TMI Tax Updates - e-Newsletter
September 16, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Articles

• Service Tax Implications on Auxiliary Educational Services of Educational Institutions
• ONE PERSON COMPANY TO BE REALITY SOON

News

• RBI Reference Rate for US $ and Euro

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• India and China agree to enhance cooperation in the Media sector Cooperation to focus on Media exchanges and contacts Shri Manish Tewari meets Chinese delegation led by Mr. Cai Ming Zhao, Minister of State Council Information Office

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• CCI orders investigation against M/s ACI for alleged violation of Competition Act

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Highlights / Catch Notes

Income Tax

• Interest due to part refund - Interest on Interest - claim of interest u/s 244A allowed following the principle prescribed u/s 140A(1) - HC
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• Disallowance of depreciation - Finance lease - on a combined reading of Section 2(13) and Section 2(24) the income derived from leasing of the trucks would be business income, or income derived in the course of business, and has been so assessed. Hence, it fulfills the second requirement of Section 32 viz. that the asset must be used in the course of business. - AT
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• Penalty u/s 271(1)(c) - the estimated addition does not necessarily indicate that there is concealment of income or furnishing of inaccurate particulars of income on the part of the assessee - no penalty - AT
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• Business income or capital gain - Sale and purchase of shares - where intention of the assessee behind purchase and sales of the shares was quickly to realize profits and not to earn dividend from them, the income would be assessable as business income - AT
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• Estimation of income - Reassessment u/s 153A pursuant to search u/s 132 or 132A - AO rejected books of account - evenue failed to point any special circumstances for estimation of such high profit particularly when during the course of search no incriminating material was found - HC
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• Deduction u/s 80IB(10) - Project wise deduction - the income or loss from other business or other activities are to be ignored for the purpose of determining the amount which is eligible for deduction u/s 80IB(1) of the Act - AT
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• Deemed dividend u/s 2(22)(e) - Disallowance u/s 56 rws 2(22)(e) - Commercial transaction versus loan or advances - the assessee has demonstrated that the amount was received for the purpose of commercial transaction. - no addition - AT
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• Transfer pricing adjustment - Method of computation of operating profit - Rejection of comparables - matter remitted back to AO to consider the assessee's claim with regard to idle capacities after due consideration of all materials available on record and affording a reasonable opportunity - AT
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• Deduction u/s 80IA - Whether Clauses (a), (b) and (c) of sec. 80IA(4)(iv) are mutually exclusive -Had the intention of the parliament was to give deduction only to the undertaking which undertakes the work of laying network of new transmission or distribution lines and not to the undertaking which transmits or distributes the power, then clause (b) would have been worded accordingly and there would have been no necessity to insert a proviso for the said purpose - AT
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• Deduction of expenditure u/s 40(b) of salary and interest to partners - estimate of net profit rate of 2% shall be deemed to take into consideration all allowable deductions available to the assessee in the form of depreciation interest and remuneration to the partners and all other expenditures claimed in the P & L account - AT
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• Product development cost as revenue expenditure - dyes brought an advantage of an enduring nature to the assessee - not allowed as revenue expenditure - to be capitalized and depreciation to be allowed - AT
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• Reassessment pursuant to Search u/s 132 or 132A - Condition for invocation of section 153A of the Income Tax Act - There was no incriminating material found during search for these years - no additions - AT
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• Exemption u/s 80G of the Income Tax Act – Registration u/s 12AA - Charitable purpose - Merely registration as a Society does not disentitle the applicant from the exemption claimed - Be it a Trust or a Society, the legal status of either is that of a body of individuals and the benefit in either case inures to the same indeterminate public - AT
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• Business loss or Bad Debts - written off of advances – advances given for material supply – held as business loss instead of bad debts - claim allowed - AT
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• Additions on the account of cash flow statement furnished by the assessee – AO doubted about only opening balances - when no incriminating documents or other material was found during the course of search, no addition - AT
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• Exemption u/s 10A of the Income Tax Act - assessee is carrying on the activity of blending of tea consistently, on factual aspects, which Revenue has not objected - exemption allowed - AT
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Customs

• Confiscation u/s 111(d) and 121 r.w. section 13(1) of FERA – assessee had been able to prove that the foreign currency had obtained by them against an export order and the goods had exported against that export order - AT
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• Export of restricted Goods - UREA USP - UREA ULTRA PURE - there being already clearances allowed for the same item in the past - the assessee could had entertained a bonafide belief that there need not be any license for exporting such item. - redemption fine reduced - penalty wavied - AT
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• Classification of Glass chatons – the question of applying strict technical sense does not arise – classification of the impugned goods under CTH 7018 10 20 as glass beads upheld - AT
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• Valuation of imported goods - In the absence of any evidence showing existence of a price adjustment between the cost incurred by the buyer on account of royalty/licensee fees by reducing price of imported items - it can- not be that such royalty payments were includible in the assessable value of the imported goods under Rule 9(1)(c)/10(1)(c) of the Customs Valuations Rules - AT
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• Nature of assessment – penalty - confiscation – When there was no such demand no penalty can be imposed u/s 114A – assesses contended that the goods could not have been confiscated because the assessment was provisional - This argument was legally not tenable - AT
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Service Tax

• Activity Taxable OR Not - Mandap Keeper Services - Whether marriage is a religious function - Marriage as a social institution existed much before the religions came into being and, therefore, it was futile to argue that the marriage was a religious function. - AT
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• Service Tax on Royalty - Brand Name - Nature of Service - Intellectual Property Rights Services or Not - There was not even a whisper about the services rendered in this regard by the appellant to M/s AICL - Therefore, confirmation of demand on the entire amount of royalty received was not sustainable in law. - AT
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• Stay - demand of service tax - Technical Know-how - Salary paid to Foreign Employees - Man-power Supply Agency 66A - stay granted partly. - AT
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• Business Auxiliary Service – activity of “Del Credere Agent“ was brought under the service tax net with effect from 16/06/2005 under the category of “Business Auxiliary Service” - AT
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• Reverse Charge Mechanism - Banking and Other Financial Services (BOFS) - fee paid for issuance of bonds outside India - import of service - They claim to have received the services outside India. Did they have any office or establishment in UK or elsewhere outside India to receive Silverdale’s services outside India? Through whom did REL maintain/operate the Escrow Account in London? - matter remanded back - AT
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Central Excise

• Clandestine removal - CENVAT credit Demand - Penalty - shortage of goods - Mere signing of the chart alleging removal of finished goods cannot be treated as clear admission of the clandestine removal - AT
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• Cenvat Credit availment - Credit of duty availed by the Supplier (manufacturer) on drawing of wire / rods – retrospective amendment - credit allowed AT
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• Cenvat / Modvat - Goods Short Found - The summary rejection of such crucial evidence seems to be incorrect, inasmuch as if the total quantity of finished goods cleared by the appellant as per the annexure, in the form of fake and/or genuine invoice, tallies with the total quantity shown as received by the government owned dairies, it cannot be said that there were clandestine removal of the goods. - AT
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• Interpretation of Provisions - Rule 8(3A) - The contradiction needs to be settled by the Larger Bench and the said contradiction is (i) whether a default by an assessee has to be considered as an entire default if he does not make part payment of the duty liability in a particular month, (ii) whether penalty can be imposed under Rule 25 or Rule 27. - matter referred to larger bench. - AT
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• Clandestine removal of goods - evidence - octroi receipt - difference of opinion - It can be said that sufficiency’ relevancy and credibility of evidence available on record proved charge of clandestine removal of impugned goods without payment of duty - AT
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• Captive consumption - intermediary product - Naphtha - Benefit of Notification No. 67/95 - benefit denied on that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for allied activities like lighting in the artillery roads/yard, administrative building, canteen/cafeteria - AT
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Case Laws:

