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Newsletter: Where Service Meets Reader Approval. TMI Tax Updates - e-Newsletter September 17, 2012 Case Laws in this Newsletter: Income Tax Customs Corporate Laws FEMA Service Tax Central Excise Indian Laws Articles 1. BUNDLED SERVICES. By: DR.MARIAPPAN GOVINDARAJAN Summary: Bundled services, as defined in Section 66F of the Finance Act, 1994, refer to the provision of multiple services where one service is combined with others. The taxability of such services depends on whether they are naturally bundled in the ordinary course of business. If naturally bundled, the service with the essential character is taxed; if not, the service with the highest tax liability is considered. The Finance Act outlines principles for interpreting these services, emphasizing specific over general descriptions. Certain bundled services, such as those involving food supply in specific venues, may qualify for tax exemptions under specific conditions. 2. SERVICES OF NON EXECUTIVE DIRECTORS TO THEIR COMPNY. By: DR.MARIAPPAN GOVINDARAJAN Summary: A company operates through its Board of Directors, which includes non-executive directors who participate in decision-making but not daily operations. Directors, excluding whole-time or managing directors, may receive remuneration with government approval, capped at a percentage of net profits. The introduction of a negative list in service tax led to debates on whether directors' payments attract service tax. It was clarified that directors' fiduciary roles do not constitute taxable services, and payments to directors are not considered management consultancy services. Legal precedents support that directors are not service providers to their companies, thus exempting them from service tax liability. 3. Service Tax – Reverse charge method (RCM) will be more effective and simple than mechanism of Service Tax Deduction at Source(STDS) . By: DEVKUMAR KOTHARI Summary: The article discusses the effectiveness of the Reverse Charge Mechanism (RCM) over Service Tax Deduction at Source (STDS) for service tax collection. The author advocates expanding RCM to include more services, especially where service receivers are larger organizations than providers, to streamline compliance. The proposed SP and SR lists aim to simplify tax collection by reducing the number of taxable entities while increasing the taxable service value. The author argues that STDS is inefficient, potentially increasing tax evasion and administrative burdens, as it requires extensive monitoring and could lead to unnecessary procedural complexities and refunds. News 1. Permitting FDI in multi-brand product retail trading. Summary: The Indian Cabinet approved a proposal to allow Foreign Direct Investment (FDI) in multi-brand retail trading under specific conditions. This decision, initially made in 2011, required further consensus and consultations with state governments and industry stakeholders. States like Delhi, Assam, and Maharashtra supported the policy, while others like Bihar and Kerala expressed reservations. Key conditions include setting up retail outlets in cities with populations over 10 lakhs, investing at least 50% of FDI in backend infrastructure within three years, and ensuring 30% procurement from Indian small industries. The policy aims to enhance supply chain efficiencies, create employment, and improve product quality for consumers and farmers. 2. Amendment of conditions in the policy on Foreign Direct Investment in single-brand product retail trading. Summary: The Indian government has amended its Foreign Direct Investment (FDI) policy for single-brand retail trading. Previously, FDI up to 100% was allowed if the foreign investor owned the brand, and sourcing 30% from Indian small industries was mandatory for investments above 51%. The amendment allows a single non-resident entity to undertake retail trading through a legal agreement with the brand owner, relaxing ownership requirements. The 30% sourcing rule remains but is now more flexible, considering feasibility across sectors. This change aims to attract foreign investment, enhance local production, and integrate Indian producers into global supply chains, benefiting local industries and exports. 3. CCI launches a Knowledge Partnership Initiative (KPI) with Prominent Law Schools . Summary: The Competition Commission of India (CCI) has initiated a Knowledge Partnership Initiative (KPI) with several prominent law schools across India. This initiative aims to strengthen the knowledge base in competition law, promote compliance, and enhance the law's outreach. The inaugural meeting, chaired by the CCI Chairperson, included participation from Vice Chancellors and Professors of ten law schools. The collaboration will focus on research, education, and advocacy in the field of competition law. Notifications Central Excise 1. 35/2012 - dated 14-9-2012 - CE Amends Sl. No. 70 and 71 of Notification No. 12/2012-Central Excise. Summary: The Government of India, through the Ministry of Finance, issued Notification No. 35/2012-Central Excise on September 14, 2012, amending Notification No. 12/2012-Central Excise. The amendments involve changes to the tariff rates specified in the notification, specifically altering the rates in Sl. No. 70 and 71. For Sl. No. 70, the rate is revised to 1.20 per litre, and for Sl. No. 71, the rate is updated to 1.46 per litre. These amendments are made under the authority of the Central Excise Act, 1944, and are deemed necessary in the public interest. Companies Law 2. F. No.1/1/2003 – CL.V (Pt. file) - dated 30-8-2012 - Co. Law Delegation of Powers to Regional Directors u/s 17,18,19,141 and 188 of the Companies Act,1956. Summary: The Ministry of Corporate Affairs has delegated powers to Regional Directors under sections 17, 18, 19, 141, and 188 of the Companies Act, 1956. Applications and petitions previously handled by the Company Law Board (CLB) are transferred to Regional Directors. Companies or stakeholders who have already paid fees for these petitions are not required to pay again. Any objections received by the CLB regarding these petitions will be forwarded to the respective Regional Directors by the CLB Secretary. Customs 3. 41/2012 - dated 13-9-2012 - ADD Seeks to amend notification No. 103/2007-Customs, dated 14th September,2007 so as to continue, up to and inclusive of 12th September, 2013, the anti-dumping duty on imports of Ductile Iron Pipes , originating in, or exported from, China PR. Summary: The notification amends a previous order to extend the anti-dumping duty on imports of Ductile Iron Pipes from China. Originally imposed by the Indian Ministry of Finance in 2007, this duty is now extended until September 12, 2013. The extension follows a review initiated by the designated authority under the Customs Tariff Act and related rules. The amendment specifies that the anti-dumping duty will remain effective unless revoked earlier. 4. 52/2012 - dated 13-9-2012 - Cus Seeks to amend notification No. 94/1996-Customs - Exemption to re-imported goods exported under various Export Promotion Schemes. Summary: The Government of India has issued Notification No. 52/2012-Customs, amending Notification No. 94/1996-Customs, which provides exemptions for re-imported goods exported under various Export Promotion Schemes. The amendment introduces a new entry, 2C, to the table, exempting parts and components of aircraft replaced or removed during maintenance in a Special Economic Zone and brought back to India. It also specifies that these goods must be returned to the aircraft owner without sale. The notification aims to streamline customs procedures for aircraft components and aligns with public interest considerations. 5. 51/2012 - dated 13-9-2012 - Cus Seeks to amend notification No.12/2012-Cus,dated 17.03.2012 to provide concessional rate of duty on Gold Findings and to extend the list of items under Sr. No.282. Summary: The Government of India has issued Notification No. 51/2012-Customs to amend Notification No. 12/2012-Customs, dated 17th March 2012. This amendment provides a concessional rate of duty on gold findings and extends the list of items under Sr. No. 282 to include various textile and accessory items. Additionally, it revises the description for Sr. No. 323 to cover gold bars, coins, and findings with specific conditions, excluding imports through post, courier, or baggage. The amendment aims to adjust customs duties in the public interest under the Customs Act, 1962. Circulars / Instructions / Orders DGFT 1. 04/2012 - dated 14-9-2012 Allocation of quantity of Rough Marble and Travertine Blocks for import for Financial Year 2012-13. Summary: The Directorate General of Foreign Trade (DGFT) has allocated 6 lakh MTs of Rough Marble and Travertine Blocks for import for the financial year 2012-13, as per Notification No. 12 (RE-2012)/2009-2014. Import licenses will be issued from 17th to 20th September 2012. Applicants providing false information will face forfeiture, future debarment, and penalties under the Foreign Trade Act. License holders must submit monthly import returns to their Regional Authority by the 15th of each month. The annexure lists 449 applicants with their allocated quantities and file numbers. Companies Law 2. 29/2012 - dated 10-9-2012 Condition to be imposed for conersion of ordinary Society into Producer Company,Part-IX A of the Companies act,1956. Summary: The circular addresses the procedure for converting a Cooperative Society into a Producer Company under Part IXA of the Companies Act, 1956. It mandates that the Registrar of Companies (ROCs) obtain written consent from the local Cooperative Department of the relevant state, confirming no dues are owed and that there is no objection to the conversion. Additionally, ROCs must ensure the society has expanded its activities beyond its registered state. In case of uncertainties, ROCs should consult the Ministry before proceeding with incorporation under Section 581J(5). The circular is effective from its issue date. Highlights / Catch Notes Income Tax High Court Rules Finnish Liaison Office in India Not a Permanent Establishment for Tax Purposes. Case-Laws - HC : Liaison Office(LO) and Indian subsidiary - assessee is a company of Finland - LO cannot be constituted as Permanent Establishment of the assessee in India - HC Visit to Get Source Special Audit u/s 142(2A) Ordered, AO Cannot Delegate Powers to Auditor, Meant to Assist AO with Complex Accounts. Case-Laws - HC : Direction for special audit - complexity of accounts - Section 142(2A) is not a provision by which the AO delegates his powers and functions, which he can perform to the special auditor. - HC Visit to Get Source Court Rules Sections 201(1) & 192 of Income Tax Act Inapplicable if TDS Based on Fair Income Estimate. Case-Laws - HC : Non applicability of section 201(1) r.w.s. 192 - fair estimate of the income of the employee while deducting TDS - the Reference is returned unanswered. - HC Visit to Get Source High Court Rules Extraordinary Profits Alone Don't Prove Collusion; Efficient Businesses Shouldn't Be Penalized. Case-Laws - HC : Abnormally high profit - extraordinary profits cannot lead to the conclusion that this is an arrangement between the parties. This would penalize efficient functioning. - HC Visit to Get Source Section 2(22)(e) Income Tax Act: Common Director Alone Doesn't Trigger Deemed Dividend for Inter Corporate Deposits. Case-Laws - HC : Additions on Deemed dividend - Inter Corporate Deposits (ICDs) - Section 2(22)(e) does not provide that having a common Director in two companies would make Section 2(22) (e) applicable. - HC Visit to Get Source High Court Rules: Assessee Must Substantiate Claims for Business Expenses; Commercial Expediency Not a Factor Without Evidence. Case-Laws - HC : Disallowance of business expenditure - car hire, printing, hire of manpower and sampling and display of the goods dealt - If the assessee had failed to discharge its primary onus to establish such claim as in the present case, the question as to its commercial expediency does not arise at all - HC Visit to Get Source Cooperative Banks Must Invest in Approved Securities for Tax Deductions u/s 80P(2) of Income Tax Act. Case-Laws - SC : Assessee-cooperative society carrying on business of banking statutorily required to place a part of its funds in approved securities, the income attributable thereto is deductible u/s 80P(2) - SC Visit to Get Source Court Rules 50% of Husband's FDR Interest Income Taxable for Surviving Spouse in Succession Case. Case-Laws - HC : Succession - Undisclosed income - interest income earned on FDRs - only 50 % of the share of the deceased husband will be assessable in the hands of assessee. - HC Visit to Get Source Challenges in Allocating Interest Costs for Acquiring Tenancy Rights: Legal and Tax Complexities Explored in Recent Case Law. Case-Laws - HC : Cost of acquisition of tenancy rights - It is impossible to distinguish any part of the differential interest which can be attributed to the cost of acquisition of the tenancy rights. - HC Visit to Get Source Court Denies Deduction u/s 80HHD; Money Exchange Business Profits Considered Business Income, Not Eligible for Deduction. Case-Laws - HC : Denial of deduction u/s 80HHD - the income from the money exchange business is a business income as the assessee has, by the said activity, earned profits. - HC Visit to Get Source High Court Orders Issuance of No Deduction Certificate u/s 197 for FY 2009-10, Despite Department's Delay. Case-Laws - HC : Issuance of no deduction certificate u/s 197 - the certificate ought to have been given to the petitioner during the financial year 2009-10 and the Department cannot take advantage of its own inaction and lapses by taking a stand that the financial year is over - HC Visit to Get Source Non-deduction of TDS on unpaid amounts by March 31 can lead to disallowed expenses u/s 40(a)(ia). Case-Laws - AT : Non-deduction of TDS - Section 40(a)(ia) is applicable only amount payable as on 31st March of year - AT Visit to Get Source Misclassification of Doctor Payments Leads to TDS Non-compliance: Salaries vs. Professional Fees u/ss 192 and 194J. Case-Laws - AT : Non compliance of TDS provision - payment of salary versus professional fees - doctors are employees of the assessee - deduction of TDS u/s 194J instead of u/s 192 is not correct. - AT Visit to Get Source High Court Invalidates Reassessment Notice Issued u/s 148; Original Assessment Already Considered Section 57(iii) Claim. Case-Laws - HC : Validity of notice u/s 148 - during the scrutiny assessment proceedings, the AO was actually aware about the claim of the assessee u/s 57(iii). - reassessment not valid - HC Visit to Get Source Assessee's tax status as resident or non-resident depends on stay duration; arrival day excluded if after late hours. Case-Laws - AT : Status of assessee – Resident vs Non-resident – Day of arrival, particularly late in the day should be excluded. If we exclude the date of arrival as it is not a complete day, the stay of assessee is less than 182 days - AT Visit to Get Source Section 143(3) Additions Deleted: Closing Stock Valuation, Bogus Liabilities, Unaccounted Sales Investments, Section 40A(3) Disallowance Removed. Case-Laws - AT : Survey followed by assessment u/s 143(3) – addition on account of valuation of closing stock, bogus liabilities, dis-allowance u/s.40A(3) and investment in purchase corresponding to unaccounted sales are rightly deleted. - AT Visit to Get Source Assessee's Attempt to Use Income Tax Act for Loss Computation u/s 115JB Denied as Non-compliant. Case-Laws - AT : MAT - Section 115JB - assessee is trying to compute the brought forward losses under the normal Income-tax Act provisions and not under the Companies Act - not allowed - AT Visit to Get Source Court Rules in Favor of Assessee: 10% Income Deemed u/ss 40(a)(i), 44BB, and 195; TDS at 4.1% Applied. Case-Laws - AT : TDS - section 40(a )(i) read with Section 44BB and section 195 – income of the service provider was deemed to be 10 per cent of the aggregate amount and the rate of tax including surcharge came to nearly 41 per cent. - Thus TDS amount comes to 4.1 per cent. - decided in favor of assessee - AT Visit to Get Source Supreme Court Rules Contingent Deposits Collected for Sales Tax Liability are Taxable Income. Case-Laws - SC : Contingent deposits from the leasing/hire purchase customers with a view to protect themselves from sales tax liability - assessee claims that it is refundable in case he wins the sales tax case - held as taxable income - SC Visit to Get Source Interest Income on Foreign Currency Deposit: Business Income or Other Sources? Case Sent Back to ITAT for Review. Case-Laws - SC : Business income or Income from other sources - Interest income on Foreign Currency Deposit Account - Matter remitted back to ITAT to decide afresh after examining as done by the Madras High Court in the case of Menon Impex Private Limited [2002 (9) TMI 75]. - SC Visit to Get Source Assessee companies can maintain consolidated accounts; no unit-wise accounts needed per Sections 80HH and 80I. Case-Laws - SC : Neither Section 80HH nor Section 80I statutorily obliged assessee company to maintain its accounts unit-wise - it was open for it to maintain its accounts in a consolidated form in order to put an end to the litigation between the Tax Department and the PSU - SC Visit to Get Source Maintaining Parks in Mumbai Deemed Charitable u/s 2(15) of Income Tax Act for Environmental Preservation. Case-Laws - AT : Charitable purpose u/s 2(15) - In the place like Mumbai, where we are encountered only with tall buildings and sky scrapers, a park is maintained and developed which not only gives fresh air but invites the people at large to come, enjoy and spend time in the company of fresh grass, flowers, and gives a breath of fresh air, would certainly fall within the words, "preservation of environment" - AT Visit to Get Source Court Criticizes AO for Ignoring Binding Circular on Film Royalty Expenses, Labels Decision as Speculative and Hyper-Technical. Case-Laws - AT : Royalty expenditure - Capital OR Revenue - assessee purchased distribution rights of the Punjabi film - As the AO has ignored the Board Circular No. 92 dated 18.9.1972 pertaining to writing off royalty/distribution expenses of films which is binding on tax authorities thus the action of the AO was based on surmises and conjectures, without considering the nature of business of the assessee which was supported by hyper approach ignoring the Board Circular - AT Visit to Get Source Court Upholds No TDS Requirement on Travel Agent Commission u/s 40a(ia) of Income Tax Act. Case-Laws - AT : TDS on commission/fee paid to Consortium Members - travel agents - Since the assessee only distributed the income in terms of the agreement and this did not amount to incurring of an expenditure no infirmity in the findings of the CIT(A) in deleting the disallowance u/s 40a(ia). - AT Visit to Get Source Interest on Income Tax Refund for Permanent Establishment Not Taxable Under Articles 12(5) or 12(2) of India-France DTAA. Case-Laws - AT : Interest on refund of income tax received by the PE of the assessee - taxability - applicability of Article 12(5) or Article 12(2) of DTAA between India and France - not taxable - AT Visit to Get Source Court Remands Case for Further Review on Section 14A Disallowance; Assessee Failed to Provide Necessary Expense Details. Case-Laws - AT : Disallowance u/s 14A r.w.r. 8D - Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO is required to verify the correctness of such claim but in the instant case the AO was handicapped, because of failure of the assessee to furnish relevant details/particulars - matter remanded back - AT Visit to Get Source Correction of Business Loss u/s 154: Carry Forward Until 2006-07, Not 2007-08. Case-Laws - AT : Rectification u/s 154 - Admittedly, this is a mistake apparent from record as this business loss determined in AY 1998-99 can be carried forward till 2006-07 and not in the relevant AY 2007-08. - AT Visit to Get Source Benefit u/s 54F Allowed Despite Uncertainty in Building Condition for Long-Term Capital Gains Exemption. Case-Laws - AT : LTCG - exemption u/s 54F - At this point of time, it is not possible to verify the condition of the building and or to whether it was habitable at the time of its purchase. - benefit u/s 54F allowed - AT Visit to Get Source Capital Gains Tax on Cooperative Housing Society Flat Sale: Cost of Acquisition, Registration Expenses, and Improvement Costs Analyzed. Case-Laws - AT : Capital gains - sale of flat allotted by cooperative housing society - cost of acquisition, non-allowance of registration expenses and cost of improvement - cost as claimed by assessee accepted - AT Visit to Get Source CIT cannot use Section 263 to force AO to revisit issues