9) TMI 413
Applicability of Rule 173 Q - Appellants were manufacturers of excisable goods -They had been taking credit of duty paid on inputs as per the provision of Cenvat Credit Scheme - A show cause notice was issued for recovering the said interest and also proposing to impose penalty under Rule 173Q of the erstwhile Central Excise Rules for having taken credit wrongly - Held that:- Rule 173Q can be invoked only subject to provision of Section 11AC and Section 11AC was applicable only when there was fraud, suppression, mis-declaration or any act with intent to evade payment of duty - no such motive was attributed to them, no penalty can be imposed on them and the penalty imposed by the Commissioner (Appeals) required to be set aside - Union of India v. Ind-Swift Laboratories Ltd. [2011 (2) TMI 6 - Supreme Court] - when Cenvat credit was taken, interest was to be paid even if such credit had not been utilized for payment of excise duty. Whether interest was payable under Section 11AA of the Central Excise Act which was in force from 26-5-1995 to 11-5-2001 – Held that:- A careful reading of the provision shows that it was applicable only when a short levy or non-levy of excise duty occurred - Wrong Cenvat credit taken can result in short levy or non-levy of excise duty only when such wrong credit was utilized for payment of excise duty - Such utilization had not taken place - interest was not payable. Penalty under Rule 173Q also could be imposed only if for actions with intent to evade payment of duty - There was no intention to evade duty - So penalty under Rule 173Q also was not sustainable - Interest for the period 1-4-2000 to the date of reversal will be payable by M/s. Rama Industries Ltd. - Decided in favour of Assesse.
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