• Income Tax

• 2013 (9) TMI 451
  Disallowance of interest - Interest due to part refund - Interest on Interest - Held that:- there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of Rs.45,73,528 and tax paid after original assessment of Rs.1,71,00,320. The Department contends that the words any amount will not include the interest which accrued to the respondent for not refunding Rs.45,73,528 for 57 months. We see no merit in this argument. The interest component will partake of the character of the amount due under Section 244A. It becomes an integral part of Rs.45,73,528 which is not paid for 57 months after the said amount became due and payable. As can be seen from the facts narrated above, this is the case of short payment by the Department and it is in this way that the assessee claims interest under Section 244A of the Income-Tax Act. Therefore, on both the afore-stated grounds, we are of the view that the assessee was entitled to interest for 57 months on Rs.45,73,528/-. The principal amount of Rs.45,73,528 has been paid on December 31, 1997 but net of interest which, as stated above, partook of the character of amount due‖ under Section 244A - Interest payable under Section 234B and 234C become part of the demand notice issued under Section 156 and it is on this amount, i.e., the tax payable plus interest payable under Sections 234B and 234C that interest under Section 220(2) is calculated from the date mentioned in the notice of demand till the date of actual payment. Under Explanation to Section 140A(1), it is stipulated where the amount paid by an assessee under self-assessment falls short of the aggregate amount of tax and interest aforesaid, the amount paid shall first be adjusted towards the interest payable and the balance, if any, shall be adjusted towards the tax payable. The interpretation given by us follows the same principle, when Revenue defaults and makes part payment of the amount refundable. The aforesaid interpretation also ensures that the Assessing Officer/Revenue refund the entire amount, which is due and payable, including interest payable under Section 244A. It discourages part payment. There is no other provision under the Act under which an Assessing Officer/Revenue can be made liable to pay interest when part payment is made and the entire amount, which is refundable is not paid to the assessee. Otherwise the Assessing Officer/Revenue can refund the principal amount and not pay the interest component under Section 244A for an unlimited period with impunity and without any sanction, which would amount to granting premium to a non-compliance of law. In the present case, the interest component was withheld for the period ranging between 9 to 13 years - Decided in favour of assessee.

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• 2013 (9) TMI 450
  Disallowance of depreciation - Finance lease - Held that:- It is an undisputed fact that the income from lease has been considered by Assessee as income It is an undisputed fact that the AO has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the assessee is not entitled to depreciation - disallowance as assessee’s use of vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire - assessee is a public limited company engaged in the business of hire purchase, leasing and real estate - High Court allowed the appeal of revenue - As long as the asset is utilized for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. In the present case the assessee is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(24) the income derived from leasing of the trucks would be business income, or income derived in the course of business, and has been so assessed. Hence, it fulfills the second requirement of Section 32 viz. that the asset must be used in the course of business. See CIT Karnataka, Bangalore Vs. Shaan Finance (P) Ltd., Bangalore [1998 (3) TMI 8 - SUPREME COURT] and M/S I. C. D. S. LTD. VERSUS COMMISSIONER OF INCOME TAX. MYSORE & ANR. [2013 (1) TMI 344 - SUPREME COURT] and assessee's own case [2013 (9) TMI 273 - ITAT AHMEDABAD] - Decided in favour of assessee. Disallowance u/s 14A - Interest on tax free bonds and debentures and dividend income - Held that:- It is an undisputed fact that the Assessee has earned ₹ 39.65 Crore on account of interest on tax free bonds, debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed ₹ 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at ₹ 36.68 Crore and after setting off disallowance made by the assessee, he disallowed ₹ 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of ₹ 25.35 Crore - matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue - Decided in favour of assessee. Bad debts versus Provisions for bad and doubtful debts - rural banking - Scope and ambit of the proviso to Section 36(1)(vii) - whether deduction of the bad and doubtful debts actually written off in view of Section 36(1)(vii) limits the deduction allowable under the proviso to the excess over the credit balance made under clause (viia) of Section 36(1) – rural advances - Held that:- U/s 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year, while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans. Therefore, we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields – Following decision of Catholic Syrian Bank Ltd. Versus Commissioner of Income Tax, Thrissur [2012 (2) TMI 262 - SUPREME COURT OF INDIA] - Decided in favor of assessee. Penalty u/s 271(1)(c) - Held that:- assessee had disclosed all the material facts before the AO and CIT(A). When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing inaccurate particulars thereof. This is a case of bona fide difference of opinion regarding the allowability of a claim of deduction between the Assessee and dept. What is to be seen is whether the said claim made by the assessee was bona fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty under s. 271(1) (c) of the Act. In the present case all the necessary facts were furnished by Assessee. In the case of CIT Vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) the Hon. Apex Court has held that there making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of Assessee. In view of the totality of facts we are of the view that the addition does not call for levy of penalty under s. 271(1)(c) - Decided in favour of assessee.

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• 2013 (9) TMI 449
  Penalty u/s 271(1)(c) - Held that:- AO had levied penalty due to the additions made on estimate basis not relying on the Xerox copies of the vouchers and registers produced. Further it is evident from the submissions of the assessee that the assessee had produced substantial document to prove the genuineness of the transactions. The learned assessing officer was also convinced that the assessee had incurred expenditure considering the nature of business. The only dispute was with respect of quantum of allowable expenditure since the assessee had not produced all the relevant vouchers. Moreover the learned AO did not bring any materials on record that the assessee has claimed excess expenditure. In such circumstances the estimated addition does not necessarily indicate that there is concealment of income or furnishing of inaccurate particulars of income on the part of the assessee - Decided against Revenue.

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• 2013 (9) TMI 448
  Business income or capital gain - Sale and purchase of shares - Held that:- Assessee picked up the six common scrips for business of F&O as well as the STCG. This is the area of dispute between the parties and there is no issue on change of classification of STCG as LTCG or vice versa before us. There is no clarity on what basis certain transactions involving the same scrip are treated as business and others as STCG and the assessee has no explanation in this regard except relying on the book entries, which we rejected already for detailed reasons given above. In the process, the assessee got an unfair advantage of lower tax rates applicable to the STCG. Such advantage is allowable unless the onus cast on the assessee is demonstrated. Assessee could not demonstrate the reasons for such treatment, which turned out to be prejudicial to the interest of the revenue. Considering the failure of the assessee, we are of the opinion the decision of the AO becomes sustainable. Quick realization of the profits - Held that:- Assessee maintains uniformly the closing stock worth Rs 17- Rs 18 lakhs in all recent AYs. The same is case with opening stocks of shares too. In fact, the opening and closing values are more or less equal. The number of scrips, transactions of purchase and sales also suggests the increasing trends for making quick business profits. Thus, the decision of the Tribunal in the case of Mukeshbhai Babulal Shah (2013 (9) TMI 151 - ITAT RAJKOT) which is relevant for the proposition that “where intention of the assessee behind purchase and sales of the shares was quickly to realize profits and not to earn dividend from them, the income would be assessable as business income”, helps the revenue. The intention of acquiring the shares as investment for capital appreciation is not translated and instead the symptoms of going for quick profits are evident. The stock: turnover ratio at 1:16 does against the claims of the assessee. Other data relating to opening stocks and closing stocks on one side and the assessee’s final exiting from the so called claim of STCG at the end of 2011-12 indicates the assessee’s conduct for quick profits and not for investment. Of course, the holding period particulars also confirm the AO’s conclusions. - Decided in favour of Revenue.

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• 2013 (9) TMI 447
  Estimation of income - Reassessment u/s 153A pursuant to search u/s 132 or 132A - AO rejected books of account by invoking sections 145 (3) - Held that:- The Tribunal compared G.P. rate with the cases of the business houses carrying on the same business of carpet manufacturing in the same area, furnished before the A.O. and formed an opinion that the assessee's Gross Profit rate of 28.48% could not be enhanced 32.75%. In comparable cases GP declared was very low i.e. 9% to 21%. Looking at the GP declared by the assessee in different years the Tribunal found that the assessee has shown natural GP on the basis of books of account from year to year. The revenue failed to point any special circumstances for estimation of such high profit particularly when during the course of search no incriminating material was found. - Decided against the revenue.

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• 2013 (9) TMI 446
  Deduction u/s 80IB(10) - Project wise deduction - Whether the assessee is entitled for deduction u/s 80IB - Held that:- that for determining the amount which qualifies for deduction u/s 80IB(1), one has to compute the income from eligible business as if the eligible business was the only source of income of the assessee. In other words, the income or loss from other business or other activities are to be ignored for the purpose of determining the amount which is eligible for deduction u/s 80IB(1) of the Act - gross total income of the assessee is ₹ 2,56,37,975/- after adjusting losses suffered by the assessee in the other two 'projects viz. 'Shreyas' and 'Coimbatore'. There are no brought forward losses or unabsorbed depreciation. The claim of deduction u/s 80IB in respect of the two eligible units viz. 'Spandhana' and 'Samruddhi' of ₹ 2,23,22,237/- is obviously less than the gross total income. In our considered opinion, the Assessing Officer as well as the ld. CIT(A) erred in interpreting the relevant provisions when they held that the losses suffered by the assessee from two projects, viz. 'Shreyas' and 'Coimbatore' be reduced from the profits of the other two units viz. 'Spandhana' and 'Samruddhi' for granting deduction u/s 80IB. Accordingly, the impugned orders of the lower authorities are set aside. The Assessing Officer is directed to allow deduction u/s 80IB on the profits derived by the assessee from two projects viz. 'Spandhana' and 'Samruddhi' of ₹ 2,23,22,237 - Following decision of CIT v. Canara Workshop (P.) Ltd. [1986 (7) TMI 5 - SUPREME Court] - Decided in favour of assessee. Disallowance u/s 14A - Held that:- unless the Assessing Officer reaches a satisfaction after examination of accounts on the basis of reasons recorded in the assessment order that the claim of quantum expenditure of the assessee as incurred in relation to the exempt income is not acceptable then, the Assessing Officer has no jurisdiction to invoke the provisions of Rule 8D of the IT Rules. In the instant case, in the absence of any reason for considering the claim of the assessee as unsatisfactory, in our considered view, the invocation of Rule 8D by the Assessing Officer was without jurisdiction and consequently unsustainable. We, therefore, delete the disallowance of ₹ 9,12,875/- and direct the Assessing Officer to restrict the disallowance u/s 14A to ₹ 15,000/- only - Following decision of MAXOPP Investment Ltd. vs. CIT & Others [2011 (11) TMI 267 - Delhi High Court] - Decided in favour of assessee.