not in original order or CIT(A) appeal. Case-Laws - AT : Issues which were neither the subject matter of AO’s order u/s.143(3) nor the subject matter of the appeal before the CIT(A) - CIT in exercise of his powers u/s.263 cannot compel the AO to consider those aspects. - AT Visit to Get Source Income Must Be Assessed in the Year Earned, Not Carried to Other Tax Periods, Per Tax Regulations. Case-Laws - AT : The income relatable to earlier year cannot be added to the income of this year - AT Visit to Get Source Government Company Denied Deduction for Unpaid Loan Interest Due to Non-Payment of Principal and Interest Installments. Case-Laws - AT : Interest on government loan - Government company - assessee has not paid even a single instalment of either the principal amount or the interest - claim of of deduction as accrual of interest not accepted - AT Visit to Get Source Customs High Court Rules Discrepancies Between Goods and Customs Receipts Alone Don't Prove Smuggling. Case-Laws - HC : Merely on the basis of some discrepancies in the goods and the customs receipts, it cannot be inferred that the goods in question are smuggled goods- HC Visit to Get Source Amendment to Notification 94/1996-Customs: Updates on Exemption Criteria for Re-Imported Goods under Export Promotion Schemes. Notifications : Seeks to amend notification No. 94/1996-Customs - Exemption to re-imported goods exported under various Export Promotion Schemes. - Notification Visit to Get Source Amendment to Notification No.12/2012-Cus Proposes Concessional Duty on Gold Findings; Expands Serial No. 282 Item List. Notifications : Seeks to amend notification No.12/2012-Cus,dated 17.03.2012 to provide concessional rate of duty on Gold Findings and to extend the list of items under Sr. No.282. - Notification Visit to Get Source India Extends Anti-Dumping Duty on Chinese Ductile Iron Pipes Until September 2013 Under Notification No. 103/2007-Customs. Notifications : Seeks to amend notification No. 103/2007-Customs, dated 14th September,2007 so as to continue, up to and inclusive of 12th September, 2013, the anti-dumping duty on imports of Ductile Iron Pipes , originating in, or exported from, China PR. - Notification Visit to Get Source Assistant Commissioner Sentenced to 3 Months for Contempt Over Illegible Search, Defying Court Orders in Customs Case. Case-Laws - HC : Petition for contempt - illegible search despite court orders - Assistant commissioner found guilty of contempt - punish him with simple imprisonment of three months - HC Visit to Get Source Conversion of Shipping Bill from DEPB to Duty Drawback Scheme Requires Commissioner of Customs Approval, Not Assistant Commissioner. Case-Laws - HC : Drawback claim - conversion of shipping bill from DEPB scheme to Duty Drawback Scheme - powers are vested with the Commissioner of Customs and not with the Assistant Commissioner - HC Visit to Get Source DGFT DGFT Sets Import Quotas for Rough Marble and Travertine Blocks for 2012-13 Financial Year. Circulars : Allocation of quantity of Rough Marble and Travertine Blocks for import for Financial Year 2012-13. - Trade Notice Visit to Get Source FEMA Penalty for Firm's Export Proceeds Non-Realization Reduced to 35%; Individual Partners' Penalty Removed. Case-Laws - HC : Non realization of export proceeds - penalty imposed on the firm confirmed but reduced to 35% - penalty on partners deleted - The word “firm” or the “firm name” is merely a compendious description of all the partners collectively - HC Visit to Get Source Corporate Law Ordinary Society Conversion to Producer Company: Follow Part IX A of Companies Act, 1956 for Compliance and Legal Identity. Circulars : Condition to be imposed for conersion of ordinary Society into Producer Company,Part-IX A of the Companies act,1956. - Circular Visit to Get Source Sections 17, 18, 19, 141, 188 of Companies Act, 1956 delegate powers to Regional Directors for streamlined company management. Notifications : Delegation of Powers to Regional Directors u/s 17,18,19,141 and 188 of the Companies Act,1956. - Notification Visit to Get Source Supreme Court allows appeal: Order 2 Rule 2 CPC may impact winding-up proceedings under Companies Act Sections 433, 434, 439. Case-Laws - SC : Winding-up petition on arrears of rent - Whether the provisions of Order 2 Rule 2 of the Code of Civil Procedure (CPC) would have any impact on a proceeding u/s 433, 434 and 439 of the Companies Act, 1956 - appeal allowed in part - SC Visit to Get Source Indian Laws Supreme Court Addresses SEBI's Confidentiality Breach and Media Reporting Guidelines on Sub Judice Matters. Case-Laws - SC : Disclosure to the Media was by SEBI in breach of confidentiality - Directions with regard to reporting of matters (in electronic and print media) which are sub judice - guidelines on reporting cannot be framed across the Board. - SC Visit to Get Source Service Tax Tax Credit Allowed for Rent-a-Cab Services Used for Transporting Employees or Business Visitors to Offices or Factories. Case-Laws - AT : Credit of rent-a-cab service to be allowed if assessee is able to satisfy that the rent-a-cab service has been utilized for transport of employees/officials or business related visitors to their factory/office- AT Visit to Get Source Grinding and smoothing rough castings, called fettling, is exempt from service tax. Case-Laws - AT : BAS - process of grinding and smoothening the edges, called fettling of the rough castings, received from principal manufacturers - not liable to service tax - AT Visit to Get Source Court Rules Furniture Making and Related Activities Not Classified as Interior Decorators for Service Tax Purposes. Case-Laws - AT : Interior Decorators versus Works contract - making wooden furniture as per design and drawing - civil work, painting work, plumbing work and electrical work - held as not an activity in the nature of Interior Decorators - AT Visit to Get Source Central Excise Cenvat Credit Approved for Copper Wire Imports: Process Deemed Ancillary to Final Product Manufacturing. Case-Laws - AT : Cenvat credit – import of Copper Wire - the process which is an ancillary or incidental process for manufacturing a final product - credit allowed - AT Visit to Get Source Court Rules No Prejudice in 100% Cenvat Credit on Capital Goods Despite Rule Allowing Only 50% Initially. Case-Laws - HC : Cenvat credit on capital goods - assessee availed 100% credit in the first year itself instead of 50% - in credit remained non utilized no prejudice caused to revenue - HC Visit to Get Source 100% EOU Gets Cenvat Credit for In-House Electricity as Factories in Same Compound Count as Single Entity. Case-Laws - AT : Cenvat credit – Factories are situated in the same compound are to be treated as one - 100% EOU to whom the electricity generated was supplied is located within the same compound and therefore credit is admissible. - AT Visit to Get Source Amendments to Serial Numbers 70 and 71 of Notification No. 12/2012-Central Excise Impact Excise Duty Calculations. Notifications : Amends Sl. No. 70 and 71 of Notification No. 12/2012-Central Excise. - Notification Visit to Get Source Export Units Can Claim SAD Exemption for DTA Goods; Eligibility Tied to State Sales Tax Status. Case-Laws - AT : EOU Unit can claim exemption from payment of SAD if the goods are cleared into DTA are not exempted by the State Government from the payment of Sales Tax - AT Visit to Get Source Rebate Claim Denied Due to Non-Compliance with Input/Output Norms and Incomplete Application Details. Case-Laws - AT : Denial of rebate claim - non-adherence input/output norms - claim application was also found to be blank in some respect - no rebate / refund - AT Visit to Get Source High Court Rules CBEC Clarifications on Excise Duties u/s 37B Are Discretionary, Not Demandable by Petitioners. Case-Laws - HC : Power of CBEC to issue clarification u/s 37B on demand with respect to levy of duties of excise on such goods - petitioner has no such right to demand a clarification - HC Visit to Get Source Authority Ordered to Approve Drawback Claims on Exports Due to Missing Samples for Retesting. Case-Laws - CGOVT : Export of goods – Drawback claim – in the absence of retest of remnant samples as the remnant samples were not available - original authority directed to sanction the drawback claims- CGOVT Visit to Get Source Potato Wafers Classified as Namkeens: Exempt from Central Excise Duty Under Notification No. 4/97-C.E. Case-Laws - AT : Classification - manufacture of Potato wafers – the goods, in question, are snacks (Namkeens), the same are covered by Notification No. 4/97-C.E. - exemption allowed - AT Visit to Get Source Case Laws: Income Tax 2012 (9) TMI 449 Taxation on cessation of liability to repay a loan - Held that:- As decided in Mahindra and Mahindra Ltd. v. CIT [2003 (1) TMI 71 - BOMBAY HIGH COURT] the cessation of liability to repay a loan taken to purchase a capital asset does not result in a revenue receipt. Further, the amount of Rs.29.17 lacs was not taxable u/s 41(1) as the same was not an expenditure incurred in the earlier years thus the cesation of liability is not taxable either under Section 41(1) or 28(iv) - in favour of assessee. 2012 (9) TMI 448 Disallowance claim u/s. 36(1)(vii) r.w.s. 36(2) - AO invoked Section 14A for disallowance - assessee is a statutory corporation established under the SIDBI Act, 1989 - ITAT allowed the claim - Held that:- Section 14A of the Act would have no application to the present facts. It is not the revenue's case that bad debts have been incurred in relation to income which does not form part of the total income. Section 50 of SIDBI Act,1989 only exempts payment of income tax. It does not provide that such income of the SIDBI Bank will not be a part of the total income. As the assessee carried on business of banking and the amounts being written off as bad debts was the money lent in the ordinary course of its business. In terms of Section 36(1)(vii) the assessee is entitled to claim deduction of an amount of debt or part thereof written off as irrevocable in the year in which business claims that a particular debt is not recoverable. In this case, the respondent-assessee in the assessment year 2003-04 had taken a business decision that the amount of Rs.178/- crores had become bad and had to be written off as bad debt. This decision has to be of the business alone. However, this bad debt is allowable under Section 36(1)(vii) subject to satisfaction of Section 36(2)(i). In this case admittedly the respondent-assessee satisfies the same. The debt which is being written off represents money lent in its ordinary course of business of banking - no substantial question of law arises - in favour of assessee. 2012 (9) TMI 447 Disallowance of set-off loss on derivative trading - loss from speculation business - Held that:- AO has treated such as a loss as speculation loss mainly on the ground that Notification number 46 of 2009, issued by the CBDT, on 22nd May 2009, recognizing MCX as recognized Stock Exchange for the purpose of section 43(5), only from the said date and has prospective effect and, therefore, such a derivative trading in commodity through MCX prior to the said date will amount to speculation business. From the combined reading of clause (d) of proviso to section 43(5), Rule 6DDA, 6DDB and Explanation (ii) to section 43(5), it would be seen that the rules which has been prescribed are only procedural in nature. When a rule or provision does not effect or empower any right or create an obligation but merely relates to procedural mechanism, then it is deemed to be retrospective unless such an inference is likely to lead to an absurdity - Once in the statute, it has been provided that w.e.f. 1st April 2006, an eligible transaction carried out in a recognized Stock Exchange will not be treated as speculation transaction, then simply because procedural mechanism has taken a long time to recognize the Stock Exchange - in favour of assessee. 2012 (9) TMI 446 Disallowance of depreciation on investments - investments were held as stock in trade - Held that:- As decided in United Commercial Bank Versus Commissioner of Income-Tax [1999 (9) TMI 4 - SUPREME COURT] that for valuing the stock, it is open to the assessee can value it at the cost or market value, whichever is lower & in the balance sheet, if the securities and shares are valued at cost but from that no firm conclusion can be drawn a taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price Method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation. - in favour of assessee by way of remand. Disallowance of amortization premium paid on purchase of securities - Held that:- This amortization expenses was disallowed on the ground that the securities are held as "investment" and, therefore, whenever such securities are transferred, the profit or loss arising therefrom would be computed after taking into account the cost of the acquisition. Since the issue about nature and character of securities is remanded to the AO and the outcome of this issue would depend upon the said determination, this issue also stands remanded back to the AO also. Disallowance of interest paid to sellers - expenditure was capitalized by the assessee itself - Held that:- According to assessee in fact Rs.15.61 crores was debited in PLL account and not Rs.13.52 crores and the matter can be examined by the AO in this behalf. As the respondent, during arguments, himself suggested that this can be verified by the AO for this reason, this issue is also remanded to the AO and the deduction shall be allowed subject to verification. 2012 (9) TMI 445 Disallowance of expenditure on VRS u/s 35DDA - non compliance with Rule 2BA - ITAT allowed the deduction - Held that:- Rule 2BA is in the form of guidelines for the purpose of Section 10(10C), which relates to taxation of income/amount received by an employee under VRS scheme. The said Rule does not deal with the expenditure incurred by the employer when the assessee makes payment under the VRS scheme formulated by them. The treatment of expenditure or outgoing of the employer has to be dealt with under Section 35DDA and the prescribed rules, if applicable. Rule 2BA, which is applicable to the recipient i.e. the employee, cannot be applied - in favour of assessee. Disallowance of Depreciation on UPS - ITAT allowed @ 60% treating the same as computers - Held that:- As decided in CIT Vs. BSES Yamuna Power Ltd [2010 (8) TMI 58 - DELHI HIGH COURT] that computer accessories and peripherals form an integral part of a computer system and, therefore, depreciation has to be allowed at the rate of 60% - as that the higher depreciation was not only allowed in respect of UPS but also in respect of printers, switches etc. - in favour of assessee. Disallowance of deduction of 1/5th of the expenses relating to legal and professional expenses relating to closure of the Daruhera unit - ITAT allowed it - Held that:- As decided in C.I.T v. D.C.M [2009 (1) TMI 2 - HIGH COURT DELHI] the expenditure incurred on payment of retrenchment compensation and interest on money borrowed for payment of retrenchment compensation on closure of one of the units, amongst other businesses, of the assessee-company was revenue expenditure. It also held that closure of one unit did not amount to closure of business as it was not a separate and distinct business - in favour of assessee. 2012 (9) TMI 444 Disallowance of loss on the sale of debentures - non-convertible Part B of the 15% redeemable partly convertible debentures - ITAT treated it as part of the cost of acquisition of the convertible Part A of the debentures - Held that:- A separate treatment given by the assessee to its two separate types of property is not illegal and, therefore, it cannot affect the assessee’s interest in any adverse manner whether for tax purposes or otherwise - that convertible Part A of the PCD was severable from the non-convertible Part B which was transferred at a loss by the assessee to Citi Bank and therefore the loss suffered could not be construed to be a part of the cost of acquisition of convertible Part A of the PCD retained by the appellant and thus the claim of loss of the assessee in the matter of sale of Part B of the PCD in the self-same rights issue was permissible as short term capital loss. Set aside the impugned order passed by the learned tribunal to the extent it confirmed the disallowance of Rs. 28,17,945/- as short term capital loss as claimed by the assessee and allowed by CIT (Appeals) - in favour of assessee. 2012 (9) TMI 443 Review petition - Business connection of the appellant in India - review petitions that some questions of law raised by the assessee have not been addressed in the judgment - Held that:- whether ANR as its agent could be treated as Permanent Establishment - questions recorded against the appellant may cause prejudice to the appellant. - what would be the reasonable arm’s length price at the hands of ANR/PE and not the profits earned by the assessee. - Review Petitions admitted against the original decision (2011 (8) TMI 313 - DELHI HIGH COURT). 2012 (9) TMI 442 Penalty u/s. 271(1)(c) - surrender of income of Rs.5,00,000/- by assessee - orders of penalty enhancement - Held that:- The AO initiated the penalty for filing inaccurate particulars of income, but in the assessment order, the AO failed to point out any specific instance of inaccurate particulars of income or instance of concealing the particulars of income, for which assessee made surrender of income. - It would mean that the AO was not sure which particulars of income was inaccurate - it is not a fit case for levy of penalty u/s. 271(1)(c) on the surrender of additional income - Since the substantial penalty has been cancelled the issue of enhancement of penalty would not arise - in favour of assessee. Penalty u/s. 271(1)(c) - unsecured loan - Held that:- As the assessee failed to file any explanation regarding bogus liability shown in the books of account, the levy of penalty is justified against the assessee - against assessee. 2012 (9) TMI 441 Profit on sale of shares/mutual funds - Business income OR income from capital gain - Held that:- That the mere volume of transactions transacted by the assessee would not alter the nature of transactions. Since there is no evidence on record that the assessee traded in the aforesaid shares/mutual funds regularly and frequently, considering the magnitude of transactions in shares/mutual funds and the CBDT circular No. 4 of 2007 of 15-6-2007 itself envisaging the possibility of having two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets, thus the assessee’s version that the aforesaid shares/mutual funds were held by way of investment in the years under consideration has to be accepted. Since the DR did not place any material controverting the aforesaid findings of facts recorded by the CIT(A) nor brought to our notice any contrary decision, we have no alternative but to uphold the findings of the ld. CIT(A) - in favour of assessee. Disallowance of the claim of loss on share transaction - CIT(A) allowed it - Held that:- On test checking the details and documents pertaining to the claim of loss on future and option shares and the claim of the appellant appears to be supported by vouchers and contract notes which are verifiable with reference to the books of accounts. Therefore, no hesitation to conclude that the assessee has provided the necessary details and discharged the onus cast on it. The Assessing Officer has not brought anything on record to dispute the facts/details furnished by the assessee - as. DR did not place any material controverting the aforesaid findings of facts recorded by the CIT(A) nor brought to our notice any contrary decision the disallowance need to be deleted - decided in favour of assessee. 2012 (9) TMI 440 Penalty u/s 271(1)(c) - addition to deemed dividend - Held that:- As all the concerned facts were duly disclosed by the assessee in the assessment proceedings, stating that a sum of Rs. 7,65,921/- was due to the assessee from the company and also that the amounts received represented Rs. 6 lac as security deposit against property given on rent to the company and advance of Rs. 4,50,000/- received against salary in the capacity of director holding 67.40% of the company’s shareholdings. The balance sheet of the company contains the name of the assessee under the schedule of ‘Loans and advances.’ No intention of either furnishing inaccurate particulars of income or concealment of any particulars of income is, therefore, manifest. The belief of the assessee regarding both the components, i.e., the security deposit, as well as the advance received, has not been shown to be not bona fide. Orders for addition on the difference of credit and debit balance amounting to Rs. 18,94,309/- and the assessee did not file any appeal against the addition, thus mere fact that the assessee did not prefer any appeal against addition in the quantum proceedings does not lead to automatic levy of concealment penalty, particularly when the belief nurtured by the assessee has not been shown to be mala fide - in favour of assessee. 