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• 2013 (9) TMI 445
  Deemed dividend u/s 2(22)(e) - Disallowance u/s 56 rws 2(22)(e) - Commercial transaction versus loan or advances - Held that:- sub-clause (e) of Section 2(22) lays down that dividend includes any payment by a closely held company of any sum by way of advance or loan to a shareholder who comes in the category described in that sub-clause or to a concern in which such shareholder has a substantial interest. Dividend under the sub-clause also includes any payment by such company on behalf or for the individual benefit, of any such shareholder. Deemed dividend under this sub-clause would be to the extent to the company in either case possesses accumulated profits. The shareholder referred to here should be beneficial owner of shares holding not less than 10% of the voting power but those shares should not be shares entitled to a fixed rate of dividend with or without a right to participate in profits - For the purpose of Income-tax, one is to examine the nature of transaction in accordance with law. In the light of the facts, the same is to be decided in accordance with law. In the case under consideration as stated above, the assessee has demonstrated that the amount was received for the purpose of commercial transaction. As regards, the second objection, which is agreement and MOU as after thought, in this regard, we are of the view that these documents are already on record and the Revenue did not point out any contrary material to these documents. Therefore, merely by stating that this is after thought, such argument of the revenue without supporting material/evidence is not sustainable, therefore, the same is rejected - amount of Rs.1,00,00,000/- received to the assessee is on account of commercial transaction, therefore, the Section 2(22)(e) is not applicable - Decided in favour of assessee.

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• 2013 (9) TMI 444
  Transfer pricing adjustment - Method of computation of operating profit - Rejection of comparables - Held that:- TPO has totally rejected the assessee's claim on this account, the CIT (A) has allowed a deduction of 1% by accepting the fact that the assessee might be facing certain utilisation problems in its new unit and unutilised capacity might have adversely affected the overall profit for the year. However, the CIT (A) has given no reason as to why he considers 1% margin to be appropriate and on what basis he has adopted such margin. When it is accepted that assessee's overall profit is adversely affected due to idle capacities and idle facilities then the entire issue requires to be considered properly and in an objective manner taking into account all the datas available in this regard. Therefore, considering the facts and the circumstances of this case, we remit this issue to the file of the Assessing Officer who shall consider the assessee's claim with regard to idle capacities after due consideration of all materials available on record and affording a reasonable opportunity of being heard to the assessee - Decided in favour of assessee.

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• 2013 (9) TMI 443
  Deduction u/s 80IA - Whether Clauses (a), (b) and (c) of sec. 80IA(4)(iv) are mutually exclusive - distribution of power within the industrial park area. - CIT disallowed deduction holding that all clauses are mutually exclusive - Held that:- legislative intention was to afford the tax benefit to all undertakings which were engaged in any of the three activities - clauses (a) and (b) of sub. Sec. 4(iv) to sec. 80IA was introduced with effect from 1.4.2000 and clause (c) was introduced only with effect from 1.4.2005, i.e., they were not introduced in one go - These three types of undertakings referred to in the said sub-clauses (a), (b) and (c) are different and independent of each other. Thus while dealing with one sub-clause, inference need not and cannot be drawn from the other sub- clause - Following decision of DCIT Vs. Maharaja Shree Umaid Mills Ltd. [2008 (6) TMI 255 - ITAT JAIPUR-B] - Decided against assessee. Interpretation of clause (b) of sec. 80IA(4)(iv) - CIT(A) has taken the view that the said clause provides exemption only to the profit derived from laying a network of new transmission or distribution lines - Held that:- the harmonious construction of clause (b) and the proviso there under, would be that the deduction u/s 80IA of the Act shall be allowed in respect of the profits derived from transmission or distribution of power through the new network. Had the intention of the parliament was to give deduction only to the undertaking which undertakes the work of laying network of new transmission or distribution lines and not to the undertaking which transmits or distributes the power, then clause (b) would have been worded accordingly and there would have been no necessity to insert a proviso for the said purpose. - Decided in favor of assessee. Deduction u/s 80IA - Interest income - Held that:- There is a difference between "income from business" and "Profits and gains derived from the eligible undertaking". Not all the business income can be classified as "Profits and gains derived from the eligible undertaking" - for application of the words "derived from", there must be a direct nexus between the profits and gains and the undertaking - the nexus of interest income with the business of the undertaking is not direct but incidental. The source of interest income is only bank deposits and security deposits - Following decision of CIT Vs. Sterling foods [1999 (4) TMI 1 - SUPREME Court] - Decided against assessee.

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• 2013 (9) TMI 442
  Profit under head "profits or gains of business or professions" for computation of deduction under section 80HHC of the Income Tax Act, 1961 - AO had made an addition of Rs.1,06,09,194/- because these expenses were unverifiable – Held that:- Learned AO disregarded the expenditure to be genuine and added to the income of the assessee - When the profits are recomputed by the learned AO, obviously, it shall be considered as business profits of the assessee unless there is some materials to establish that they are nor arising out of the regular business activity of the assessee and accordingly the relevant provisions of the Act has to be applied either for granting any deduction or computation of tax liability - Revenue has not produced before us any contrary decisions on this issue. Therefore, in the present case, the revenue is directed to adopt under the head "profits or gains of business or professions" the profits declared by the assessee as well as the addition made by the revenue for Rs.1,06,09,194/- being unverifiable expenses and accordingly compute the deduction u/s 80 HHC of the Act – Decided in favor of Assessee. Valuation of closing stock - Closing stock valuation, when changed, the opening stock ought to be revalued on the same basis as adopted for closing stock – Held that:- Relying upon the various cases, one of which is CIT Vs Dalmia Cement (Bharat) Ltd., [1995 (5) TMI 22 - DELHI High Court], wherein it was held that two principles applicable with regard to the valuation of sock are that the assessee is entitled to value the closing stock either at cost price or market value, whichever is lower, and that the closing stock must be the value of the opening stock in the succeeding year. It is, thus, clear that irrespective of the basis adopted for valuation in the earlier years, the assessee has the option to change the method of valuation of the closing stock at cost or market price, whichever is lower, provided the change is bona fide and followed regularly thereafter. Further, in the present case no any merit in the argument of the learned AR - The learned AO had rejected the valuation of closing stock of the assessee, and in a scientific method as far as possible based on the information furnished by the assessee, had worked out the value of closing stock and made additions thereon. The valuation of the opening stock is not in dispute because the valuation of the closing stock of the preceding year is accepted to be genuine by the assessee as well as by the revenue. Further, even if, there is any error, only at that point of time when such discrepancy which is not deliberate is unearthed, such error needs a correction because only at that point of time when such discrepancy is unearthed the resultant consequence of profit and loss crystallizes. Therefore, the ground raised by Assessee is dismissed – Decided against the Assessee.

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• 2013 (9) TMI 441
  Deduction of expenditure u/s 40(b) of salary and interest to partners - Net profit rate of 2% of the total turnover in computing the income from contract business applied after rejection of books of accounts – Held that:- Relying upon the decision in the case of M/s. A.R. enterprises by Hon'ble ITAT, Agra , wherein it was held that applying a flat rate of 2% for both the contract would meet the interest of justice - No further deduction in the form of salaries & interest to partner of depreciation would be available to the assessee as the books of accounts have been rejected and the estimate of net profit rate of 2% shall be deemed to take into consideration all allowable deductions available to the assessee in the form of depreciation interest and remuneration to the partners and all other expenditures claimed in the P & L account – Also, it is not in dispute that the books of account were not maintained by the assessee in proper manner and the same were also not supported with proper bills and vouchers – It is also noted that rejection of books of account have not been challenged – Appeal of the Assessee is dismissed – Decided against the Assessee.