2012 (9) TMI 439 Undisclosed income of another person u/s 158BD - validity of assessment proceedings u/s 158BC r.w.s. 158BD, when proceedings was initiated after the completion of the assessment of the person searched - search u/s.132 carried out at the business premise of Ohm Developers on 29.10.1999 and assessment of same completed on 30.11.2001 - notice u/s.158BD r.w.s. 158BC issued to assessee on 22.01.2007 - Held that:- Several Co-ordinate Benches have unanimously held that the belated issuance of notice u/s.158BD was barred by limitation. Therefore, CIT(A) rightly deleted the addition on observation that there was an inordinate delay in initiating and completing the proceedings u/s.158BC r.w.s. 158BD. Though, the Act does not lay down any time limit for initiating proceedings u/s.158BD yet, equity demands that proceedings should not be kept pending indefinitely and the Sword of Damocles be kept hanging over the head of the taxpayer for an indefinite period - Decided in favor of assessee 2012 (9) TMI 438 Time limit for initiation of proceedings under Section 158BD - The act nowhere specifically prescribes any time limit or limitation for initiation of proceedings under Section 158BD or for recording of satisfaction before taking action under that provision - Held that:- Following the decision in case of CIT, Ludhiana v. Mridula, Prop. M/s Dhruv Fabrics(2010 (7) TMI 664), ITAT does not find any justification in initiation of block assessment proceedings u/s 158BD against the assessee after long gap of completion of the assessment in the case of persons searched u/s 132 or 132A. NO substantial question of law arises in this issue. Decided in favour of assessee. 2012 (9) TMI 437 Addition on account of construction of building – Whether revenue can refer valuation of asset to DVO under any section other than section 55A & 269L under I.T. Act 1961 - The factory premises was referred to DVO by the ADIT – There was vast difference between the estimated cost of construction as per valuation report and the investment in construction of the factory as per the books - AO made an addition on the basis of as unaccounted investment u/s 69 – Held that:- As decided by the Hon’ble Supreme Court in the case of Smt. Amiya Bala Paul Vs CIT (2003 (7) TMI 4) held that the DVO would not have jurisdiction to give a report to the AO under the Income Tax Act except in terms of Section 55A or to Competent Authority u/s 269L. Appeal decided in favour of assessee. Addition on the basis of actual purchase consideration was more that registry rate of asset as unexplained investment u/s 69 – Assessee made investment in purchase of Land – AO found during search u/s 132 that, actual purchase consideration was higher than property registry rate - Addition was made on the basis of statements made by seller and broker that unaccounted payment received by them - Assessee contended that the statements were made under coercion which was endorsed by both the persons by retracting from their statements during cross examination - Held that:- The addition made merely on the basis of statements which allegedly given under pressure. The assessee filed sufficient material in support of retraction. There is no other material on record basis of which it can be said that on money was paid in transaction. Appeal decided in favour of assessee Addition made on account of unaccounted cash u/s 69A – During course of Search cash seized by AO from assessee residence - The assessee filed cash flow statement without supporting with evidence – The assessee could not maintain the personal book account - Held that:- No one has appeared before us even proper notice has been served on the assessee’s legal heir. Assessee submitted before the AO cash was found withdrawal made by him as a Director from the company. As per balance sheet submitted before the A.O., the assessee had shown hardly cash balances. Appeal decide in favour of revenue. Addition on account of household valuables - Assessee did not submit any explanation during the course of search u/s 132 & assessment proceeding - The assessee had not admitted the ownership of these valuable items - Held that:- It is the primary duty of the assessee to explain the source of things/valuables found during the course of search. Assessee even did not file any evidence regarding purchase of these household. Appeal decide in favour of revenue. Disallowance on account of Interest on deposit – The A.O. has noticed interest free advances whereas the assessee claims interest expenditure on deposit – Held that:- As the advance given prior to 3 years under year under consideration. In past, it appears that there was no disallowance under this head made by the A.O. Further, the A.O. has not established the nexus between interest free advances and interest bearing loans taken. Therefore appeal decides in favour of assessee. Addition on account of household expenses – Assessee had not withdrawn any amount for household purposes – Held that:- It is undisputed that he was having independent establishment for running the kitchen at his house. The assessee had not withdrawn a single penny for household purposes. There is no evidence produced by the assessee that he had received food from factory canteen. Appeal decides in favour of revenue 2012 (9) TMI 436 Addition on account of treating receipt as income - Assessee is engage in civil construction works – Receives capital & revenue grants from government - Follow cost plus method for revenue recognition - Held that:- Where the receipt is treated as revenue corresponding expenditure actually incurred wholly and exclusively for doing the work for which the revenue was received must be allowed. Appeal decided against revenue. 2012 (9) TMI 434 Computation of Arm's length price - disallowance for administration charges/rebate being reimbursement of expenses - Held that:- As admitted that there was no element of profit in the transactions of payments made by the assessee to The parent company Braitrim U.K (BUK) which in turn was paid by BUK to its retailers. This is an expenditure, incurred by the assessee, routed through BUK, necessarily to get new customers via BUK. The assessee further submitted that there was no dispute by the AO, on the factum of payment of commission by the assessee to BUK and BUK to its retailers, which is the reason, that the AO had infact, restricted the addition only to the amount determined by the DRP. As seen from the reconciliation, that the assessee has recorded its expenditure on the basis of sales made by it to the manufacturers, whereas BUK has recorded them on the basis of invoices raised by them on the assessee, which is at a later date/time - As that the deduction allowed by the AO is on the basis of the direction of the DRP, which had based its findings on the amounts recorded in its books in the earlier year and the expenditure booked for the current year for which BUK raised invoices in the subsequent year, then there cannot be any reason for disallowance in the current year, because, the assessee, being a company, has to follow mercantile system of accounting and guided by the accounting standards, wherein the assessee has to record its expenditure of commission/discount at the time of making its sales, irrespective of the date of raising of invoice by BUK. - As the assessee submission of reconciliation had not been submitted before the DRP it would be just and reasonable if the assessment order is set aside and the matter is restored to the file of the DRP with the directions to consider the reconciliation statement - in favour of assessee for statistical purposes. 2012 (9) TMI 433 Addition on account of prior period expense - Whether liability of earlier years has been crystallized in this year – Assessee calculation of interest based on simple interest while the bank charging at compounded interest - Bank debit the interest of earlier years in current year - Interest liability booked by assessee as prior period expense - Held that:- There would be some dispute or at least misunderstanding in the mind of the assessee about method of accounting the interest i.e. whether it should be simple interest or compound interest. The rate of tax for all these years remains the same. Therefore, following the decision in the case of CIT vs. Shriram Pistons & Rings Ltd and vs. Vishnu Industrial Gases Pvt. Ltd., assessee is entitled to deduct this amount in computing the income. Decision is in favor of assessee. 2012 (9) TMI 432 Initiation of search and seizure u/s 132 - residential-cum-business premises - Held that:- Clause (c) of Section 132(1) concerns money, bullion, jewellery or other valuable article or thing. In order to proceed under clause (c) there must be information with the authorizing authority relating to any person is in possession of money bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been or would not be disclosed for the purpose of the Act, thus there are materials available on record for which the specified authority had reason to believe that the condition precedent to issue the warrant of authorization to conduct search and seizure operation in terms of Section 132 at the residential-cum-business premises of the petitioner existed, thus the warrant of authorization cannot be quashed - in favour of revenue. Seizure of bullion, jewellery or valuable article of thing being stock-in-trade - Held that:- The Finance Act, 2003, has amended Section 132 to provide that any bullion, jewellery or other valuable article or thing being stock-in-trade of the business, found as a result of search shall not be seized but the authorized officer shall make a note or inventory of such stock-intrade. Thus, stock-in-trade of business cannot be seized during search and seizure operations conducted on or after June 1, 2003 - thus the seizure of jewellery being stock-in-trade by the authorized officer is wholly without authority of law and contrary to the statutory provision contained in proviso to Section 132 (1) (iii) and third proviso to Section 132(1) (v) - in favour of assessee. 2012 (9) TMI 431 Loan from creditor deemed as income u/s 68 – Weather assessee is under the obligation to prove source of sum deposited in the creditor’s bank account – Loan made by creditor through cheque - Credit entry shown in the bank statement of the assessee – AO contended that the source of the loan was sale of property - Assessee also submit PAN card, bank statement, copy of ITR for said year and proof of residential address and source of loan – Creditor receive an advance from another person to finance the loan to assessee – Held that:- It was not necessary that the amount advanced by the creditor had to be out of the current years income only, as the returned income of creditor shown off lesser income as compare to loan given to assessee. Bank statement of creditor clearly shows the deposit of said sum from another person. AO has neither conducted any inquiry, nor had any material been brought on record to doubt the source of the deposit entries in the creditor’s account. Assessee had duly discharged his onus of establishing the identity and credit worthiness of the creditor, as well as the genuineness of the transaction. The findings of fact recorded therein remained irrational. Decision against revenue. 2012 (9) TMI 430 Disallowance on account of loss of derivatives – Assessee incurred loss on derivative transactions - Notification issued by the Central Govt. u/s 43(5) read with Rule 6 DDA, and 6 DDB, on 25.1.2006 - Treated derivative transaction as speculative loss – Held that:- CIT(A) examined that assessee did not incur net loss during this period. Prior to the notification, assessee received net gain from transactions in F&O. AO has no basis for arriving at a derivative trading loss. Therefore appeal decide in favour of assessee Addition on account of unexplained cash credit u/s 68 – Held that:- Department representative has not pointed out any factual error in the findings of CIT(A). The assessee has filed all these evidence before the AO. The AO in his order has in a very casual manner, without giving any reasons as to why the evidence furnished by the assessee was not acceptable, made the addition. Therefore, ITAT do not find any reason as to why the issue is to be set aside to the file of the AO. Appeal decides in favour of assessee Disallowance of interest expense - The bank granted overdraft facilities for business purposes – AO made addition on basis that assessee has surplus funds in the form of undistributed profits of the earlier year – Addition made on presumption that the surplus funds have to be held as used for giving money to directors/sister concerns - Held that:- where the assessee has own funds as well as borrowed funds and it advanced funds to the sister concern for allegedly non business purposes, then a presumption can be made that the advances for non-business purposes have been made out of own funds following the decision Reliance Utilities Limited (2009 (1) TMI 4). Appeal decides in favour of assessee. 2012 (9) TMI 429 Penalty u/s 271(1)(c) - assessee surrendered dis-allowance of depreciation - Held that:- On careful consideration of the facts and circumstances of the case it is held that AO was factually wrong in mentioning that the assessee has wrongly claimed additions to its assets. The fact is that the claim of additions to assets was rightly made. The only issue is whether the assessee has put these additional assets to use, for enabling it to claim depreciation. The issue as to whether the assets were put to use, has not been tested in this case as the assessee has surrendered the claim. The assessee has declared a loss and surrendering part of the depreciation would only result in reduction of loss. Either way the assessee is not saddled with any tax liability. Under these circumstances, the assessee had agreed to forego part of its claim for depreciation. The fact remains that in the subsequent AY, the Revenue has allowed the claim of the assessee for depreciation on these assets. Under these circumstances, claim of the assessee was bonafide, and CIT (A) has rightly deleted the penalty u/s 271(1)(c) - Decided in favor of assessee 2012 (9) TMI 428 Reasonableness of declaring the assessment made by the AO as null and void by observing that the notices u/s 143(2)/142(1) were issued in status of “Local Authority” whereas status of assessee is of "Artificial Juridicial Person" without appreciating the fact that the proforma of notices u/s. 143(2)/142(1) are prescribed and there is no claim in these notices where the status of the assessee can be mentioned - Held that:- On the facts and circumstances of the case, CIT(A) was not correct in holding that assessment is null and void. The defect in issuance of notice and assessment noted by the CIT(A) was not fatal so as to render the assessment null and void. It was curable defect. Matter remitted to the file of the AO to consider the issue afresh. 2012 (9) TMI 427 Addition on account by applying the GP rate on assumed turnover – Assesse is in business of plying of trucks – Assessee has sold 7 and acquired 4 during the F.Y - AO apply GP rate on the basis that, assessee has transferred the vehicles in question on paper only as a colourable device to avail Sec. 44AE – Held that:- During search proceedings no incriminating evidence were found by the department to suggest that the vehicles even after the sale thereof in fact belonged to the assessee and that the assessee owned them as benami and was actually the owner of the more than 10 trucks in any of the relevant assessment years. Sale proceeds from vehicles were recorded in the bank account and the value of the block of assets was reduced by the said amount. If AO has applied the GP rate, he has also to allow the depreciation thereafter and by doing so, the income becomes lower than the returned income of the assessee. Decision in favour of assessee. Addition on account of unexplained expenditure - Addition was made on basis of some entries written by pencil on the loose paper found during search – Held that:- In the absence of any evidence before us to controvert the findings given by the CIT(A), hold that no interference is called for in the order of the CIT(A) on this issue. Appeal decides in favour of assessee Addition on account of unexplained expenditure u/s 69C – Addition on the basis of some seized loose paper found during search - On which some petty cash advances written on different dates given to persons – Held that:- As the entries mentioned in the loose paper tallies with the regular books of accounts of the assessee, there remains no valid reason for making any addition under section 69C. Decision in favour of assessee 2012 (9) TMI 426 Refusal to extend/continuance of Certificate of Registration under Section 80G of the Income Tax Act – alleged that on verification of the books of account, bills and vouchers produced, discrepancies were noticed – Held that:- main object should be charitable activity and not maintenance of accounts in the way the authorities want. Books of account are maintained substantially as required under law and as long as money is not spent for any other purpose other than charitable purpose, they should be granted the benefit - Unnecessarily the assessee is made to find litigation before this Court. He would have spent that time in conducting charitable activities – in favor of assessee - respondent shall pay a sum of Rs. 25,000 to the assessee towards cost of this appeal 2012 (9) TMI 410 Direction for special audit - complexity of accounts - Held that:- AO felt that the case required detailed scrutiny or monitoring, verification of entries, which were substantial in number. Detailed scrutiny of large number of entries by itself, on standalone basis, will not amount to complexity of accounts. The accounts do not become complex because merely there are large number of entries, an AO is required to scrutinize the entries and verify them, but this does not require services of a special auditor or a Chartered Accountant to undertake the said exercise. Section 142(2A) is not a provision by which the AO delegates his powers and functions, which he can perform to the special auditor. The said provision has been enacted to enable the AO to take help of a specialist, who understands accounts and accounting practices to examine the accounts when they are complex and the Assessing Officer feels that he cannot understand them and comprehend them fully, till he has help and assistance of a special auditor. Determining and deciding certain legal issues - nature and character of Nazul I and Nazul II land, payments received and the treatment of the said payments, receipts or expenditure in the books for the purposes of taxation - Held that:- The special auditor cannot go into and examine the said legal issue or question regarding taxability. This has to be determined and decided by the AO himself - AO should indicate his prima facie or tentative view on why the legal issue requires examination of accounts by the specialist. A Chartered Accountant, a specialist in accounts does not have a role to play and cannot be delegated and asked to decipher, decide or express his opinion on nature and character of Nazul I or Nazul II land receipts and payments. The case and the stand of the assessee is that as per the statute, including the Rules, Nazul I and Nazul II land, payments received, expenditure incurred etc., belong to the Central Government and nothing whatsoever can be attributed to them. There is no examination, consideration of the legal aspect and formation of a tentative view. The decision on this legal issue cannot be transposed and passed to the Chartered Accountant as a special auditor as he is not a specialist and mandated by the Act to undertake the said exercise - As AO have repeatedly in all orders, for the purpose of recording reasons, taken the "notes of accounts" and verbatim incorporated the same. This is apparently correct and, therefore, discloses non-consideration and non-application of mind, which constitutes an error in the decision making process. Examine irregularities committed in connection with the expenditure in relation to Commonwealth games - Held that:- that in the show cause notice, there is no reference to Section 13(3) or any related person and misuse of assets or funds by a related person. Irregularities can be examined and verified by the Assessing Officer and for this purpose, special audit is not required. Exemption and verification by themselves cannot and do not constitute complexity in accounts - the Assessing Officer had not obtained comments/ findings on the C&AG report but he had directed the special auditor to obtain/ask for the same, and then give his opinion. The aforesaid reason itself justifies quashing of the said order on the ground of non application of mind and failure to exercise jurisdiction keeping in view the parameters of Section 142(2A). Registration under Section 12AA is not final and facts and accounts of each year have to be examined - Held that:- No doubt that facts and accounts of each year have to be examined but this is different from stating or alleging that Section 13(3) is applicable as that misappropriation, if any, by the employees or third persons which causes loss to the petitioner cannot be a ground to invoke Section 13(3) as the petitioner is a distinct taxable entity. The petitioner suffers when there is misappropriation of the funds or misuse of assets/funds because of malafide or criminal intent of a third person - quash the direction/orders for special audit - decided in favour of assessee. 2012 (9) TMI 409 Liaison Office(LO) and Indian subsidiary - assessee is a company of Finland - Whether the Liaison Office of Nokia constitutes a PE in India under Article 5 of the DTAA ? - Whether NIPL constitutes a PE in India under Article 5 of the DTAA? - Held that:- The assessee had opened this LO in India on 30.3.1994 Two agreements were signed between the assessee on the one hand and Indian Cellular Operators on the other hand viz. Modi Telestra (I) Ltd. and Skycell Communication Ltd. on 23.3.1995 and 17.2.1995 respectively. When these contracts were signed, the assessee subsidiary viz. NIPL was not in existence. As this company was incorporated on 23.5.1995 after that date four other agreements were entered into with different cellular operators. The assessee supplied both the hardware and software to Indian Cellular Operators and its subsidiary namely NIPL carried out installation work. The LO has not carried out any business activity for the assessee in India and that its role has been only to assist the assessee in the preliminary and preparatory work. It is further found by the ITAT that as per the rules of the Reserve Bank of India itself, a LO is not permitted to carry out any business activity for a foreign enterprise. Its activities are closely mentioned by the Reserve Bank of India - The Income-tax authorities would appear to have also held that the LO carried out marketing activities for the assessee in India but for this finding, there is no evidence and none of the contracts which have been brought on record indicate that the LO has carried out any marketing activities' - there was nothing on record to show that the LO had something to do with designing activity connected to the GSM - thus it is clear that there is no material or evidence on the basis of which it could be said that the LO can afford a business connection to the assessee in India. For same reasons, we are of the view that LO cannot be constituted as Permanent Establishment of the assessee in India - in favour of assessee. Taxability on income from off-shore supply of equipment - Held that:- That the terms of contract make it clear that acceptance test is not a material event for passing of the title and risk in the equipment supplied. It is because of the reason that even if such test found out that the system did not conform to the contractual parameters, as per article 21.1 of the Supply Contract, the only consequence would be that the Cellular Operator would be entitled to call upon the assessee to cure the defect by repairing or replacing the defective part. If there was delay caused due to the acceptance test not being complied with, Article 19 of the Supply Contract provided for damages. Thus, the taxable event took place outside India with the passing of the property from seller to buyer and acceptance test was not determinative of this factor. The position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India - Overall Agreement does not result the income accruing in India. The execution of an overall agreement is prompted by purely commercial considerations as the India Cellular Operator would be desirous of having a single entity that he could liaise with - in favour of assessee. Consideration for supply of equipment and licensing of software - 'royalty' u/s 9(l)(vi) of the Income Tax Act, 1961 or Article 13 of India-Finland DTAA - Held that:- In order to qualify as royalty payment, within the meaning of Section 9(1)(vi) and particularly clause (v) of Explanation-II thereto, it is necessary to establish that there is transfer of all or any rights (including the granting of any license) in respect of copy right of a literary, artistic or scientific work - Section 2 (o) of the Copyright Act makes it clear that a computer programme is to be regarded as a 'literary work'. Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making such payment, obtains all or any of the copyright rights of such literary work. In the presence case, this has not been established. It is not even the case of the Revenue that any right contemplated under Section 14 of the Copyright Act, 1957 stood vested in this cellular operator as a consequence of Article 20 of the Supply Contract - in favour of assessee. Business connection of NIPL subsidiary of the assessee company engaging itself in activities to support the assessee's main activities - Held that:- NIPL could be considered PE of assessee in India being subsidiary as it is the virtual projection of the company in India. Further, the accounts of the Indian subsidiary show that the company incurred huge losses as it was not compensated properly for the installation work carried on by it. In the opinion of the ITAT since it was a wholly owned subsidiary, the assessee would have direct and complete control over the activities of this subsidiary - Refer the matter back to the Tribunal for fresh consideration on the issues as to whether the subsidiary of the assessee would provide business connection or is Permanent Establishment and even if it is so, is there any attributes of profits on account of signing, under working, planning and negotiation of off-shore supply contracts in India. 2012 (9) TMI 408 Non applicability of section 201(1) r.w.s. 192 - fair estimate of the income of the employee while deducting TDS - Held that:- This Court do not consider it necessary to answer the Reference as to whether the Tribunal was right in fact and in law in holding that section 201(1) r.w.s. 192 was not applicable “in the instant case”. The instant case, however, can be assessed only in the event of the AO making the enquiries that he has been directed to make by the Tribunal. This would include looking into the question whether the employees had already paid the taxes on these amounts. If, for instance, it is found that the taxes were not paid, the further question as to whether the estimates were bona fide or not would arise. This in turn, would depend, inter-alia, upon the extent of the shortfall - as the matter at this stage is academic all the contentions including of law are kept open. - the Reference is returned unanswered. 2012 (9) TMI 407 Abnormally high profit - extraordinary arrangement between the assessee and the German company - Held that:- The profits earned by Kandla division of the respondent-assessee is not abnormally high due to any arrangement between the respondent-assessee and its German Principal. The Tribunal correctly held that extraordinary profits cannot lead to the conclusion that this is an arrangement between the parties. This would penalize efficient functioning. Further the industrial sewing machine needles imported and traded by the Mumbai division are different from those manufactured & exported by the Kandla division, this also negatives any arrangement between the parties to show extraordinary profits in respect of its Kandla division so as to claim deduction under Section 10A - The appellant- revenue have not been able to show that the findings are perverse or arbitrary - against revenue. Computation of deduction u/s 10A without setting off of the loss from the trading unit - Held that:- As decided in CIT v. Black & Veatch Consulting Pvt. Ltd [2012 (4) TMI 450 - BOMBAY HIGH COURT] Section 10A is a provision which is in the nature of a deduction and not an exemption - the deduction under Section 10A has to be given effect to at the stage of computing the profits and gains of business - Section 80B(5) defines for the purposes of Chapter VI-A “gross total income” to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter – against revenue. 2012 (9) TMI 406 Additions on Deemed dividend - Inter Corporate Deposits (ICDs) - addition made by AO was deleted by ITAT - Held that:- The Tribunal has examined all the facts relevant to the case and have correctly reached the conclusion that none of the shareholders of respondentassessee or the respondentassessee itself is a shareholder of Company from whom Loan is taken. Similarly, neither Company imparting loan nor its shareholders are holding any shares in the respondentassessee. Further, Section 2(22)(e) does not provide that having a common Director in two companies would make Section 2(22) (e) applicable. Thus Section 2(22)(e) is not applicable in respect of the loan advanced to the respondent-assessee - in favour of assessee. Disallowance of the proportionate interest on the interest free loans given to the subsidiary companies - ITAT deleted it - Held that:- As decided in CIT v. Reliance Utilities and Power Limited [2009 (1) TMI 4 - HIGH COURT BOMBAY] where interest free funds are available with an assesee sufficient to meet its investments and at the same time loans are taken, then a presumption would arise that the investment has been made out of interest free funds available with the company and not out of loans taken - in favour of assessee. 2012 (9) TMI 405 Disallowance of business expenditure - car hire, printing, hire of manpower and sampling and display of the goods dealt - Plea of violation of natural justice - Held that:- As repeated opportunities to the appellant assessee to disclose the identity of the said entities and/or to bring them before the AO had yielded no result. Undoubtedly it was the initial burden of the assessee to establish the identity of such persons and/or to produce them to support its claim. The assessee having failed to do so the AO had no alternative but to make enquiries in the bank accounts of those entities to establish their identities. However, such effort also proved futile inasmuch as neither any address was given in the said account opening forms nor there was no introducer to such account. Thus it cannot be said that enquiries made by the inspector in respect of the bank accounts of those entities were in violation of principle of natural justice or caused any prejudiced to the assessee. As the assessee supplied cigarettes for display and sampling but had admitted they had no record of the individual shops where such distributions were made. If that is so, no purpose would be served in remanding the case after a lapse of almost two decades for production of self-same evidence which the assessee expressed inability to produce during the assessment proceeding - the issue as to whether such expenses were necessary or not in terms of the commercial expediency under section 37 (1) would arise only after the assessee had discharged its initial onus to prima facie establish such claim. If the assessee had failed to discharge its primary onus to establish such claim as in the present case, the question as to its commercial expediency does not arise at all - against assessee. 2012 (9) TMI 404 Entitlement for deduction u/s 80P(2)(a)(i)- underwriting commission and interest on PSEB Bonds and IDBI Bonds - Held that:- As decided in CIT v. Nawanshahar Central Cooperative Bank Limited [2005 (8) TMI 28 - SUPREME COURT OF INDIA] Assessee-cooperative society carrying on business of banking statutorily required to place a part of its funds in approved securities, the income attributable thereto is deductible u/s 80P(2) - against revenue. 2012 (9) TMI 403 Succession - Undisclosed income - interest income earned on FDRs - 50 % of the share of the deceased husband will go to his legal heirs and 50 % to the assessee - Held that:- The CIT(A) as well as the ITAT have held that in terms of Section 5A which was brought into force in the year 1994 with retrospective effect from 01/04/1963, the assessee and her husband were governed by the system of Community of Assets ('COMMUNIAO DOS BENS') which is in force in the State of Goa. The ITAT held that after the death of husband of the assessee, only 50 % of the share in the FDRs would pass on to three sons and one daughter and the assessee would be entitled to 50 % of the share and, therefore, the directions given by the CIT(A) to the AO to consider 50 % of the interest amount in the hands of the assessee as her undisclosed income for the block period, cannot be faulted. Thus the Tribunal has rightly placed reliance upon Section 5A of the Act and Articles 1122 and 1123 of Portuguese Family Civil Law which is in force in the State of Goa and dismissed the appeal preferred by the revenue against the order passed by the CIT(A) - submission made on behalf of the revenue that the assessment ought to have been on the basis of the body of individuals is totally misplaced - against revenue. 2012 (9) TMI 402 Cost of acquisition of tenancy rights - invoking section 45 - Whether the Tribunal was right in equating the purchase of land with that of acquisition of tenancy rights - Held that:- As per the statutory provisions applicable at the relevant time, the capital asset in case of which it is not possible to conceive or ascertain the cost of acquisition, there would be no charge of capital gain. In case of tenancy rights, however, depending on facts of case, it has to be ascertained whether the cost of acquisition of tenancy right was possible to ascertain. Acquisition of tenancy right did not fall in the same category as the acquisition of goodwill of a business in which the cost of acquisition was not conceivable. As the assessee and the landlord entered into an agreement were the landlord agreed to rent out four existing floors to the assessee, and for three more under construction floors of the building, the assessee agreed to advance to the landlord a sum of Rs.6 lakhs on which the landlord would pay interest at the rate of 6% p.a. Both sides agreed to certain fixed monthly rent on such rental properties. The agreement did not provide for either termination of the tenancy rights or the period during which such advance made to the landlord would be returned to the assessee. From the record, it further emerges that such advance was made for the purpose of completing the remaining construction. Since the landlord could not complete the construction with the agreed amount, the assessee made further advance of Rs.2.50 lakhs at same interest rate. It has also come on record that the landlord returned the amount after a period of three years though the tenancy continued for several years thereafter. Thus it can be fairly concluded that the entire contract was a composite agreement of advancement of loan at a reduced interest, granting property on rent to the assessee and the fixation of the rent also. It is impossible to distinguish any part of the differential interest which can be attributed to the cost of acquisition of the tenancy rights. If the advance was not returned for a period of four, five or six years, the cost of acquisition would defer. This is an additional ground to convince that such differential rate in interest on the advance made, cannot be seen as a cost of acquisition of the property or at any rate, being inapportionable proportion -in favour of assessee. 2012 (9) TMI 401 Denial of deduction u/s 80HHD - convertible foreign exchange earned - Held that:- While computing the deduction u/s 80HHD as per the formula the commission receipt was treated as “profits of the business”. There cannot be any dispute that the income from the money exchange business is a business income as the assessee has, by the said activity, earned profits. It is clear that the assessee had never claimed the aforesaid income as income entitled to deduction under Section 80HHD and the only effect of that was to treat it as part of the profits of the business so that this component is included in the profits of business in the formula provided under Section 80HHD for the purpose of calculating deduction under the said provision - no grievance left of the department as the only apprehension was that this income derived from the money exchange business be not treated as the income which qualifies for deduction under Section 80HHD. 2012 (9) TMI 400 Rejection of issuance of no deduction certificate u/s 197 - Held that:- Not issuing the short deduction/no deduction certificate u/s 197 to the petitioner on the ground that there was letter of the AO dated 25.03.2010 reporting opposite party No.1-ITO(TDS) that an amount of Rs.27,36,625/- for the assessment year 2004-05 and Rs.4,62,13,909/- for the year 2005-06 was outstanding against the assessee. Unfortunately, such a reason is not at all correct because as on 25.03.2010 no dues was outstanding against the assessee as the demand raised for the assessment years 2004-05 and 2005-06 was nullified by the Tribunal vide its order dated 11th February, 2010 i.e. much before issuance of letter dated 22nd/25.03.2010. There is inordinate delay and serious laches on the part of opposite party-authorities in dealing with the petitioner’s application for grant of no deduction certificate u/s 197 with no explanation from the Department as to why the petitioner’s application submitted on 22.06.2009 for issuance of no deduction certificate was taken up for the first time for consideration towards fag end of the financial year 2009-10 and that too on a wrong ground of non-payment of outstanding dues - As the impugned order of rejection of the petitioner’s application does not state that because of outstanding dues, short deduction/no-deduction certificate u/s 197 was not issued. This is a fresh reason stated in the counter affidavit that too an incorrect reason which contention on behalf of the Revenue is wholly untenable in law - as the certificate ought to have been given to the petitioner during the financial year 2009-10 and the Department cannot take advantage of its own inaction and lapses by taking a stand that the financial year is over, thus in the peculiar circumstances the opposite party No.1 is directed to issue necessary certificate making it effective for the financial year in question - in favour of assessee. 2012 (9) TMI 399 Dis-allowance u/s 40(a)(ia) - non-deduction of TDS - assessee placing reliance on decision in case of Merliyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) - Held that:- Since, Section 40(a)(ia) is applicable only amount payable as on 31st March of year under consideration, hence, issue is remained only to verify the facts of what amount was paid during the previous year and what was payable as on 31st March of previous year of the relevant AY. Therefore, the A.O. is directed to verify the amount paid and payable and to consider the findings given by the CIT (A) the genuineness/authenticity of the expenses claimed has not been proved Addition u/s 68 - source of capital introduced during the year - part of it explained through gift received from his father out of sale proceeds of agricultural land - addition made in absence of evidences - Held that:- During proceedings assessee contended the same to be advance against sale proceeds of agricultural land. Matter is set aside to the A.O. to give one more opportunity to the appellant to produce the evidence - Decided in favor of assessee for statistical purposes 2012 (9) TMI 398 Non depositing of tax in connection with VDIS declaration within prescribed time - Held that: - The frame of VDIS has been such that per Section 66 ibid., the declaration itself was required to be accompanied by the proof of payment of the tax payable in respect of the voluntarily disclosed income - Section 67 had given a latitude only to the extent that the declarant may file the declaration and then, pay the tax within three months from the date of filing of the declaration with simple interest @ 2% per every month or part thereof as comprised in the period beginning from the date of filing of the declaration and ending on the date of payment of tax. In fact, any date beyond the last day of the third month from the date of filing of the declaration cannot be considered available for making payment for the very specific and clear phraseology of Section 67 whereby even the proof of payment has to be supplied within the said period of three months. Then, in sub-section (2) of Section 67, the result of default in payment of tax before the expiry of three months from the date of filing of the declaration is also given that the declaration shall be deemed never to have been made. The submission as attempted by the assessee for counting the period of three months step by step and then, referring to the fact that the month of February had 28 days has a fundamental fallacy in it. It is the period of three months that is relevant for the purpose of Section 67 ibid. and not the number of days in such months. When the declaration was made on on a simple computation, the last day of the third month therefrom expired on 30.03.1998. The deposit as made on even if delayed by one day, cannot be taken as a valid deposit for the purpose of the Scheme - against assessee. 