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• 2013 (9) TMI 440
  Product development cost as revenue expenditure - Assessee company was engaged in the business of manufacturing and selling of writing instruments - Assessee had claimed an amount of Rs. 2,55,481/- as product development cost under the head 'other direct expenses' – Held that:- Assessee pointed out that these expenses were incurred on the development of dyes and jigs, which were developed for a particular type of packaging for good customers and had limited life - Not accepted the assessee's contention, inter alia, observing that these dyes brought an advantage of an enduring nature to the assessee - Allowed depreciation @ 25% being 63,870/- and made an addition of Rs. 1,91,611/. Allowability of expenditure under section 80IB on account of delay in submission of filing of the audit report – Held that:- Assessee had filed the audit report in form No. 10CCB and, therefore, the provisions of section 80IA(7) being directory in nature, therefore held that the assessee was entitled for deduction under section 80IB. Quantification of deduction under section 80IB – Held that:- Assessee was not entitled for deduction under section 80IB in respect of job work charges and profit on purchase and sales of trading goods - While quantifying deduction, under section 80IB, it was computed the profit of job work in the same ratio as net profit ratio (2.63) divided by sales – Also, Assessee had claimed deduction, under section, 80IB in respect of the other income amounting to Rs. 10,33,913/- - Being, not clear whether the entire sum of Rs. 10,33,913/- was required to be reduced or only profit element of job work charges had to be reduced – issue restored to the file of the Assessing Officer to verify the computation with reference to financial statements and form No. 10CCB submitted by assessee.

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• 2013 (9) TMI 439
  Reassessment pursuant to Search u/s 132 or 132A - Condition for invocation of section 153A of the Income Tax Act - Relying upon the judgment in the case of All Cargo Global Logistics Ltd [2012 (7) TMI 222 - ITAT MUMBAI(SB)], it was held that completed assessments falling within six year can only be reopened if some incriminating material is found during search – Similar views were expressed in the case CIT vs Anil Kumar Bhatia [2012 (8) TMI 368 - DELHI HIGH COURT]. In the present case the assessments for assessment year 2004-05 & 2005-06 were already completed - There was no incriminating material found during search for these years - There was no incriminating material found during search for these years as is apparent from arguments of Ld. AR and from records and Ld. Departmental Representative did not bring to our notice regarding any incriminating material having been found during search – Decided in favor of Assessee.

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• 2013 (9) TMI 438
  Exemption u/s 80G of the Income Tax Act – Registration u/s 12AA - Charitable purpose - Person u/s 2(31) - Applicant, a trust or a society – Held that:- Be it a Trust or a Society, the legal status of either is that of a body of individuals and the benefit in either case inures to the same indeterminate public - Moreover, there is nothing on record to show that the management of the Trust has been taken over by the Society, or that the property of the Trust, post registration as Society, belongs to the Society. Undisputedly, the Board of Trustees are the same. The property, as earlier, continues to be held under Trust for pro bono publico or for the benefit of the public. As such, there is no transfer of ownership of property and the assessee continues to be the indeterminate beneficiary and not the Trust. And due to this reason, the ld. CIT has fallen into error in holding that the approval u/s 12A of the Act was granted to the Trust and not to the Society, the Society is not eligible for grant of certificate u/s 80G (5) of the Act - Change over to the status of Society makes no difference in this position and implementation of the objects of the Trust is still a legal obligation to be discharged - Merely registration as a Society does not disentitle the applicant from the exemption claimed - The ld. CIT is directed to grant exemption u/s 80G of the Act to the assessee in accordance with law – Decided in favor of Assessee.

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• 2013 (9) TMI 437
  Business loss or Bad Debts - written off of advances – advances given for material supply – Held that:- Losses incidental to business are allowable as deduction despite there being no specific provision for the same. If there is a direct and proximate nexus between the business operation and the loss or it is incidental to it, then the loss is deductible, as without the business operation and all that is incidental to it, no profit can be earned [Remachandar Shivnarayan v. CIT [1977 (11) TMI 2 - SUPREME Court] - Case of the appellant falls under the business loss and not under the bad debts - The parameters for claim of business loss and the bad debts are different. - Decided in favor of assessee. Disallowance of interest expenditure u/s 36(1)(iii) of the Income Tax Act – Held that:- No interest bearing funds were utilized for advancing the sum to the subsidiary company or its related company on account of share application money - It was also noticed by the CIT(A) that the assessee has sufficient reserves i.e. Rs. 62.23 crore with the assessee - The finding of the CIT(A) remained uncontroverted that the Assessing Officer failed to prove the nexus between borrowings and subsequent advancing of loan to subsidiary company – Therefore relying upon the decision in the case of S.A.Builders [2006 (12) TMI 82 - SUPREME COURT ], the expenditure of interest has not been allowed – Decided against the Assessee. Depreciation on leased assets u/s 32(1) of the Income Tax Act – Held that:- Relying upon the decision of Supreme Court of India in the case of Shaan Finance (P) Ltd. v. CIT [1998 (3) TMI 8 - SUPREME Court], it was held that the ownership of the machines remained with the assessee and there is no scope for transferring the machines to the parties - Assessee-company fulfilled all the conditions laid down u/s 32 of the Act, therefore, the claim for depreciation is to be allowed – Decided in favor of Assessee. Interest income against bank guarantee or letter of credit – Held that:- Interests had been directly linked with the commercial activity of the assessee. When there is a commercial activity established, then, earning of interest or incurring of expenditure for earning the interest is to be treated as for business expediency – Therefore, the interest expenditure or interest income is treated for the purpose of business. Depreciation in respect of Time Sharing Unit – Held that:- Time sharing unit is intangible asset or an asset which make the assessee entitled for deduction on account of depreciation - If it is found that this is a capital asset then depreciation is allowable u/s 32 - Accordingly, issue is remanded back to the file of A.O. to examine the issue afresh.

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• 2013 (9) TMI 436
  Additions on the account of cash flow statement furnished by the assessee – Addition of the amount of Rs. 10,40,000/- Held that:- During the course of search no incriminating documents were found relating to the fact that assessee was not having cash balances - ld. CIT(A) confirmed the addition merely on the basis that the assessee never filed capital account showing for each of the cash balances - Assessee has furnished sufficient material including income of the various years of assessee as well as assessee’s mother which sufficiently proves that the assessee must have opening balances - The assessee furnished cash flow statement for earlier year also i.e. A.Ys.2004-05 to 2010-11 - The cash flow of the earlier years clearly show that the assessee was having such an opening balances. The assessee discharged the burden regarding cash balances shown in the cash flow statement by furnishing total income and earning in earlier years and furnishing cash flow statements from A.Y.2004-05 onwards - A.O. himself accepted inflow and outflow of the cash in the chart submitted and he did not doubt about that. He doubted about only opening balances. When the assessee has furnished the position of income from earlier/different years and the total income of the assessee and his mother comes to Rs.2,32,83,547/-, it can not disbelieve that the assessee was not having cash balance to the extent of Rs.10,85,231/- as opening balance in A.Y.2009-10 - Assessee has furnished sufficient material and discharged the burden, supporting the fact that the assessee was having cash balance of Rs.10,48,000/- in the beginning of the year, particularly under the facts and circumstances when no incriminating documents or other material was found during the course of search – Decided in favor of Assessee. Addition on estimation basis – estimation of larger sum of household expenses - A.O. noticed from the cash flow chart that the assessee has shown lower house hold withdrawals - Considering the size of family and social status of the assessee, the A.O. has estimated household expenses of Rs.22,000/- per month as against the total household withdrawal of Rs.1,80,424/- per annum shown by the assessee – Held that:- It is a search case and during the year no incriminating material or documents were found – A.O. made addition merely on the basis of general presumption, whereas, the assessee has furnished a reasonable explanation that the assessee is residing in remote area at 20 km. away from city having substantial agricultural income and produce. The assessee is widow mother, who is a separate income tax payer since long, also resides with the assessee and she has also been withdrawing for household expenses - In the absence of material, particularly under the circumstances where the assessee has satisfactorily explained the household expenses shown by the assessee, in the light of these facts, the CIT(A) is not correct in sustaining the addition of Rs.97,900/- - Therefore, deleted the said addition of Rs.97,900/- sustained by the ld. CIT(A). Undisclosed investment in property u/s 69 of the Income Tax Act - Addition of Rs.38,77,589/- made by the A.O. by alleging undisclosed investment on the basis of DVO’s report - Assessee is one of the co-owners of the building - The DVO has furnished two reports of valuation. The DVO while submitting the second report estimated cost of Rs.1,30,30,085/- and clearly stated that the value determined by interpolation of cost index which is not in accordance with provisions of Section 142A of the Act – Held that:- Construction period was from 2000-2001 to 2010-2011 i.e. for about 10 years, bifurcation of yearly investment has been given by the assessee, considering objection of the assessee in respect of DVO’s report particularly not allowing 10% self-supervising charges, 3% of architect fee etc. the difference is only 13% in comparison to cost declared by the assessee and estimated by the DVO and the effect of the entire difference given in a particular year is not justified. Therefore, the investment declared by the assessee is reasonable and the same is acceptable, because in totality the investment shown by the assessee is correct. The first DVO’s report supports to this fact - Therefore, no addition is warranted - Deleted the addition of Rs.38,77,589/- made by the A.O. on account of investment in property under Section 69 of the Act and sustained by ld. CIT(A) – Decided in favor of Assessee. Adhoc additions, without enquiry - The A.O. made addition of Rs.1,55,000/- on the ground that the DVO has shown the construction cost which does not include cost of land, furniture and furnishing, A.C., electrical equipment, old structures and old boundary wall. The A.O. treated 20% of the cost of construction shown by the assessee at Rs.15,50,000/- and calculated amount of addition of Rs.1,55,000/- by treating it as expenditure incurred for furniture and furnishing over and above cost of construction – Held that:- The A.O. has failed to point out by making enquiry that how many A.C and other electrical equipments were there with the assessee - Adhoc addition is not warranted – In the lack of enquiry and making addition without considering complete facts, merely on the basis of conjecture or surmises addition cannot be made particularly in case of search – No justification of making addition of Rs.1,55,000/-, therefore, it has been ordered to delete the addition of Rs.1,55,000/- - Decided in favor of Assessee.