2012 (9) TMI 397 Non compliance of TDS provision - payment of salary versus professional fees - doctors at assessee's hospital had been making TDS on the payments made to them u/s. 194J instead of u/s. 192 - Held that:- On the perusal of the appointment order issued to the doctor shows that a fixed monthly amount was paid by the assessee as remuneration and it is no way concerned with the fees received from the patients treated by them. The doctors are governed by the service rules of the assessee and their leave entitlement is also in accordance with the assessee's rules. The doctors were under probation period. During the employment of doctors the assessee has discretion to terminate the same. During the employment the doctors shall devote their whole time attention to their employment. The doctors are liable for retirement on attaining the age of 58 years. During the period of employment either side will be able to terminate the employment by giving two months notice in writing or by payment of two months' salary in lieu of such notice to each other. As seen from the appointment order it can be easily said that the doctors are employees of the assessee and being so, the relation between the assessee and the doctor was that of an employer and employee and the remuneration paid to them in terms of the said appointment order was salary which attracted the provisions of section 192 and not 194J - against assessee. 2012 (9) TMI 396 Validity of notice dated 11.03.2002 issued u/s 148 purporting to reopen assessment of AY 1995-96 on principal objection of AO that deduction u/s 57(iii) is not available in respect of interest on the funds borrowed for purchasing shares for investment - Held that:- It cannot be stated that the assessee failed in his duty. Assessee had dis-closed primary facts in the returns filed, making requisite disclosure about the investments as well as the interest paid for borrowings for making such investments. Further, AO had raised certain queries about borrowings and the interest paid thereon and the dividend earned. The assessee, on both the occasions, supplied necessary material through letters and documents produced on record. Thus, during the scrutiny assessment proceedings, the AO was actually aware about the claim of the assessee u/s 57(iii). Hence, there was no failure on the part of the assessee to disclose fully and truly all material facts, necessary for assessment. The notices for reopening the assessments beyond a period of four years, from the end of the relevant AY fails on this ground alone - Decided in favor of assessee. 2012 (9) TMI 395 Status of assessee – Resident vs Non-resident – assessee arrived seven times to India on varying periods - Revenue contended number of days of stay in India to be 187 whereas assessee contended for exclusion of day of arrival on ground that he arrived late in the night after completing his work abroad and attends to the work next day and generally leaves early in the morning so as to attend the work again after arriving at the destination – Held that:- Day of arrival, particularly late in the day should be excluded. If we exclude the date of arrival as it is not a complete day, the stay of assessee is less than 182 days – Decided in favor of assessee Penalty u/s 271(1)(c) – Held that:- Since in assessment proceedings, assessee status is confirmed as Non Resident, there is no question of addition of the amount. Therefore, penalty u/s 271(1)(c) does not survive. Even otherwise the issue is one of the debatable nature. There is only a claim of status. Therefore, even otherwise also penalty u/s 271(1)(c) was not called for - Decided in favor of assessee 2012 (9) TMI 394 Suppression of receipts - difference between gross receipts disclosed to the Department and manually prepared - assessee has pleaded that the difference is only on account of payment of commission to franchisees - Held that:- Considering the clause VI of franchisee agreement it is not just the payment of Rs. 30,40,543/- that required to be seen but the proof of payment of Rs. 4.86 crores (being 75%) has to be seen even considering the figure given by the assessee company of Rs. 1.62 crores. Further, as seen from the schedule VI to the profit and loss account filed along with the return of income, the assessee-company has incurred Rs. 30.0 lakhs towards payment to NSIC, Rs. 40.67 lakhs towards course material and Rs. 44.00 lakhs towards advertisement expenditure. Thus, it is clear that when all these expenses are to be borne by the assessee-company, the figures taken in the books of account have naturally to be net figures not gross figures. These adjustments as made by journal entries are clearly an afterthought to reduce the profit of the company. If at all the assessee-company has to reconcile, it has to reconcile payments of Rs. 4.86 crores as centre share and not mere Rs. 17 lakhs, as reconciled by the company - thus the assessee suppressed its income and no infirmity on this issue in sustaining the addition towards suppression of income - against assessee. Inflation of Advertisement expenses - Held that:- As seen from the evidences on record, the contention of the assessee appears to be self contradictory, the partnership deed of M/s. Pace Media and Mercantile Services was actually executed on 1st day of March, 2000 and was duly registered with Registrar of Firm on 19th May, 2000, thus, the very contention of the assessee that it came to know of the advertisement commission after nine months of business is not correct since it had already executed the partnership deed and registered the same much in advance - that though the assesseecompany was under obligation to deduct TDS on all advertisement payments, it had failed to do so in respect of payments made to M/s. Pace Media and Mercantile Services - against assessee. 2012 (9) TMI 393 Validity of reassessment proceedings u/s 147/148 - rejection of application of the assessee for grant of exemption u/s 10(23C)(vi) - based on aforesaid, AO formed an opinion of escapement of income - Held that:- It is evident from the assessment orders that assessee has claimed exemption u/s.11(1)(a) for A.Y. 2008-09 and the assessee has claimed exemption u/s.10(23C)(iiiad) for the AYs 2006-07 and 2007-08. It is clear that the assessee has not claimed exemption u/s 10(23C)(vi) for any of the periods under consideration. AO from the communication of the CCIT regarding rejection of application of the assessee for exemption u/s.10(23C)(vi) only, came to the conclusion of escapement of income from assessment. Hence, notice issued u/s 148 are not at all valid as there is no satisfaction of the AO himself as to the escapement of income from assessment in the hands of the assessee except receipt of said order of CCIT - Decided in favor of assessee 2012 (9) TMI 392 Validity of reopening of assessment u/s 148 – assessee change of opinion – period of limitation - reassessment of AY 2002-03 taken by issuing of notice u/s.148 on 30.3.2009 – Held that:- CIT(A) has upheld the assessment having been passed on 31.12.2009 which ought to have been on the basis of facts could only be passed up to 31.3.2007. It is another matter that if on merits the issue to be considered u/s.148 would lean in favour of the assessee insofar as the cash flow on the basis of gifts were explained for by the Assessing Officer for three cash gifts of Rs.25,000 each only. He ought not to have disallowed the whole of the amount of Rs.1,50,000 forming part of the cash flow. Other amounts are less than by Rs.25,000 which confirmation were not called for. Similarly Rs.7 lakhs was advanced to the Managing Director cannot be taxed in the hands of the assessee as unexplained amount in the cash flow. Both these issues therefore could not have been issue for income having escaped for issue of notice u/s.148. As no other additions have been made and there is no whisper for the purported information available to the Assessing Officer we are of the considered view that the issue of notice u/s.148 is invalid and therefore, the consequent assessment u/s.143(3)/147 made by the Assessing Officer also becomes invalid and liable to be quashed – Decided in favor of assessee 2012 (9) TMI 391 Survey on 18.02.2009 followed by assessment u/s 143(3) – addition under head such as suppression of sales - investment in purchases corresponding to unaccounted sales – under valuation of closing stock - Bogus liability (existing sundry creditors) - bogus liability (non existing s/creditors) - dis-allowance u/s 40A(3) – CIT(A) deleted the addition except addition made for suppression of sales by applying GP at 12% - Revenue contesting deletion of various additions made whereas assessee contesting rate of GP – Held that:- It was the survey operation which resulted in finding by CIT(A) that the suppressed sales are not undisclosed income of the assessee. Sales were computed suppressed after a gap of 11 months by AO The technical accounting of the closing stock and the advances received from the prospective buyers whether could be shown in the closing stock when the period for purchase and sales exceeded one year was not accepted by the AO r. CIT(A) therefore thought it fit on the basis of facts brought on record in his order in pursuant to the survey operation carried out that the purported closing stock which may have been in the hands of the buyers already or were to be booked as sales to be shown against the purchases has already been part of the books of account would at best result into bringing into tax the purported margin on the gross in the sales when the main ingredient leading to computation of gross rate of margin is purchase, sales and stock. Therefore, addition on account of valuation of closing stock, bogus liabilities, dis-allowance u/s.40A(3) and investment in purchase corresponding to unaccounted sales are rightly deleted. The Books of account could not be changed as per the finding of the Assessing Officer. It is considered fair that the rate of gross profit margin at 13% on the purported suppressed sales as have been computed and confirmed by the CIT(A) to be restricted at 12% to meet the ends of justice – Decided partly in favor of assessee. 2012 (9) TMI 390 Computation of income u/s 115JB - assessee is trying to compute the brought forward losses under the normal Income-tax Act provisions and not under the Companies Act - Held that:- Clause-3 of Explanation to sec. 115JB(2) specifically provides that lower of the amount of loss brought forward or unabsorbed depreciation is to be reduced from the book profit and it is the amount, as per the books of account which to be reduced and not the amount as per the Income-tax Act records, which has been computed under the provisions of the Act - appeal filed by the assessee is dismissed. 2012 (9) TMI 389 Disallowance under section 40(a )(i) of the Act – payment to non-resident - assessee submitted as per the provisions of section 44BB of the Income-tax Act, 1961 the income of the service provider was deemed to be 10 per cent of the aggregate amount and the rate of tax including surcharge came to nearly 41 per cent. Thus TDS amount comes to 4.1 per cent. – Held that:- On account of the special provisions of section 44BB, 10 per cent of the gross amount payable to the non-residents deemed as the income chargeable to tax in India - assessee has deducted tax at the specified rate on the 10 per cent of the Bare Boat charges paid to the Norway company who is the non-resident, computed as per the provisions of section 44BB - there is no violation of the provisions of section 195 in the assessee’s case which calls for a disallowance by invoking the provisions of section 40(a)( i) of the Act - In favor of assessee 2012 (9) TMI 373 Non entitlement to deduction of the provision made in respect of irrecoverable Non Performing Assets - Held that:- Decided in favour of Revenue as decided in M/s Southern Technologies Ltd. versus Joint Commnr. of Income Tax, Coimbatore [2010 (1) TMI 5 - SUPREME COURT OF INDIA] Provision for possible loss are only notional for purposes of disclosure, hence, they cannot be made an excuse for claiming deduction under the IT Act, hence, add back - against assessee. Contingent deposits from the leasing/hire purchase customers with a view to protect themselves from sales tax liability. - ITAT treated it as assessee s income - Held that:- It is now well settled that in determining whether a receipt is liable to be taxed, the taxing authorities cannot ignore the legal character of the transaction which is the source of the receipt - As in the present case, the assessee received Rs. 36,47,585/- in the assessment year 1998-99 and as per his own statement in Court the said sum was not kept in a separate interest bearing bank account but it formed part of the business turnover. - In view of the said statement no reason to interfere with the impugned judgment constituting the addition to the income. - The said amount was part of the turnover. The said amount was collected from the customers. The said amount was collected towards sales tax liability - against assessee. Decision in the case of Bazpur Co-operative Sugar Factory Ltd. (1988 (5) TMI 4 - SUPREME COURT) distinguished. 2012 (9) TMI 372 Business income or Income from other sources - Interest income on Foreign Currency Deposit Account - whether assessee is entitled to get the benefit of Section 10A? - Held that:- As similar question arose in CIT Versus Menon Impex P. Ltd. [2002 (9) TMI 75 - MADRAS HIGH COURT] wherein the deduction u/s 10A was allowed. In the case of Commissioner of Income Tax vs. Sterling Foods [1999 (4) TMI 1 - SUPREME COURT] it was held that the mere fact that the deposit was made for obtaining Letter of Credit which Letter was, in turn, used for the purpose of business undertaking did not establish a direct nexus between the interest and industrial undertaking. Remit the cases to the ITAT for deciding the matter afresh after examining the transaction in question as done by the Madras High Court in the case of Menon Impex Private Limited. 2012 (9) TMI 371 Denial of deduction u/s 80HH and 80I for Petrochemical Unit - the basis of allocation of profits amongst the three units as shown in the Computation of Income was not explained - Held that:- Though neither Section 80HH nor Section 80I statutorily obliged assessee company to maintain its accounts unit-wise and that it was open for it to maintain its accounts in a consolidated form in order to put an end to the litigation between the Tax Department and the PSU the case is remitted to the AO to ascertain whether the assessee had correctly calculated its net profits for assessment year 1992-93 in respect of its petrochemical unit for the purposes of claiming deduction under Sections 80HH and 80I. As in the present case, assessee company has prepared its Financial Statements on Consolidated Basis from which it has worked out unit-wise net profits and once such working is certified by the Auditors the net profit computation (unit-wise) could be placed before the AO who can find out whether such profit(s) is properly worked out and on that basis compute deduction under Section 80HH/80 - in favour of assessee by way of remand. 2012 (9) TMI 370 Disallowance of depreciation - cost of acquisition of capital asset has been claimed as application of income for charitable purposes in the year of acquisition - CIT allowed the claim - Held that:- As the assessee is registered u/s 12A it did not claim benefit of provisions of sec. 11 & 12 in view of insertion of first proviso to section 2(15) as introduced by the Finance Act, 2009 w.e.f 01.04.2009 - The CIT(A) did not analyse the issues in proper perspective and merely followed decisions rendered prior to insertion of the aforesaid first proviso to sec. 2(15) despite the undisputed fact that the assessee itself did not claim benefit of provisions of sec. 11 & 12 in the computation of income annexed with return, filed report of audit in form 3CD in terms of provisions of sec. 44AB and declared suo motu income under the head ‘Profits and Gains of the Business or Profession’. Section 250(6) mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision - set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the aforesaid issues, afresh in accordance with law - in favour of revenue. 2012 (9) TMI 369 Charitable purpose u/s 2(15) - Cancellation of Registration u/s 12AA(1)(b)(iii) - the object pertaining to the maintenance of the park has been struck down by the Charity Commissioner - Held that:- On going through the remaining object of the trust, read with the provisions of sections 2(15), 12A, 12AA it is found that there has been compliance to section 12A as required under the provisions, so far as provisions of section 2(15) are concerned that the amendment talks about preservation of environment. In the place like Mumbai, where we are encountered only with tall buildings and sky scrapers, a park is maintained and developed which not only gives fresh air but invites the people at large to come, enjoy and spend time in the company of fresh grass, flowers, and gives a breath of fresh air, would certainly fall within the words, "preservation of environment", because if the assessee trust had not come forward to maintain it, it may have been used by other nefarious and unhealthy elements, which would otherwise, make the environment unhealthy. No doubt, the specific clauses have been struck out by the Charity Commissioner, under the Trust Act, but still the object would fall in the ambit of clause (8) mentioning about the benefit of the locality residents and the environment - assessee trust must be granted the registration u/s 12AA - in favour of assessee. 2012 (9) TMI 368 Disallowance of commission expenses - CIT(A) allowed it - Held that:- Considering the written submissions of the assessee before the CIT(A) wherein the assessee submitted the particulars of parties, details of payment and TDS certificates related to the payment of commission on sales in question AO made disallowance on commission payment of sales on the basis of a superficial approach supported by surmises and conjectures without making any due inquiry in regard to the genuineness of the parties and services rendered by the recipients of commission to the assessee in lieu of commission. As AO did not consider all material and the evidence placed before him by the assessee nad the CIT(A) followed a due procedure and admitted the additional evidence following Rule 46A of the Rules and after affording due opportunity to the AO to confront the same allowed the claim - as CIT(A) rightly followed the rule of consistency which was earlier followed by the AO in the preceding years of assessment allowing the payment of commission by the assessee on sales and in the absence of any material to substantiate that the payment of commission as claimed by the assessee are bogus, the disallowance cannot be made and sustained - in favour of assessee. 2012 (9) TMI 367 Royalty expenditure - Capital OR Revenue - assessee purchased distribution rights of the Punjabi film ‘Jee Aayan Nu’ for three years - AO stated to treat the expenditure as capital and deducted depreciation @25% thereon - Held that:- On observing a detailed chart of income and expenses from film “Jee Aayan Nu” it reveals that the assessee paid Rs.34,34,406 for film development and Rs.75,00,000/- as expenditure for payment of royalty and both these expenses have been segregated in four years. As per Auditors’ Report and final accounts of the assessee the assessee claimed Rs.20,60,706 as film developing charges and Rs.45,00,000 as royalty expenses i.e. 60% of actual expenditure in the assessment year under consideration and remaining 40% expenditure left to be claimed in another three years to come (subsequent to the first year of actual payment expenditure). As AO did not dispute the fact that 60% of the film development expenses was allowed in the year of expenditure and the rest 40% to be treated as deferred revenue expenditure in the forthcoming years but he deviated from this stand while considering the royalty expenditure allowability and held that the same expenditure was capital in nature. As the AO has ignored the Board Circular No. 92 dated 18.9.1972 pertaining to writing off royalty/distribution expenses of films which is binding on tax authorities thus the action of the AO was based on surmises and conjectures, without considering the nature of business of the assessee which was supported by hyper approach ignoring the Board Circular - in favour of assessee. 2012 (9) TMI 366 TDS on commission/fee paid to Consortium Members - Disallowance under Section 40{a)(ia) - Held that:- In this case the assessee entered into a consortium agreement with 12 other members who are travel agents for booking air tickets through the platform provided by M/s Amadeus Pvt. Ltd. - As is evident from the terms and conditions of the consortium agreement, the payment by the assessee to other consortium members is not voluntary .The assessee is under a legal obligation in terms of the agreement to pay the amount to other consortium members in accordance with settled terms. There is nothing to suggest that the assessee rendered any service to Amadeus. It is the settled legal position that income accrues when an enforceable debt is created in favour of an assessee. The terms of the consortium agreement do not reveal any such right in favour of the assessee, thus income of 52,22,326/-rightfully belonged to the other consortium members, to whom the amount was distributed by the assessee - Since the assessee only distributed the income in terms of the agreement and this did not amount to incurring of an expenditure no infirmity in the findings of the CIT(A) in deleting the disallowance u/s 40a(ia). As the notices issued by the ld. CIT(A) were never served upon it and the issues raised in ground nos. 2 & 5 in this appeal having not been adjudicated by him, it is fair and appropriate to vacate the findings of the CIT(A) and restore the matter to his file with the directions to readjudicate the issues in the light of aforesaid decision of the ITAT on identical facts in the AY 2006-07 after allowing sufficient opportunity to both the parties 2012 (9) TMI 365 Interest on refund of income tax received by the PE of the assessee - taxability - applicability of Article 12(5) or Article 12(2) of DTAA between India and France - Held that:- Tribunal in the case of the assessee itself for the AY 2002-03 and 2003-04 after detailed deliberation has held that interest on income tax refund is liable to tax @ 10% as per Article 12(2) of DTAA between India and France. It has been observed that assessee is not in the business of obtaining interest income tax refund therefore, the interest is neither derived from nor attributable to the business activity of the assessee. It is merely fall out of the profits earned by the assessee and is an appropriation of profit and when excess amount then what is due under the Act is appropriated, assessee get refund thereto, and when there is a delay in granting such refund, assessee is granted interest thereon which is taxable under the head “income from other sources”. Therefore, interest earned by the assessee cannot be held to be related to activity of PE. Thus cannot be related to Article 12(5) of the DTAA - Decided against Revenue 2012 (9) TMI 364 Disallowance u/s 14A r.w.r. 8D - assessee contested that no interest cost had been incurred by the assessee on any borrowings for the purpose of investment nor any interest was debited to P&L account - Held that:- There is no dispute that part of the income of the assessee from its business is from dividend which is exempt from tax whereas the assessee was unable to produce any material before the authorities below showing the source from which such shares were acquired the mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO is required to verify the correctness of such claim but in the instant case the AO was handicapped, because of failure of the assessee to furnish relevant details/particulars and accounts while making the disallowance in terms of provisions of sec. 14A . There is nothing in the assessment order or impugned order as to whether the assessee placed the relevant details & accounts before the AO or the ld. CIT(A) nor these authorities seems to have undertook any exercise to ascertain the details of expenditure incurred in managing and supervising the aforesaid huge investments in various funds & securities, objectively - set aside the order of the CIT(A) and restore the matter to the file of the AO for deciding the issue afresh. 2012 (9) TMI 363 Validity of assumption of jurisdiction by Commissioner u/s 263 – reassessment purported on ground that discount allowed cannot be claimed u/s.36(1)(vii) - A.O. should have made further inquiries - AO dis-allowed Rs 61,12,431 out of total discount claimed of Rs 81,49,937 – assessment order read as under “Dis-allowance of discount allowed as discussed” - assessee contended examination of issue in detail by AO – Held that:- It was the case of the CIT to further verify the order of the AO when he has already noted that the claim was the loss of the Revenue and shall not be allowed. No merit is found in contention of the Revenue insofar as the facts leading to claim of bad debt and allowance of discount were closely linked as observed by the AO cannot leave any room for doubt as sought to be assumed by CIT u/s.263 insofar as he has not given any direction to the AO which would lead to the finding that the order of the AO was erroneous coupled with the fact that it was prejudicial to the interest of revenue. Further, Commissioner while setting aside assessment u/s.263 should not give specific direction to the Assessing Officer to complete assessment in a particular manner. See Development Construction & Allied Services (India) P. Ltd v. ITO (2011 (3) TMI 850 - ITAT, MUMBAI ). Assessment u/s 263 is quashed – Decided in favor of assessee. 2012 (9) TMI 362 Penalty u/s 271(1)(c) – addition on account of unexplained investment and dis-allowance of agricultural income – assessee contended that statement of agricultural income disclosed by the appellant was on estimate basis and the AO has disallowed certain amount of agricultural income on estimate basis - as returned income and assessed income both being on estimate basis, penalty u/s 271(1)(c) is not attracted - Held that:- Estimation cannot result in levy of penalty straight way in a mechanical manner. The assessee had neither concealed any income nor furnished any inaccurate particulars. It was a denial of the assessing authorities which was adjudicated upon by the Tribunal, which assessee has submitted as mentioned above. In the light of the same, penalty levied u/s. 271(1)(c) on the part estimation sustained by the Tribunal is cancelled – Decided in favor of assessee 2012 (9) TMI 361 Rectification u/s 154 - dis-allowance of adjustment of brought forward loss of AY 1998-99 against profit for the AY 2007-08 on the ground that eight AYs have been passed - original assessment order passed u/s 143(3) allowed b/f business loss for AY 1998-99 to be c/f and same was also allowed to be carried forward in appeal effect order dated 11.06.2010 u/s 251/143(3) - Held that:- Admittedly, this is a mistake apparent from record as this business loss determined in AY 1998-99 can be carried forward till 2006-07 and not in the relevant AY 2007-08. On limitation period of four years for rectification u/s 154 it is observed that original assessment was framed u/s 143(3) for the AY 2007-08 on 31.12.2009 and the appeal effect order was passed u/s 251/143(3) on 11.06.2010, hence within time limit. In view of aforesaid, it is held that AO has rightly rectified the mistake, which is apparent from the records that this loss cannot be carried forward in AY 2007-08 - Decided against assessee. 2012 (9) TMI 360 Long Term capital gain - exemption u/s 54F - dis-allowance on ground that investment made by assessee in purchase of a residential house may not be fit for habitation, because the house was too small to exists on half acre of land - Held that:- This is hardly the basis on which one can conclude that the assessee did not purchase a residential house. Evidence filed by the assessee viz description of property in sale deed, payment of house tax, electricity connection, sufficiently justifies the existence of a house. The claim of the assessee is that it was habitable and there is no material on record to disbelieve the claim of the assessee. At this point of time, it is not possible to verify the condition of the building and or to whether it was habitable at the time of its purchase. In the circumstances, the benefit of doubt should go in favour of the assessee. On the material available on record, we are satisfied that the assessee has fulfilled the conditions for grant of exemption u/s 54F. We therefore, direct that the exemption claimed be allowed - Decided in favor of assessee 2012 (9) TMI 359 Capital gains - sale of flat - adoption of lower indexed cost of acquisition, non-allowance of registration expenses and cost of improvement - indexed cost of acquisition taken at Rs 3,77,700/- against indexed cost of acquisition, registration and improvement taken by assessee at Rs 19,91,784/- Held that:- It is observed that cost of acquisition was taken from registered sale deed executed on 04.06.2002 by the Vijaya Bank Employees Housing Cooperative Society in favour of the assessee wherein only a sum of Rs.3,06,410/- was mentioned. However no cognizance taken of confirmation letter issued by Society itself to assessee certifying payment of sum of Rs.7,75,305/- during the period from 30.04.1996 to 01.06.2000 by way of installment and also certificate from Engineer contractors certifying improvement cost of 3,10,000/- and other related expenses Even going by common sense it is clear that no flat in BTM Layout in 2002 was available at the rate of Rs.300/- adopted by AO. In view of adoption of aforesaid cost, CIT(A) rightly held that indexed cost of acquisition, improvement and registration far exceeds Rs.19.80 lakhs resulting in taxable LTCG at NIL - Decided against Revenue 2012 (9) TMI 358 Dis-allowance of interest expenses on account of interest free advances given to subsidiary company and advances given to sister concerns at concessional interest rates - Held that:- It is clear that the loan to the sister concern at concessional rate of interest as well as the investment in the subsidiary had not taken place during the previous year. As rightly contended by assessee, the revenue has accepted the fact that same were either out of own funds or were owing to commercial expediency. Even otherwise, we find that the investment in the subsidiary was only in the nature of an advance for the purchase of shares. Shares however had not been actually allotted. In such circumstances, it cannot be said that the interest free loans are investments in the subsidiary for the purpose of earning income which will not form part of total income under the Act so as to justify invoking section 14A. Since, there was commercial expediency in giving the advance by the assessee to its subsidiary, dis-allowance cannot be even sustained u/s 36(1)(iii). As far as loans to the sister concern at concessional rate of interest is concerned, we are of the view that it would be just and appropriate to direct the Assessing Officer to examine the availability of overall funds – Decided in favor of assessee for statistical purposes. 2012 (9) TMI 357 Validity of revisionary order u/s 263 – banking company – alleged incorrect computation of book profits on account of non-consideration of Provision for NPA, Provision for Standard Advances and Bad investments written off – Held that:- Order sought to be revised is the order dt.18.3.2010 giving effect to the order of the CIT(A) dt. 13.1.2010. Scope of such proceedings is restricted to the issue/matters that was considered and decided by the CIT(A). Issues with regard to adding Provision for NPA, Provision for Standard Advances and Bad investments written off while computing book profits u/s.115JB were neither the subject matter of AO’s order u/s.143(3) nor the subject matter of the appeal before the CIT(A) or considered in the order of the CIT(A). In such a situation where the AO is precluded from considering the above issues, the CIT in exercise of his powers u/s.263 cannot compel the AO to consider the above aspects. He cannot term the order of the AO as erroneous and prejudicial to the interest of the revenue for failure to consider the above issues. The order of the AO dt.18.3.2010 cannot therefore, said to be erroneous for not considering the above issues. On this short ground the order u/s.263 in so far as it relates to the issues with regard to adding Provision for NPA, Provision for Standard Advances and Bad investments written off while computing book profits u/s.115JB, is liable to quashed and is hereby quashed - Decided in favor of assessee 2012 (9) TMI 356 Validity of revisionary order passed u/s 263 - under-assessment of capital gain - non-applicability of Section 50C by AO - Held that:- In instant case, AO has not examined the applicability of section 50C. Nothing has been brought on record to show that any such enquiry had been made by the AO in the course of assessment proceedings. In view of the specific provisions of section 50C, the AO ought to have examined this aspect and failure to do so renders the order of assessment erroneous and prejudicial to the interests of revenue. Therefore, CIT was justified in initiating proceedings u/s. 263 With regard to the merits of the order, it is found that provisions of section 50C(2) provide for a reference to the DVO, if the assessee makes a claim that the guidelines value for the purpose of stamp duty exceeds the fair market value of the property as on the date of transfer. Since the AO has not made any enquiries with regard to the application of section 50C, the assessee had no occasion to exercise his right u/s. 50C. Hence, AO is directed to make a reference to the DVO u/s 50C and thereafter compute the capital gain on transfer of capital asset. Thus, the order u/s. 263 is modified as stated above - Decided partly in favor of assessee. 2012 (9) TMI 355 Capital gains - dispute regarding value of cost of construction - assessee contended that why the cost of construction of the flats while computing short term capital gain is adopted at Rs.900/- when cost of construction was accepted at Rs.1,300/- while determining long term capital gain by the CIT (Appeals) - Held that:- It is found that long term capital gain for the very same flats have been accepted by the CIT (Appeals) to have a cost of construction at Rs.1,300/-. There cannot be apparently any valid reason to adopt cost of construction at Rs.900/- while computing short term capital gain. We, therefore, hold the cost of construction be adopted at Rs.1,300/- while determining short term capital gain. Accordingly, appeal of the assessee is partly allowed. 2012 (9) TMI 354 Estimation of the net profit from sale of liquor at 3% as directed by CIT(A) - DR contended that even in case of exclusive wines, the ITAT recently has directed for estimation of profit at 5% - non-verifiable nature of sales admitted in the return due to non production of sale bills - Held that:- As the entire understatement of sales cannot be treated as undisclosed income of the assessee for the year under consideration it is well settled law that the best guide for estimation of income after rejecting the books of accounts is either past history of the assessee or any other comparable cases - In the present case, admittedly the assessee is not an exclusive wine shop and it also runs restaurant along with Bar and food items are sold along with liquor. Therefore, the profit in case of the assessee cannot be same as in the case of exclusive wine shop - Thus, considering the fact that the sale of food items are very less compared to sale of liquor and beer and also considering the fact that the ITAT has also in some cases directed for estimation of net profit in case of wine shops at 5% it is reasonable to direct the AO to estimate the profit at 10% of purchases or stock put to sale during the year subject to the assessed income is not less than the returned income - The CIT (A)’s order is modified to this extent - partly in favour of assessee. 2012 (9) TMI 353 Deletion of penalty u/s 271(1)(c) by CIT (A) - Held that:- As particular purchases made was recorded twice in the books of the assessee once when invoice was received in the month of March, 2000 and again when the goods were received in the month of April, 2000 with no mistake detected by the auditors either at the time of statutory audit or tax audit & when a mistake came to the notice during the block assessment proceedings, the assessee filed revised return voluntarily offering income to tax being accepted by AO while completing assessment u/s 143(3) r.w.s. 147 on protective basis without making any other additions, thus no penalty can be imposed on concealment of income or furnishing inaccurate particulars of income. As the conduct of the assessee in coming out voluntarily and offering the amount of Rs.1.68 crores to tax, a liberal view has to be taken in the matter of imposition of penalty u/s 271(1)(c) - in favour of assessee. 2012 (9) TMI 352 Best Judgement assessment - alleged suppression of gross profit - real estate - Punjab Urban Planning & Development Authority (PUDA) Rules prescribed wastage of land for the developer at 40.33% and developer is not entitled to sell that part - assessee following mercantile system of accounting debited provision of the expenditure on development in the trading account and correspondingly included the same in closing stock - claimed construction expenses and PUDA fees fully - deducted non-saleable area out of total land while accounting for closing stock - Revenue contending construction expenses and PUDA fees to be debited proportionately on the basis of area of land sold as divided by the total area of colony and deducting cost of non-saleable area of land on proportionate basis of land sold viz-viz total area of land Held that:- A.O. has ignored the rule of consistency when the assessee had been adopting mercantile system of accounting and development expenses have been accounted for on mercantile system basis and have been accepted by the Department in the preceding year. Though by debiting development expenses in the trading account and correspondingly by crediting amount to the closing stock does not affect the revenue. As per PUDA rules, a developer has to account for 40.33% as wastage is not under dispute. PUDA fees and construction charges have been incurred wholly and exclusively for the purpose of business. In the absence of any defects in the books of account, the AO is not justified in invoking the provisions of section 145(3) and therefore no addition is called in the facts and circumstances of the present case - Decided in favor of assessee 2012 (9) TMI 351 Interest on government loan - Government company - dis-allowance on ground that the government order sanctioning the loan did not specify any terms and conditions with regard to payment of interest or penal interest - assessee has not paid even a single instalment of either the principal amount or the interest - no action initiated by the government to recover the amount - Held that:- In the absence of any action initiated by the government to recover the amount, claim of deduction of the accrued interest on such loan may not be justified. Even though the assessee was maintaining mercantile system of accounting when the assessee defaulted in payment of the principal amount continuously for long time no interest would accrue on such loan even on principles of mercantile system of accounting. Dis-allowance upheld Addition of prior period income - Held that:- Admittedly, the assessee is maintaining books of account on mercantile system. Therefore, the income relatable to earlier year cannot be added to the income of this year. Addition is deleted. Addition of interest on government loan outstanding as on 31-03-2004 - Held that:- The loan was outstanding from the year 1996. The interest accrued was already converted into share capital. When a portion of the principal alongwith the interest and penal interest was converted into share capital there is no question of any further charging of interest. Therefore, the CIT (A) has rightly confirmed the addition 2012 (9) TMI 350 Writ Petition – alleged that financial statement of the petitioner- company were allegedly fudged. Allegedly sales and interest income for several years have been overstated, fictitious deposits allegedly were shown in the balance-sheet – Held that:- It was the case of the company before the Central Board of Direct Taxes that the Department had acted on the basis of false claims of payment of taxes made by the previous management by rectifying the assessment and raising tax demands - no hearing was given to the petitioner-company - Central Board of Direct Taxes, in the peculiar facts and circumstances of this case, ought to have heard the petitioner-company, which they have not done - representations made by the petitioner require further details to be furnished - special leave petition accordingly, disposed of. Customs 2012 (9) TMI 425 Exhibit B (wrongly typed as Exhibit D) - Whether declaration contained therein would be construed as authorization under Regulation 13(a) in favour of CHA? - Held that:- Considering Exhibit B on the letterhead of the appellant it is titled as shipping instructions. As a part of this document, a declaration is purported to be signed by the exporter. This document at Exhibit B is not referred to in the order in original dated 22.8.2008 passed by the Commissioner of Customs (General), Mumbai Zone-I and also not in the order dated 12.1.2010 passed by the CESTAT - no point in answering this question. Revocation of CHA License - Held that:- Having gone through the statement of Mr. Parmesh as well as Mr. Vikas Doshi it is noticed that Mr. Vikas Doshi managed to get the cargo of M/s. Doshi International and M/s. Kumar Enterprises for export. The statements of Mr.Parmesh and Mr. Vikas Doshi clearly indicate that documents such as invoices, SDF Form along with Annexure B duly signed by the exporter/exporter's representative were received by the department from the exporter through Shri Vikas Doshi, however, the fact remains that the authorization as contemplated in Regulation 13(a) and 13(b) were not filed in respect of the shipping bills of M/s. Darshan International and M/s. Kumar Enterprises. The statements of Mr. Parmesh as well as Mr. Vikas Doshi clearly go to show that Mr. Parmesh or any other employee of the said company were not knowing the exporters i.e. M/s. Darshan International and M/s. Kumar Enterprises. It is seen that Mr. Vikas Doshi, procured the documents from M/s. Darshan International and M/s. Kumar Enterprises and by using the CHA Licence of the said company the cargo was sought to be cleared without authorization - as the major charges levelled against the appellant stand proved cannot be faulted The CHA Licence of the Appellant shall stand suspended from 19.8.2008 till 30.9.2012 - directions to deposits the security deposit as per the present rules and regulations, with the appropriate officer on or before 30.9.2012 to get CHA licence restored with effect from 1.10.2012 - against assessee. 