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• 2013 (9) TMI 435
  Exemption u/s 10A of the Income Tax Act - Disallowance of exemption claimed u/s. 10A of Rs.2,37,70,404/- on the alleged ground that the assessee was blending different types of tea but not manufacturing or producing any articles for the purpose claiming exemption u/s.10A – Held that:- In view of the admission made by AO, that assessee is carrying on the activity of blending of tea consistently, on factual aspects, which Revenue has not objected. It is not the case of the Revenue that there is no blending – Further, relying upon the decision in the case of Madhu Jayanti International Ltd [2012 (7) TMI 531 - ITAT KOLKATA ], claim of the assessee is allowed – Decided in favor of Assessee. Relying upon the case Madhu Jayanti International, it is held that assessee who are in the business of blending and processing of tea and export thereof in 100% EOUs are manufacturer / producer of the tea for the purpose of claiming exemption u/s. 10B of the Act. Further, assessee who are in the business of blending and processing of tea in respect of undertakings in free trade zones are manufacture / producer of tea for the purpose of claiming exemption u/s. 10A of the Act – Examination of facts in the case of Madhu Jayanti International Ltd. is done, and found that there is blending of tea and consequently assessee is eligible for exemption u/s. 10B of the Act as prayed for. There appeal for the AY 2004-05 is allowed.

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• 2013 (9) TMI 434
  Reimbursement of 50% of interest on housing loan taken by the employees - Employees of the assessee company have taken loan from the parties other than the assessee company and the company has actually reimbursed 50 per cent of the interest paid on the loan taken by the employees – Held that:- Allowed as expenditure to the Assessee – Decided in favor of Assessee. Claim for deduction being the amount written off on account of diminution in the value of investment in shares of Petroleum Infrastructure Ltd – Held that:- Loss on account of diminution in the value of investment in shares is allowable by way of capital loss only when transfer of shares takes place. In the present case, there is no transfer of shares in question and, therefore, the claim of the assessee regarding this diminution in the value of investment in shares is not allowable. - Decided against the assessee. Non-granting of depreciation of Rs.1,65,190/- on the assets leased to Rajasthan State Electricity Board (RSEB) - (a State Government Undertaking, formed under the State Electricity Supply Act) – Held that:- Relying upon the decision in the case of COMMISSIONER OF INCOME-TAX Versus GUJARAT GAS CO. LTD[2008 (9) TMI 126 - GUJARAT HIGH COURT], depreciation is allowed. Penalty u/s 271 (1) (c) of the Income Tax Act – Held that:- There is no material brought out by the AO to prove the ingredients for levy of penalty that the assessee has furnished inaccurate particulars of income or concealed particulars of income - There was no fault or willful negligence on the part of the assessee and, therefore, penalty is not justified – Decided in favor of Assessee.

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• 2013 (9) TMI 433
  Unexplained cash credit u/s 68 of the Income Tax Act - Amount of Rs. 2,28,50,000/- was received by the assessee from its shareholder M/s Prahlad Trading Pvt. Ltd. by cheques during the year under consideration - Confirmation letter of the said creditor was filed by the assessee during the course of assessment proceeding as called for by the A.O - All the relevant details such as complete name and address of the creditor, its Permanent Account Number and the details of mode of payment including the cheque Nos. were given therein - Source of amount in question paid to the assessee was explained by the said creditor as the application money received from M/s Kenex Exports Pvt. Ltd. towards OFCD – Held that:- Documentary evidence produced by the assessee was sufficient to discharge the initial onus that lay on the assessee in terms of section 68 of the Act to prove the identity and capacity of the creditor as well as genuineness of the transaction and there was no justification in the action of the A.O. in treating the amount in question received by the assessee from the concerned creditor M/s Prahlad Trading Pvt. Ltd. as unexplained cash credit u/s 68 of the Act without bringing any adverse material on record. What is relevant in the context of unexplained cash credit u/s 68 is the explanation of the assessee in respect of the source of relevant cash credit - The funds for giving the amount in question were generated by the concerned creditor M/s Prahlad Trading Pvt. Ltd. from an independent source which was not even part of circular transactions alleged by the A.O. and this being so, the genuineness of the relevant cash credit cannot even otherwise be doubted on the basis of circular transactions as alleged by the A.O. As already observed by us, sufficient evidence was produced by the assessee to establish the identity and capacity of the concerned creditor as well as the genuineness of the relevant transactions and the onus in terms of section 68 to explain the said cash credit having been duly discharged by the assessee - Treating the said cash credit as unexplained u/s 68 of the Act is not justified - Deleted the addition and allowed the appeal of the assessee – Decided in favor of Assessee.

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• Customs

• 2013 (9) TMI 466
  Confiscation u/s 111(d) and 121 r.w. section 13(1) of FERA – revenue could not produce any licit documents for acquisition and possession of the foreign currency recovered from him – Held that:- Revenue failed to discharge the burden - confiscation u/s 111(d) was not sustainable - the burden to prove that the foreign currency had been obtained through illicit means lies on the Revenue – assessee had been able to prove that the foreign currency had obtained by them against an export order and the goods had exported against that export order - Court relied upon Pukhraj Nihalchand Jain vs. Commissioner of Customs (2003 (3) TMI 374 - CEGAT, MUMBAI) – order was set aside – appeal decided in favour of assessee.

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• 2013 (9) TMI 465
  Duty demand – Interest and Penalty – Held that:- Order of the Commissioner (Appeals) was set aside - the demands were not sustainable against them - assessee had already furnished the Export Obligation Discharge Certificate and the bond executed by the assessee at the time of obtaining the advance licence had already been discharged by the appropriate authority – decided in favour of assessee.

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• 2013 (9) TMI 464
  Export of restricted Goods - UREA USP - UREA ULTRA PURE - Goods found to be restricted items as per Import Export Policy - they were not permitted for export unless license had been issued for the purpose - Held that:- The release of goods were ordered on payment of redemption fine - there being already clearances allowed for the same item in the past - the assessee could had entertained a bonafide belief that there need not be any license for exporting such item. Seizure of goods u/s 113 - redemption fine u/s 125 - the first appellate authority had already set-aside the absolute confiscation of the goods and given an option to redeem the same on payment of redemption fine - the redemption fine seems to be an excessive –redemption fine was reduced. Confiscation of goods - Penalty u/s 114 - the penalties were correctly imposed u/s114(i) - the act of the assessee in not providing the license for export of Urea had made such consignments liable for confiscation - The provisions of Section 114 mandate about imposition of penalty when the goods were liable for confiscation u/s113 - the penalty needs to be imposed on the assessee u/s114(i) – decided partly in favour of assessee.