2012 (9) TMI 424 Disallowance of claim for refund – Held that:- Appellant was liable to refund and the same has been refunded pursuant to the order passed by the CESTAT on 10-1-2001, it is not now open to the appellant to contend that no documents are produced to show that the amount was with the appellant and that the original documents were not produced regarding the amount which was to be refunded and therefore there is delay in making the refund of the amount - respondent would be entitled to interest - appeal of Revenue dismissed 2012 (9) TMI 423 Enhancement of transaction value - import of sanitary items - Revenue entertained a view that the discounts mentioned in the invoice are on the higher side, they released the goods provisionally on execution of bank guarantee – Held that:- Value declared by the other importers is more or less same as declared by the present respondent - price list relied upon by the Revenue reflects the retail sale price of the items in the domestic market and not the export prices in the international market - price lists are merely the quotation of the prices has no reflection on the transaction value – in favor of importer 2012 (9) TMI 387 Confiscation of smuggled goods - electronics goods of foreign original purchased by the petitioner and Aslam Noor Mohammed - Held that:- As the discrepancy in goods noticed by the adjudicating authority is common to the case of the petitioner and Aslam Noor Mohammed and they are not separable and as in the case of Aslam it is held by the Tribunal that on the basis of some discrepancies in the goods and the customs receipts, it cannot be inferred that the goods in question are smuggled goods & the said order of the Tribunal has been upheld by this Court, thus the decision holding that the goods purchased by the petitioner are smuggled goods cannot be sustained - The respondents shall cancel the bank guarantee furnished by the petitioner and return the same to the petitioner. The amount of Rs.2,74,340/- deposited by the petitioner shall also be returned to the petitioner with interest @ 6% p.a. from the date of deposit till the date of payment - in favour of assessee. 2012 (9) TMI 386 Levy redemption fine - Held that:- When the authorities imposed redemption fine on the ground that the said goods are liable for confiscation without verifying as to the existence of the goods and the seizure of the goods, the imposition of redemption fine was illegal - redemption fine could be imposed only in respect of goods seized but not held liable for confiscation. 2012 (9) TMI 385 Condonation of delay of beyond 30 days - Commissioner (Appeals) dismissed the appeal on limitation, after observing that the order of the Original Adjudicating Authority was issued on 23-9-2006 whereas the appellant has shown the date of receipt as 21-3-2009 - whether the despatch of order by speed post by itself is sufficient to reflect upon the fact of receipt of the same or not – Held that:- It cannot be presumed that the dispatch of the order by speed post, in the absence of any proof of delivery, results in communication of the order. There is no scope for presumption in taxing matters and the deemed services provisions under Section 27 of the General Clauses Act, 1897 do not apply - matter remanded to the Commissioner (Appeals) Decision in Margra Industries Ltd. v. C.C., New Delhi (2006 (7) TMI 18 - CESTAT, NEW DELHI) followed. 2012 (9) TMI 349 Petition for contempt - impugned seizure and detention order quashed - deliberate and willful non-compliance and violation of order non release the truck and the betel nuts loaded - Held that:- From the scheme of the procedure of the seizure, investigation and confiscation it is quite apparent that there is no scope for continuance of the investigation after the seizure and detention of the goods had been quashed by the court of law after considering the merits or otherwise of the claim of the respective parties based on their pleadings and materials. Hence the plea raised on behalf of the opposite parties with respect to investigation and confiscation is absolutely frivolous and ridiculous, to say the least, and had obviously been raised by their counsel merely to save them from the punishment of contempt, which they have clearly committed and continued committing it merely to punish the petitioner for his fault of approaching this Court. As clear from the records that till date the opposite parties are giving effect to the show cause notice dated 18.11.2011 and are not releasing the goods, which is in direct confrontation with the judicial order of this Court dated 14.11.2011 passed which remained in force at least till 25.04.2012 when order of stay was passed in L.P.A. No. 131 of 2012 i.e. for more than five months, although the direction was for immediate release of goods. However, in any view of the matter order of the Assistant Commissioner, Customs dated 18.11.2011 was clearly in the teeth of and in violation of the said order dated 14.11.2011 passed by this Court. Thus Court has no option but to hold the the Assistant/Deputy Commissioner, Customs (Prevention) Division, Forbisganj, District Kishanganj contemner guilty of contempt and punish him with simple imprisonment of three months, which must start within 30 days from the date of passing of this order and also with fine of Rs.2,000.00 which must be paid within 30 days from date of this order in favour of Patna High Court Legal Aid Society as he has orchestrated the things and misconstrued the provisions of law to the detriment of the petitioner merely with the purpose to overreach the order of this Court dated 14.11.2011 passed in C.W.J.C. No. 12197 of 2011 - in favour of assessee. 2012 (9) TMI 347 Drawback claim - conversion of shipping bill from DEPB scheme to Duty Drawback Scheme - Assistant Commissioner, rejected the claim of the petitioner treating the same as a claim for conversion from DEPB scheme to draw back scheme, on the ground that the petitioner’s claim for DEPB scheme has not been denied, which is a condition precedent for conversion of the claim under the DEPB scheme to one under the Drawback scheme – Held that:- Power to consider the claim under the proviso to Rule 12 is squarely on the Commissioner of Customs. As such, the Assistant Commissioner of Customs was bound to place the matter before the Commissioner of Customs for an order under the proviso to Rule 12(1) of the Drawback Rules - Assistant Commissioner had not done that - 3rd respondent directed to consider the claim of the petitioner for benefits under the drawback scheme by exercising his discretion under the proviso to Rule 12(1) Corporate Laws 2012 (9) TMI 422 Grievance of oppression and mismanagement u/s 397 and 398 - application for withdrawal of the proceedings - Held that:- That a proceeding under Section 397 could not be equated with a civil suit where the learned Judge could not have any say if a plaintiff wants to withdraw his suit and a proceeding under Section 397 could not be withdrawn and/or dismissed merely at the whims of the parties. The resistance to allow withdrawal and/or dismissal must come from someone who had authority to resist the same. A non-party can only resist dismissal or withdrawal if he is able to show that continuance of the said proceeding would benefit him. In the instant case, Amita brought the action making allegation against the then management. After her death her sons sold off their shares. They categorically asserted before us that they were no more shareholders of the company - Status of Ajit is yet to be decided either in the proceeding under Section 111A or in his suit, thus in absence of such decision his prayer for substitution in case of original petitioners, could not be acceded to. 2012 (9) TMI 384 Winding up petition - outstanding payment - agreement for providing regular freight forwarding services - respondent requested the Appellant to raise invoices on Shark Logistics for expediency who in turn failed to make payment - Held that:- There is a debt due and payable by the Respondent to the Appellant in the amount of U.S.$ 206,403.67 as the defence clearly runs in the teeth of a clear admission of liability contained in the Respondent's e-mail dated 26 October 2007 - as decided in IBA Health (I) (P.) Ltd. v. Info-Drive Systems Sdn. Bhd. [2010 (9) TMI 229 - SUPREME COURT OF INDIA] a dispute is substantial and genuine if it is bona fide and "not spurious, speculative, illusory or misconceived thus defence of Respondent that there was no privity of contract with the Appellant was thoroughly lacking. The fact that there was no denial of liability when the Appellant addressed a communication to the Respondent on 21 April 2008 specifically stating that the invoices which were initially raised on Shark Logistics were on the instructions of the Respondent it would be appropriate to furnish an opportunity to the Respondent to deposit an amount equivalent to U.S.$ 206,403.67 to the credit of the Summary Suit which has been instituted in this Court by the Appellant, to establish its bona fides. 2012 (9) TMI 346 Winding-up petition on arrears of rent - Whether the provisions of Order 2 Rule 2 of the Code of Civil Procedure (CPC) would have any impact on a proceeding u/s 433, 434 and 439 of the Companies Act, 1956 - Held that:- Appellant herein as landlord filed a suit for eviction against the respondent company on the ground of default in making payment of the rents and also on grounds of reasonable requirement, in the City Civil Court at Calcutta, under the provisions of the West Bengal Premises Tenancy Act, 1956. The proceedings under Section 439 not being a suit, but a Petition, the provisions of Order 2 Rule 2 CPC would not be attracted since the bar indicated therein is with regard to suits - Order 2 CPC deals with the frame of suits and the various rules contained therein also refer to suits for obtaining the reliefs of a civil nature and on the other hand, a proceeding under Sections 433, 434 and 439 of the Companies Act, 1956, is not a suit, but a Petition which does not attract the provisions of Order 2 Rule 2 CPC, which deals with suits. Petitioner has submitted that the West Bengal Premises Tenancy Act, 1956, does not make any provision for recovery of arrear rents and provision has only been made under the provisions of Section 17 for deposit of the arrear rents which are admitted by the tenant at the time of entering appearance and filing Written Statement in the suit for eviction. Provision has also been made for payment of such arrears in instalments, but there is no provision for recovery of the arrear rents for which a separate suit has to be filed, as has been indicated by the Division Bench of the Calcutta High Court. Set aside the findings of the learned Single Judge in regard to the application of the provisions of Order 2 Rule 2 CPC to a winding-up proceeding under the Companies Act that may be filed for recovery of the dues payable by the Respondent-tenant to the Appellant-landlord. We are, however, ad idem with the Division Bench that the relief of the Appellant-landlord, if any, in this case, will not lie in a winding-up petition, but in a suit filed for the said purpose, particularly when the said relief is not available under the rent laws which only deal with protection of tenants from eviction and the right of the landlords to recover the tenanted premises on the grounds specified therein. FEMA 2012 (9) TMI 388 Non realization of export proceeds - Contravention of provisions of section 18(2) of FERA - penalty imposed on the firm and on each of the partners - Held that:- The decision of the Appellate Tribunal that the firm has failed to take reasonable steps for realizing the export proceeds is a finding based on facts that the appellants continued to export despite continuous defaults made by the said party in clearing the outstanding and the importer approached R.B.I., after expiry of about five years thus cannot be faulted. However, looking to the facts that the firm had taken some steps to realize export proceeds though may not be adequate, application for extension of time and to write off the export proceeds was pending consideration before the RBI, part payment was recovered by the firm from the importer, thus this is a fit case for accepting the alternate submission of the assessee that the penalty should be restricted to 35% of the penalty imposed and the amount already paid by the firm may be treated in full and final satisfaction of the penal liability. Penalty on each partner - Held that:- The word “firm” or the “firm name” is merely a compendious description of all the partners collectively & as the firm acts through its partners both are to be treated as one - as the authority has already imposed separate penalty on the firm & in the absence of lapse/negligence/bonafides on the part of the partners of the firm individually, imposition of penalty on each of the partners is unjustified. Service Tax 2012 (9) TMI 454 Erection, installation and commissioning - no reply filed by the appellant before adjudicating authority - Held that:- As the first appellate authority has dismissed the appeal only on the ground that the grounds taken before him are additional submissions this cannot be the reason for dismissal of the appeal and if there is no reply filed before adjudicating authority, those submissions made before the appellate authority at the time of personal hearing should have been appreciated in a proper perspective - remand the matter back to adjudicating authority to reconsider the issue afresh. 2012 (9) TMI 453 Waiver of pre-deposit - demand of service tax - Construction Services - appellant had categorically admitted tax liability and challenge to valuation – Held that:- In any case, as the appellant categorically admitted their tax liability on principle in their memorandum of appeal, it is not open to them to rely on the cited judgement wherein a view was declared against the Revenue on the question whether service tax could be levied under the head “Works Contract” for any period prior to the date on which that service became taxable - Instant application to be one fit for summary dismissal on the ground of maintainability - No case for modification of the stay order has been made out by the appellant - directed to make pre-deposit 2012 (9) TMI 452 Waiver of pre-deposit - denial of credit is on the ground that these services were received by the appellant for the purpose of construction of a mall which was prior to the services provided i.e. renting of immovable property, sale of space or time for providing advertisement services – Held that:- Credit to the services which in relation in setting up premises of provider of output service should be granted - If it is undisputed, that if an assessee to provide an output service, the credit of input service tax paid on the input services for the creation of such premises cannot be denied - appellant has made out a prima facie case for the waiver of pre-deposit of the amounts involved 2012 (9) TMI 451 GTA services - Declaration on consignment note - denial on the ground that the declarations required to be made on the consignment note were not made by the service providers – Held that:- In the absence of specific condition in the notification, substantive benefit cannot be denied by issue of a circular prescribing additional conditions 2012 (9) TMI 414 Cenvat credit on rent-a-cab - denial - Held that:- Rent-a-Cab service is provided by the assessee to these workers to reach the factory premises in time which has a direct bearing on the manufacturing activity. In fact the employees is also entitled to conveyance allowance. It also would form part of a condition of service and the amounts spent on the conveyance of the employees is also a factor which will be taken into consideration by the employees in fixing the price of the final product as decided in CCE, Bangalore III Vs. Stanzenn Toyotetsu India (P) Ltd.[2011 (4) TMI 201 - KARNATAKA HIGH COURT] The appellants shall be eligible for the credit of rent-a-cab service provided, they are able to satisfy that the rent-a-cab service has been utilized for transport of employees/officials or business related visitors to their factory/office - issue remanded back granting opportunity to the assessee to produce additional evidence - favour of assessee by way of remand. 2012 (9) TMI 413 Demand - Business auxiliary service - appellants carry out the process of grinding and smoothening the edges, called fettling of the rough castings, received from principal manufacturers who clear the goods after carrying out further processes – Held that:- Wordings of Clause (v) of Section 65(19) of the Finance Act, 1994 did not cover processing of goods on job work basis which got covered by this clause, when the same was substituted by - “production or processing of goods for, or on behalf of, the clients – demand set aside 2012 (9) TMI 412 Denial of Cenvat Credit - invoice relating to Insurance and Repairs of Motor Cars – alleged that invoices are in the name of Ms. Varsha P. Jain, the Proprietix of M/s. Creative Architects and Interiors and not in the name of the firm – Held that:- Architect certificate is in the name of Proprietrix, viz., Varsha Pramod Jain and still appellant is paying the service tax for service rendered by it under the name of Creative Architects & Interiors - appellant had also produced copy of the Registration Certificate issued by the Council of Architecture and Service tax Registration Certificate (ST-2) issued by the Department - M/s. Creative Architects and Interiors is a proprietary concern of Ms. Varsha P. Jain and the concern and the Proprietix are legally one and the same - Credit of Service tax cannot be denied just because the invoice is in the name of the Proprietix Denial of the Cenvat Credit on Airtel Bills by assigning the reason that the other person whose name find place in the Invoice of Airtel Bills could have availed the credit – Held that:- They have availed group scheme to cut cost and therefore Airtel always raises bills in the name of all people involved in the Group Scheme even if the bill relates to one of the Group Member -other group of company namely M/s. Creative Consultants has not availed the Credit of Service tax and submitted documentary proof in their support – credit available 2012 (9) TMI 378 Service tax liability under Business Auxiliary Service - penalty u/s 76, 77, & 78 - assessee contested that no liability at all because no Business Auxiliary service was provided by the assessee - Held that:- It can be fairly concluded from the activities carried out by the assessee that the assessee provided Business Auxiliary service in promoting market for its principal therefore, service tax element is confirmed. No scope to grant relief of penalty under Section 77 - Penalty u/s 76 is set aside by Commissioner (Appeals) - penalty under Section 78 is concerned, looking to the controversy involved penalty should be limited to 25% of service tax element payable by the assessee within 30 days of receipt of communication from adjudicating authority on re-computation. 