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• 2013 (9) TMI 463
  Classification of Glass chatons – The appellant imported glass chatons and glass and claimed assessment of the same under CTH No. 7018 10 20 as “Beads” and claimed exemption from CVD - The Customs authorities were of the view that as per HSN explanatory notes, glass chatons and glass beads are not one and the same - they classified the glass chatons imported by the appellant under CTH 7018 90 90 and levied 10% CVD on the goods - Held that:- The classification adopted by the assessing officer does not seem to have any basis - The lower appellate authority had differed with the assessing officer with regard to classification. Whether piercing of a chaton was essential for it to be called a bead was considered in STARLITE CORPORATION, BOMBAY Versus UNION OF INDIA [1985 (12) TMI 61 - HIGH COURT OF JUDICATURE AT BOMBAY] - the piercing of a chaton was not essential for it’ to be called a bead - The petitioners’ articles were, therefore, glass beads entitled to exemption under the notification - The appellant’s contention was accepted and the appeal allowed by setting aside the impugned order with consequential relief. By applying the trade parlance test also the goods were classifiable as ‘glass beads’ - it was laid that for the purposes of classification the ‘trade meaning’ should be given due importance unless the Tariff itself requires the terms were to be interpreted in a strict technical sense in which case technical dictionaries should be used - the question of applying strict technical sense also does not arise – classification of the impugned goods under CTH 7018 10 20 as glass beads upheld - Decided in favor of assesse.

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• 2013 (9) TMI 462
  Valuation of imported goods - inclusion of Technical Know-how - Assesse entered into a technical know-how agreement with their principal in USA – The value of the imported goods including customs duties were clearly excluded – Held that:- In the absence of any evidence showing existence of a price adjustment between the cost incurred by the buyer on account of royalty/licensee fees by reducing price of imported items - it can- not be that such royalty payments were includible in the assessable value of the imported goods under Rule 9(1)(c)/10(1)(c) of the Customs Valuations Rules, 1988/2007. - Decision in Commissioner of Customs Versus M/s Ferodo India Pvt. Ltd [2008 (2) TMI 12 - Supreme Court] followed. It was seen that the assesse does not import any goods from the licensor/supplier of technical know-how at all – the assessing authority had recorded a clear finding that the assesse had submitted competitive quotations which revealed that the prices were based on commercial considerations and were comparable and the invoice values were not influenced by the assesse’s relationship with the principal - In view of such a clear and categorical finding by the assessing authority. Royalty and License Fee - The acceptance of the transaction value, the Customs authorities could not add the technical know-how fee in respect of the post-importation activities to the assessable value of the imported goods – COMMISSIONER OF CUSTOMS, NEW DELHI Versus PRODELIN INDIA (P) LTD. [2006 (8) TMI 186 - SUPREME COURT OF INDIA] - royalty and licence fee payments made, in respect of the goods manufactured and sold in India and not in respect of the raw materials/components imported and such payments being not a condition of sale of items to be imported, cannot be included in the assessable value of the imported goods under the Customs Valuation Rules – order set aside – Decided in favor of assesse.

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• 2013 (9) TMI 461
  Nature of assessment – duty demand – penalty u/s 114A- Held that:- In the case the assessment was provisional and full duty was paid before clearance of goods - there was no demand u/s 28 for duty short-levied - When there was no such demand no penalty can be imposed u/s 114A – assesses contended that the goods could not have been confiscated because the assessment was provisional - This argument was legally not tenable – u/s 111(m) any goods which do not correspond in respect of value or in any other particular with the entry made under the Act was liable to confiscation. Misdeclaration of goods - Confiscation of goods – Redemption fine - A deliberate action to declare the goods as an endoscopic system, with an intention to claim the exemption, was evident even though there was no such description in the invoice or literature of the manufacturer – The additional description was purposely added - misdeclaration made would make the goods liable to confiscation – considering the nature of the equipment to be one used in medical care and also the nature of misdeclaration involved and the letter issued by a public authority like the Chief Medical Officer DGHS redemption fine was reduced – Decided partly in favor of assesses

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• Corporate Laws

• 2013 (9) TMI 452
  Order for Convening Meeting - Whether notice to the Central Government shall be given on an application u/s 391 (1) moved by way of judges summons, ex parte before issuing an order convening a meeting of the creditors or class of creditors or members or class of members - Whether at the initial stage of moving the judges summons ex parte or after direction for convening the meeting of the creditors or class of creditors or the members or its classes – Held that:- The facts narrated in the application and the scheme proposed does not envisage the invocation of the provision of Section 394A before convening the meeting and this Court – the application was disposed by giving the directions as to how the meeting is to be conducted. The Company Court does not act as a Court of an appeal and was equally not expected to put it seal of an approval on the scheme, either the majority of the shareholders have voted in favour of the Scheme or the Company Law Board or the Registrar or the Official Liquidator has not put any adverse report - The provision cannot have the restricted applicability at the post meeting stage but can be applied before passing any order as contemplated under Section 391 or 394 of the said Act. It cannot be said that the provisions contained under Section 394A of the Companies Act can only be resorted after convening the meeting or before passing the final order either sanctioning or refusing to sanction the scheme - The said provision can be pressed at any stage on an application being moved under Section 391 or 394 of the Act depending upon the facts of the each case - Recourse to Section 394A of the Act should not be readily adopted the moment, the application was moved but certainly should be adopted before sanctioning the scheme. Section 391 of the Companies Act provides the sanctioning of the scheme by the Court, provided; the Court is satisfied that an application made under the said provisions contains all disclosure of material facts relating to the Company namely the latest financial position of the Company, latest auditor's report on accounts of the Company and pendency of any investigation proceeding in relation to the Company. At the time of promulgating the Companies Act, 1956, Section 394A was not incorporated but was subsequently inserted by Act 31 of 1965 with effect from 15th October, 1965. By virtue of Sub-section 1 and 2 of Section 643 of the Companies Act, 1956, the Companies (Court) Rules 1959 was framed by the Supreme Court of India and assumes the Act of parliament. The said rule came into force on and from 1st day of October, 1959. Rule 67 & 68 of the said rules provide for moving the application by way of judges summons ex parte, unless an application is taken out other than the Company. In such event, the copy of the summons and the affidavit in support of the said judges summons shall be served on the Company or where the Company is being wound up on its liquidator, not less than 14 days before the date fixed for hearing of the summons. Rule 69 of the said rules contains the provisions relating to the directions at the hearing of the judges summons which further provides that upon hearing on the day when it is moved ex parte or any adjourned date, the Court can dismiss the summons. One of the directions as enshrined under Rule 69 of the said rules contains the fixation of time and place of meeting or meetings of the creditors or class of the creditors and/or member or the class of the members relating to the proposed compromise or arrangement.

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• Service Tax

• 2013 (9) TMI 472
  Activity Taxable OR Not - Mandap Keeper Services - Whether marriage is a religious function - The department was of the view that the said activity came under the purview of ‘Mandap Keeper Services - Held that:- The marriage was a social function and not a religious function - The mode of conducting the marriages either by following religious rituals or otherwise does not make marriage a ‘religious function' – Following Shri Gujarati samaj Bhavan Vs. Commissioner of Central Excise, Bhopal [2006 (6) TMI 470 - CESTAT NEW DELHI] - insertion of the explanation does not affect the levy of Service Tax on Mandap Keeper Service rendered in connection with marriages. Marriage as a social institution existed much before the religions came into being and, therefore, it was futile to argue that the marriage was a religious function. The law itself recognizes registered marriage as a legally valid form of marriage and there was no religious sanctity attached to such registered marriages. Order was set aside Revenue's appeal was allowed subject to the modification that the demand was sustainable only for the normal period of limitation - Needless to say the respondent was liable to pay interest on the Service Tax demand - Imposition of penalty was not warranted in the case - the Revenue was directed to re-compute the Service Tax demand - Since the appellant had not collected the Service Tax separately, the amount received shall be considered as cum tax and Service Tax amount be computed accordingly.

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• 2013 (9) TMI 471
  Service Tax on Royalty - Brand Name - Nature of Service - Intellectual Property Rights Services or Not - Revenue was of the view that the services rendered by Air India to AICL would come within the category of Intellectual Property Rights Services – Held that:- The Service Tax demand had been made on the whole amount of royalty without explaining how foregoing of rights or sharing of domain knowledge would come under the Intellectual Property Right Services - There was not even a whisper about the services rendered in this regard by the appellant to M/s AICL - Therefore, confirmation of demand on the entire amount of royalty received was not sustainable in law. As regards the question what should be the consideration for usage of brand name, there were methods available for doing this by expert in the field - The department does not seem to have utilized the services of expert in assessing the value of the brand and its usage - In the absence of such an assessment, it was difficult to sustain the impugned demand - The appellant themselves had amended their MOU retrospectively, wherein it had been provided that the royalty was payable only for foregoing their rights in operation in certain routes. Waiver of Pre-deposit – Pre-deposits were waived - The authority should have examined whether such retrospective amendment of the MOU was permissible or not - the appellant was a Government of India Undertaking and had been ailing for a long time - appeal allowed by way of remand - Stay Granted.

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• 2013 (9) TMI 470
  Stay - demand of service tax - Technical Know-how - Held that:- in case of "Double accounting of Technical Know-how", the applicant had submitted Chartered Accountant's certificate explaining as to how exactly Revenue has made error of double counting. The certificate is couched in plain language and capable of verification by persons with basic knowledge of accounting. The adjudicating authority has not taken assistance of any person professionally qualified in Accountancy for rebutting the certificate issued by the Chartered Accountant. An asset or liability appearing in financial years of consecutive year cannot lead to the inference that such assets or liabilities were distinct. So, at this prima facie stage, we are accepting by the certificate given by the Chartered Accountant. Salary paid to Foreign Employees - Man-power Supply Agency 66A - Technical Know-how - whether the activity undertaken by the assesse could come under the category of Man-Power Supply Agency u/s 66A - Held that:- In the case of "Salary paid to employers", we find that the demand involved is paid in India to the employees in India and no part of it seems to have been remitted to the parent company abroad. If that be the case, we are, prima facie, not convinced with the arguments put forth by Revenue regarding taxability under the category of "Man-power Supply Agency" under Section 66A of the Finance Act, 1994 Technical Testing Service - Held that:- In the case of "Technical Testing Service," the argument of the Revenue is that drawal of sample was done in India. There are also other small amounts about which detailed hearing has not been given to either side. Prima facie the certificate given by the Chartered Accountant was accepted - The adjudicating authority had not taken assistance of any person professionally qualified in Accountancy for rebutting the certificate issued by the Chartered Accountant - An asset or liability appearing in financial years of consecutive year cannot lead to the inference that such assets or liabilities were distinct. Waiver of Pre-deposit – 30 lakhs were ordered to be paid as a pre-deposit – stay granted partly.

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• 2013 (9) TMI 469
  Business Auxiliary Service – department’s contended that the service rendered by the appellant was liable to service tax under the category of "Clearing & Forwarding Agents" - Held that:- As per the terms of the agreement, the appellant was acting as a "Del Credere Agent" and not as a "Clearing and Forwarding Agent" - Whether activity of Del Credere agent can be taxed retrospectively - The activity cannot be held liable to service tax prior to the enactment - as decided in CST, BANGALORE V/s SREENIDHI POLYMERS (P) LTD. (2010 (3) TMI 333 - KARNATAKA HIGH COURT) - The period of dispute in the present case is 1999-2000 & 2000-2001 - activity of "Del Credere Agent" was brought under the service tax net with effect from 16/06/2005 under the category of "Business Auxiliary Service” – appeal decided in the favour of the assessee.

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• 2013 (9) TMI 468
  GTA service - Assesse were engaged in the manufacture and export of textile made-up articles - relying upon Amman Steel Corporation Vs. CCE, Trichy - 2011 (22) STR 563 (Tri. - Chennai) - Held that:- Recipient of the GTA service who were paying the freight for such service tax - they were liable to pay the service tax - they had proved their bona fide by paying service tax along with interest promptly were dealers of scrap had to be extended the benefit of provisions of Section 80 - in view of multiplicity of persons out of whom one of them was required to pay service tax, the claim of the assesse that they were in the bona fide belief that they were not required to pay service tax and there was no deliberate intention – the demand of tax along with interest was upheld – the penalties were set aside after invoking Section 80 – Decided in favor of assesse.

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• 2013 (9) TMI 467
  Reverse Charge Mechanism - Banking and Other Financial Services (BOFS) - fee paid for issuance of bonds outside India - import of service - Section 66A - Held that:-  It is not in dispute that the services provided by Silverdale were received by REL, and it cannot be gainsaid that the latter paid for the services by permitting the former to deduct their fees from the proceeds of the FCC Bonds. The limited case of REL is that the services were not received in India. They claim to have received the services outside India. Did they have any office or establishment in UK or elsewhere outside India to receive Silverdale’s services outside India? Through whom did REL maintain/operate the Escrow Account in London? The learned counsel could not give any convincing reply to these queries of ours. We are of the view that, for the ends of justice, the party should get an opportunity to discharge their burden of proof in fresh proceedings. In the instant case, it has also been contended by the assessee that the services provided by Silverdale do not fall within the scope of any of the various clauses of the definition of BOFS under Section 65(12) of the Finance Act, 1994. It was so contended by the assessee in their reply to the show-cause notice also. But what appears from the impugned order is that this aspect was also not not examined by the learned Commissioner. This is another reason for de novo adjudication of the case. - matter remanded back.

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• Central Excise

• 2013 (9) TMI 460
  Denial of CENVAT Credit on Capital Goods – Rule 2(a)(A) of CENVAT Credit Rules, 2004 - stay - CENVAT credit on numerous steel items such as M.S. Pipes, Chains, Plates, Flats, Angles, Channels, Sheets, Rods & Beams, etc - Held that:- There was glaring inconsistency in the stand taken by the appellant before the adjudicating authority and before us - In any case, the aforesaid averments made by the appellant in their first reply to the show-cause notice were never retracted - Such averments were crucial in determination of a factual question as to whether the steel items were used in a manner which could qualify those items to be ‘capital goods’ in terms of clause (iii) given under Rule 2(a)(A) - The submission emphatically made by the appellant was that none of the steel items in question was used to fabricate supporting structures - This argument was diametrically opposed to the contention raised by his client before the adjudicating authority in the first reply to the show-cause notice - Prima facie, this conduct of the party is self-defeating - The appellant had specified the Tariff classification of the steel items - Some of the items were classified under Chapter 84 and some of them under Chapter 85 and others under Chapters 72 & 73 - The plea of bona fide belief was also believable - It was not in dispute that there were conflicting decisions on the MODVATability / CENVATability of the steel items during the earlier part of the period of dispute. Relying upon Vandana Global Ltd. Vs. Commissioner of Central Excise, Raipur [2010 (4) TMI 133 - CESTAT, NEW DELHI (LB) ] the appellant in their first reply to the show-cause notice and, consequently, CENVAT credit cannot be claimed by them on the steel items in question under Rule 2(a)(A) - The decision of the apex court in Saraswathi Sugar Mills vs. Commissioner of C. Ex., Delhi-III [2011 (8) TMI 4 - SUPREME COURT OF INDIA ] was to the effect that a supporting structure for any capital goods cannot be considered as component or part of that capital goods and hence would not qualify to be ‘capital goods’ in terms of clause (5) of the definition of ‘capital goods’ under Rule 57Q (1) of the erstwhile Central Excise Rules, 1944 - Clause (iii) of the definition of ‘capital goods’ under the CENVAT Credit Rules is pari materia to clause (5). Waiver of Pre deposit - The appellant should pre-deposit the entire amount of CENVAT credit denied for the normal period – balance of dues i.e interest and penalty waived.

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• 2013 (9) TMI 459
  Clandestine removal - CENVAT credit Demand - Penalty - shortage of goods - Held that:- COMMISSIONER OF C. EX., KANPUR Versus RAGHUNATH INTERNATIONAL LTD. [2009 (2) TMI 620 - CESTAT, NEW DELHI] - mere shortage of finished goods cannot be equated with clandestine clearance in absence of other evidence and in such a situation penalty u/s 11AC of Central Excise Act, 1944 is not warranted - there was no corroborative evidence that short found finished goods were clandestinely cleared nor it had been so admitted by the assesse. Mere signing of the chart alleging removal of finished goods cannot be treated as clear admission of the clandestine removal - Moreover, diary on which the reliance has been placed only contains the vehicle numbers which had left the factory - There was no indication as to whether those vehicles had carried finished products and if cleared had also been taken on presumption basis which was not permissible - once the Commissioner (Appeals) gives this finding, his earlier finding of upholding the demand merely because the Director of the appellant-company had admitted the same would become unsustainable. The duty demand against the assesse was not sustainable - the order upholding the duty demands against the assesse and also upholding the cenvat credit demand and penalty was not sustainable - there was nothing in the statement of Director of the assesse-company from which it can be inferred that he had admitted the clandestine removal of the goods found short or that he had admitted that the exit vehicles mentioned in the diary had carried finished goods removed without payment of duty. – Decided in favor of assesse.

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• 2013 (9) TMI 458
  SSI Exemption - clubbing of clearance - Manufacture of Goods OR Not – Duty Liability – SSI Exemption Limit - stay - Revenue was of the view that the assessee was engaged in the manufacture of tin containers with the aid of power which are liable to duty of excise - However, as per the appellant, as their clearances were below small scale exemption limit, no duty was being paid by them - Held that:- There was a lot of evidence discussed by the adjudicating authority in the shape of recovery of incriminating documents, inculpatory statements of various persons and verification of fact of manufacture of tin containers in the other two factories - All these evidences ‘prima facie’ lead to conclusion that the tin containers were manufactured in the factory of M/s Sardar Metal Industries and were cleared in the name of the other two units i.e. M/s Ram Containers and Arjun Enterprises, as if the same were manufacturing the goods without the aid of power. As regards the financial condition M/s Sardar Metal Industries stands sold in the year 2003 - the other aspect of the financial position does not stand disclosed on record. Ld. Advocate draws our attention to income tax return filed by Sanjay Arora of M/s Sardar Metal Industries. However, the contention of ld. Jt. CDR is that when the goods manufactured by the said applicant were being sold in the name of the other two units, income tax returns were bound to reflect the low income of the applicant as the consideration of clandestine clearance as never reflected in the statutory documents - We prima facie agree with the contention of ld. Jt. CDR that consideration received against clandestine activity never forms part of the statute reflecting income tax. Waiver of Pre deposit - stay granted partly.

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• 2013 (9) TMI 457
  Cenvat Credit availment - Credit of duty availed by the Supplier (manufacturer) on drawing of wire / rods – Process of drawing of wires from wire rods does not amount to manufacture under section 2(f) of Central Excise Act, 1944 as per the various decisions of Apex court – retrospective amendment - Held that:- The issue decided in the abovesaid case by the Supreme Court related to the excisability of such wires drawn from wire rods, which has no direct applicability in the appellants case – Taken the credit correctly of the amount of duty paid on the steel wires used in the manufacture of ACSR conductors, which are cleared on payment of duty from the factory of the appellant - This availment of CENVAT credit is in accordance with the provisions of rule 3 of Cenvat Credit Rules, 2002 – Decided in favor of Assessee.

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• 2013 (9) TMI 456
  Cenvat / Modvat - Goods Short Found - liability on the raw materials which were found short during the physical verification of the appellant’s factory was liable to be discharged by the appellant as they were unable to give proper explanation for such shortage - To that extent, the adjudicating authority’s findings on the point are correct, legal and does not suffer from any infirmity – However there was strong force in the contentions raised by the ld. Counsel that if the inputs on which MODVAT Credit was availed were found short - the provisions as per the provisions of CENVAT Credit Rules/Central Excise Rules, 1944 during the relevant period was that the amount of duty of credit attributable to such inputs found short - needed only to be reversed and there cannot be any excess demand - This was a settled issue - Accordingly, upholding the confirmation of demand of duty on the inputs on which the MODVAT Credit was availed and found short - the correct quantum of duty liability needed to be worked out by the lower authorities based on the records - The lower authorities will work out the correct liability to duty of the credit availed on the inputs which were found short and recover the same from the assessee along with interest and also the penalties from the appellant-assessee under the provisions of Rule 57I and Rule 173Q of Central Excise Rules, 1944. Demand of Duty on the Finished Goods - Held that:- The point needed to be considered by the adjudicating authority - The order to this extent was set aside and remanded back to adjudicating authority, who will follow the principles of natural justice, before coming to conclusion - The invoices which were initially raised was in the name of the some other dairy, while the so-called genuine invoice as claimed by the assessee was in the name of someone else - the appellant had produced certificate from Baroda District Co-operative Milk Producers Union Ltd., Mahand Dairy, and other government owned dairies, to whom they make supplies to justify their plea that there was no clandestine removal of the goods during the entire period - The summary rejection of such crucial evidence seems to be incorrect, inasmuch as if the total quantity of finished goods cleared by the appellant as per the annexure, in the form of fake and/or genuine invoice, tallies with the total quantity shown as received by the government owned dairies, it cannot be said that there were clandestine removal of the goods. Penalty - The adjudicating authority may consider the same after arriving at the correct figure of clandestine removal after reconciliation was done by him and may consider the imposition of penalty on the appellant-asessee as well as individuals.

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• 2013 (9) TMI 455
  Interpretation of Provisions - The issue involved in the case was regarding the Interpretation of provisions of Rule 8 and more specifically Rule 8(3A) of Central Excise Rules. 2002 - Held that:- Assesse relied upon M/s MEENAKSHI ASSOCIATES Versus COMMISSIONER OF CENTRAL EXCISE, NOIDA [2012 (6) TMI 275 - CESTAT, NEW DELHI] while the Revenue relied upon GODREJ HERSHEY LTD. Versus COMMISSIONER OF C. EX., BHOPAL [2010 (11) TMI 263 - CESTAT, NEW DELHI] - any omission or failure to comply with the obligation relating to payment of duty in the manner prescribed and within the period specified under Rule 8(1) of the said Rules would amount to default in payment of duty. It may be a short payment of duty or it may be total failure to pay the duty. There seems to be a narrow contradiction in the judgements of the coordinate benches in the case of Godrej Hershey Ltd. and Meenakshi Associates. The said contradiction needs to be settled by the Larger Bench and the said contradiction is (i) whether a default by an assessee has to be considered as an entire default if he does not make part payment of the duty liability in a particular month, (ii) whether penalty can be imposed under Rule 25 or Rule 27. - matter referred to larger bench.

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• 2013 (9) TMI 454
  Clandestine removal of goods - evidence - octroi receipt - difference of opinion - majority order - Held that:- Revenue discharged its burden of proof on the basis of Section 14 evidence recorded from Sri Saravjeet Singh who was an inextricable link between the appellant and the impugned goods transported by the use of the impugned vehicle as a means of transport. Shri Saravjeet Singh also admittedly stated that he has deposited Octroi at the respective Octroi check gate on the ingots of the appellant transported. Preponderance of probability was in favour of Revenue for which appellants failed to gain favour of law. Evidence of Madan Mohan Saini recorded by Revenue confirmed use of the impugned vehicle (PCR-4785) for transportation of ingots sold to local buyers in Jallandhar by corroborated testimony of Sri Saravjeet Singh. He also confirmed that Shri Saravjeet Singh was driver of the impugned vehicle and that remained un-refuted. Octroi receipts also established name of Shri Saravjeet Singh appearing therein as payer thereof. All these evidence lent credence to the case of Revenue without being demolished by Appellant. Discovery of parallel invoice as recorded by learned Technical Member in Para 16 of the referral order remained uncontroverted which was also an allegation in para 15 of the show cause notice dated 1-7-2007. Modus operandi of the appellant became questionable. It can be said that sufficiency’ relevancy and credibility of evidence available on record proved charge of clandestine removal of impugned goods without payment of duty for which both appeals fail and learned Technical Member has rightly held that the impugned order required no interference. - Decided against the assessee.

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• 2013 (9) TMI 453
  Captive consumption - intermediary product - Naphtha - manufacturing of exempted goods - Benefit of Notification No. 67/95 - It is the contention of the appellants that the reversal satisfies the conditions of Notification 67/95 read with Rule 6 of Cenvat Credit Rules, 2002. - Majority Decision - Held that:- The benefit of exemption under Notification No. 67/95-C.E., dated 16-3-1995 was allowed on account of — (a) Naphtha cleared, availing exemption under Notification No. 4/2006-C.E., dated 1-3-2006 for manufacture of fertilisers under International Competitive Bidding (ICB). - (b) On that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for manufacture of exempt goods viz. LPG (Domestic) and Superior Kerosene Oil (PDS) The benefit of exemption under Notification No. 67/95-C.E., dated 16-3-1995 was denied on account of - (c) On that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for allied activities like lighting in the artillery roads/yard, administrative building, canteen/cafeteria. Decision in RELIANCE INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., RAJKOT [2008 (3) TMI 591 - CESTAT, AHMEDABAD] and SAKTHI SUGARS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, SALEM [2007 (6) TMI 471 - CESTAT, CHENNAI] and GODAVARI SUGAR MILLS LTD. Versus COMMISSIONER OF C. EX., BELGAUM [2006 (11) TMI 497 - CESTAT, BANGALORE] followed.

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