2012 (9) TMI 377 Consulting Engineer Service - Short payment of service tax - assessee contested to consider the service as Intellectual Property Right Service - Held that:- Considering reply to the show cause notice the appellants submitted that they had paid R & D Cess and what was received by them was Intellectual Property Rights Service. Obviously there was a mistake on the part of the appellants in showing the classification of service in the return wrongly but it cannot be said that they treated the service as consulting engineering service in view of the fact that they had paid R & D Cess in September 09 itself i.e. before filing the return for the period ending 30.09.09 as evident from challans submitted. As the Commissioner (Appeals) would have examined the contract, nature of service received and give reasons as to why the service cannot be classified as Intellectual Property Right Service matter is required to be remanded to the Commissioner (Appeals) to pass a well reasoned order - orders for waiver of predeposits. 2012 (9) TMI 376 CENVAT credit - input services - activities related to initial public offer – Held that:- Services availed in connection with floating initial public offer and the allied business activities would fall within inclusive part of the definition of input service under Rule 2(1) - waiver of pre-deposit granted 2012 (9) TMI 375 Demand - Interior Decorators – Held that:- Assessee engaged in making wooden furniture as per design and drawing supplied by their customer and also undertook civil work, painting work, plumbing work and electrical work - Their activity will not come under the category of ‘interior decorator’ as it is apparent on record that the assessees in question are engaged in the activity of execution of work of the design and drawing supplied to them by their clients for civil work, sanitation work plumbing work, electrical work and wooden furniture. Matter remanded back for re-adjudication. Central Excise 2012 (9) TMI 450 Demand of duty and penalty - Punishable offense - trial court discharged the accused from prosecution - Complaint under Section 9 of the Central Excises and Salt Act - assessee company manufactured and cleared eight varieties of such papers for which classification was claimed by the respondents under sub-heading 4805.90 of Central Excise Tariff Act, 1985 - It appears that with such characteristics such varieties of paper attracted classification under heading No. 48.06 of the said schedule instead of heading No. 4805.90 and said varieties were not entitled to concessional rate of duty as envisaged in Notification No. 25/84-C.E., - Held that:- Complainant examined, Superintendent of Central Excise Department - He admitted in cross-examination that he had not visited the factory premises with the preventive staff. He is also not aware who took the sample which was sent for chemical examination - there is no evidence on record to prove the charge against the accused persons for commission of offence punishable under the Act - Magistrate has not exercised jurisdiction properly in closing the evidence of the complainant - complainant was not given reasonable time to adduce evidence - order is not sustainable and is accordingly set aside 2012 (9) TMI 421 Restoration of appeal - Held that:- As the assessee has deposited an amount of Rs. 14,17,723/- in the office of the Adjudicating Authority as directed in PRESTIGE FOOD LTD. VERSUS COMMISSIONER CENTRAL EXCISE & ANR. [2012 (9) TMI 415 - MADHYA PRADESH HIGH COURT] & a copy of the receipted Challan has been placed on record the appeal rejected is need to be restored to the file for being disposed of on merits - till the appeal is disposed of no coercive steps shall be taken by the respondent for the recovery of the balance additional demand - in favour of assessee. 2012 (9) TMI 420 Non reversal of the amount of 10% of the value of the exempted goods send to an SEZ developer - Held that:- As decided in SUJAKO INTERIORS PVT. LTD. Versus COMMR. OF CENTRAL EXCISE, AHMEDABAD [2011 (2) TMI 624 - CESTAT, AHMEDABAD] the supplies made by the appellant to SEZ developers were to be treated as deemed exports and the provisions of Rule 6(3) of the Cenvat Credit Rules requiring the appellant to pay an amount of equal to 10% of the value of exempted final product are not applicable - in favour of assessee. 2012 (9) TMI 419 Non-accounting of consumption of inputs - penalty under rule 27 - Held that:- As the proceedings were initiated for not accounting of consumption of 23594.380 Kgs. of inputs namely CI Casting in their daily stock account for the period from December, 2000 to March, 2004 and the demand was issued on 27.12.2005 beyond the normal period prescribed under section 11A which has been made applicable as per the provisions of Rule 12 of CENVAT Credit Rules, 2002. As there is was no allegation of suppression, willful misstatement in the show cause notice and the department could not bring out that the appellant have removed the inputs or finished goods or scrap clandestinely in these circumstances the demand is hit by limitation of time - in favour of assessee. 2012 (9) TMI 418 Removal of Inputs as such - cenvat credit in respect of steel strips as also coils - Subsequently the said inputs were cleared by them to their own sister unit located nearby, on reversal of credit so availed by them - Revenue entertained a view that instead of reversing the MODVAT Credit, they should have paid the duty on the said input by adopting the assessable value as 115% of the cost of production or manufacture of such goods – Held that:- Where the inputs or capital goods have been purchased from outside and in case of their removals as such to their another unit, then it would be reasonable to adopt the value shown in the invoice on the basis of which CENVAT Credit was taken by the assessee in the first place - lower authority’s impugned Order-in-Original confirming the duty, imposing penalty and demanding interest, is not sustainable and deserves to be set aside - Revenue’s appeal is rejected. 2012 (9) TMI 417 Refund of excise duty paid during investigation – alleged that department made them debit the above said amounts in the PLA under coercion and the amount was not voluntarily paid – Held that:- No duty confirmed against the Respondent and there was not even a Show Cause Notice till the date of hearing - assessee can claim refund against a deposit made voluntarily - they have filed a refund claim would show that the deposit was not made voluntarily but was made under duress. Further even if the deposit is made voluntarily they can claim refund of such deposit as in the case of any other duty payment or duty deposit and the department has no right to retain any amount so long as there is no confirmed duty demand pending against the assessee - appeal filed by the Department is rejected. 2012 (9) TMI 416 Demand of duty, interest and penalty - Valuation – on the basis of seized one document it was alleged that assessee under valued the Texturised yarn which was sold through broker Shri Mahesh Mistry – Held that:- Appellants never cleared goods to M/s. Kala W works and if so, the rate of M/s. Kala W works cannot be applied to work out the differential amount - though the department quoted complete details of sale transaction of entire disputed period, no investigation was extended to any customer that they had made any payment on extra consideration to the appellant - no corroborative evidence available on record about the receipt of any extra consideration - Demand of duty, interest and penalty set aside 2012 (9) TMI 415 Rejection of restoration of appeal - Delay in payment of predeposit - Held that:- As it is clear from the record that the petitioner failed to deposit the amount as directed by the Commissioner (Appeals), thereafter the orders passed by this Court at Jabalpur directing the petitioner to deposit the 1/4th of the amount of duty within period of 3 weeks was also not complied with and even the benefit extended by the Supreme Court while dismissing the SLP and directing to deposit 1/4th of the duty within 4 weeks has not been availed by the petitioner within the time fixed by the Supreme Court. As the matter about predeposit had travelled upto the Supreme Court and even the order of Supreme Court has not been complied with by the petitioner, it was not open for the Commissioner (Appeals) to have allowed the prayer - against assessee. 2012 (9) TMI 411 Cenvat credit – import of Copper Wire - department of the view that the appellants were not undertaking any manufacturing activity and hence they were ineligible for CENVAT Credit taken on the CVD paid on imported copper wire/rod – Held that:- Appellant had been carrying out a detailed process, which can be construed as an ancillary or incidental process for manufacturing a final product i.e. ‘Super Enameled Copper Wire’ or ‘Submersible Winding Wires’ - such detail process, which has been explained by the Power of Attorney holder of the assessee is consonance with the provisions of Rule 3 of the Cenvat Credit Rules, 2004 which requires manufacture by using inputs “in” or “in relation to” the manufacture of final products - appellant-assessee is eligible for the CENVAT credit of the duty paid as CVD on the imported Copper wire 2012 (9) TMI 383 Cenvat credit on capital goods - assessee availed 100% credit in the first year itself instead of 50% - Held that:- It is not the case of the revenue that the credit wrongly availed by the assessee has been utilized in the initial financial year. If the credit of the subsequent financial year wrongfully taken in the initial financial year if not utilized till the commencement of the subsequent financial year, then no prejudice is caused to the revenue - against revenue. Credit of sales taxes in Cenvat account - Held that:- As the revenue has not adduced any evidence to establish that the assessee has wrongly taken credit of the sales tax paid by the assessee no fault can be found with the decision of the Tribunal - against revenue. 2012 (9) TMI 382 Denial of CENVAT Credit on outward transportation - CENVAT Credit availed on GTA Service up to the place of removal - Held that:- As decided in CCE & ST, LTU, Bangalore vs. ABB Ltd.[2011 (3) TMI 248 - KARNATAKA HIGH COURT] by notification No.10/2008-C.E.(N.T.) dated 1.3.2008 the words 'clearance of final products upto the place of removal' were substituted in the place of the words 'clearance of final products from the place of removal'. Till such amendment, the words 'clearance from the place of removal' included transportation charges from the place of removal till it reached the destination, namely the customer and Credit of service tax paid on outward transportation allowed prior to 1.4.2008 - as the period involved in this case is from April, 2005 to March, 2006 decided in favour of assessee. 2012 (9) TMI 381 Extended period of limitation – alleged that assessee had not disclosed the correct cost of production in the Price Lists filed by them under Rule 173C of the erstwhile Central Excise Rules, 1944 – Held that:- They have filed the price lists from time to time with the proper officer and cleared the goods on payment of duty on the value declared by them. Further, the price list filed by them and assessment made by the competent authority have not been disputed by the jurisdictional officers at any time - when jurisdictional officers obviously completed the assessments and found nothing incorrect and if anti evasion officers have different understanding of cost of production, it cannot be a ground for invoking the earlier Show Cause Notice - Revenue’s appeal rejected. 2012 (9) TMI 380 Waiver of pre-deposit – denial of benefit of Notification No. 69/2003-C.E., - exemption from payment of duty in respect of the Unit located in Assam - As the amount of duty (minus interest and penalty) is already in deposit in the Escrow Account, the interest of the revenue stands adequately protected - amount of duty is already in deposit in Escrow Account - pre-deposit of duty, interest and penalty is waived – stay application allowed 2012 (9) TMI 379 Cenvat credit – 100% EOU - whether a number of different plants manufacturing different excisable goods in the same premises would constitute one factory and the separate registration would not mean that they are different factories – Held that:- Factories are situated in the same compound are to be treated as one - 100% EOU to whom the electricity generated was supplied is located within the same compound and therefore credit is admissible. 2012 (9) TMI 348 EOU Unit - Denial of benefit of Notification No. 23/2003-C.E – Exemption from payment of SAD - Held that:- Notification No. 23/2003-C.E. grants exemption from payment of SAD on the condition that if the goods are cleared into DTA are not exempted by the State Government from the payment of Sales Tax - appellants cleared the goods by availing the benefit of Notification issued by the State Government, therefore, appellants are not entitled for the benefit of Notification No. 23/2003-C.E. Appeals are dismissed 2012 (9) TMI 345 Denial of rebate claim - Held that:- As in terms of Notification No. 05/2006-CE(NT) dated 14.3.2006 where non-adherence input/output norms have been brought out the authority examined that there was failure to fulfil the condition of notification. The appellant also could not prove whether Cenvat credit was availed or not and the claim application was also found to be blank in some respect, thus all the factors which negated the claim - against assessee. 2012 (9) TMI 344 Clarifications on the petitioner's representations - writ of Mandamus - Power of CBEC to issue clarification u/s 37B on demand with respect to levy of duties of excise on such goods - Held that:- The relief prayed for by the petitioner cannot be granted, as the petitioner has not been in a position to show that they have a right to demand the issuance of the clarifications, as prayed for in its vaan representations, dated 12.01.2012, 14.04.2012 and 25.04.2012, and that there is a concomitant obligation on the part of the respondent to issue such clarifications - Writ dismissed. 2012 (9) TMI 343 Delay of 39 days in filing - Held that:- On considering the assessee's submission there is no proper explanation given for condonation of delay that the factory of the appellant is closed since November, 2006 and therefore Director of the appellant lives at its native place at Rohtak, Haryana who came to know about the receipt of Order-in-Appeal though RTI from family members only on 1st week of December when he visited his family member and then immediately arranged for drafting and filing of the appeal but by that time, there was already a delay of 39 days in filing the appeal. Appellant has not made out a case for condonation of delay in filing the appeals before the Tribunal. 2012 (9) TMI 342 Export of goods – Drawback claim – Denial of drawback claim is based on test report – retest of remnant samples - Held that:- Denial of drawback claim on the basis of first test report cannot be held to be legal and proper - Department has not been able to produce any other evidence confirming misclassification of goods - in the absence of retest of remnant samples as the remnant samples were not available - original authority directed to sanction the drawback claims 2012 (9) TMI 341 Classification - manufacture of Potato wafers – Held that:- Rings made out flour of rice, wheat and potato; the dry pellets are obtained by the respondent from M/s. TTK Pharma Ltd - dry pellets are fried and after adding salt and flavours, the same are packed in unit containers for sale - Since the goods, in question, are snacks (Namkeens), the same are covered by serial No. 3 of the table of Notification No. 4/97-C.E., dated 1-3-1997 and hence the benefit of duty exemption has been rightly extended - Revenue’s appeal is dismissed. 2012 (9) TMI 340 Extended period of limitation - conversion of rejected materials into granules - suppression – Held that:- reprocessing of rejected goods if yielded only scrap, process would amount to manufacture and the scrap is removable on payment of duty. Necessary intimations were given by the appellant on 4-2-2002 and subsequently there were correspondences with the Revenue, which prove that the facts were not suppressed by the appellant from the department – In favor of assessee Indian Laws 2012 (9) TMI 374 Disclosure to the Media was by SEBI in breach of confidentiality - Directions with regard to reporting of matters (in electronic and print media) which are sub judice - whether Postponement orders constitute restriction under Article 19(1)(a) and whether such restriction is saved under Article 19(2)? - Held that:- Anyone, be he an accused or an aggrieved person, who genuinely apprehends on the basis of the content of the publication and its effect, an infringement of his/ her rights under Article 21 to a fair trial and all that it comprehends, would be entitled to approach an appropriate writ court and seek an order of postponement of the offending publication/ broadcast or postponement of reporting of certain phases of the trial (including identity of the victim or the witness or the complainant), and that the court may grant such preventive relief, on a balancing of the right to a fair trial and Article 19(1)(a) rights, bearing in mind the principles of necessity and proportionality and keeping in mind that such orders of postponement should be for short duration and should be applied only in cases of real and substantial risk of prejudice to the proper administration of justice or to the fairness of trial. Such neutralizing device (balancing test) would not be an unreasonable restriction and on the contrary would fall within the proper constitutional framework. Exhaustively referring to the contents of the IAs filed by Sahara and SEBI the right to negotiate and settle in confidence is a right of a citizen and has been equated to a right of the accused to defend himself in a criminal trial. In this case, Sahara has complained to this Court on the basis of breach of confidentiality by the Media. In the circumstances, it cannot be contended that there was no lis. Sahara, therefore, contended that this Court should frame guidelines or give directions which are advisory or self-regulatory whereas SEBI contended that the guidelines/directions should be given by this Court which do not have to be coercive. In the circumstances, constitutional adjudication on the above points was required and it cannot be said that there was no lis between the parties. As right to freedom of expression under the First Amendment in US is absolute which is not so under Indian Constitution in view of such right getting restricted by the test of reasonableness and in view of the Heads of Restrictions under Article 19(2). Thus, the clash model is more suitable to American Constitution rather than Indian or Canadian jurisprudence, since First Amendment has no equivalent of Article 19(2) or Section 1 of the Canadian Charter.In this case, this Court is only declaring under Article 141, the constitutional limitations on free speech under Article 19(1)(a), in the context of Article 21. The exercise undertaken by this Court is an exercise of exposition of constitutional limitations under Article 141 read with Article 129/Article 215. When the content of rights is considered by this Court, the Court has also to consider the enforcement of the rights as well as the remedies available for such enforcement. In the circumstances, we have expounded the constitutional limitations on free speech under Article 19(1)(a) in the context of Article 21 and under Article 141 read with Article 129/Article 215 which preserves the inherent jurisdiction of the Courts of Record in relation to contempt law - what constitutes an offending publication would depend on the decision of the court on case to case basis. Hence, guidelines on reporting cannot be framed across the Board.
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Newsletter: Where Service Meets Reader Approval.

TMI Tax Updates - e-Newsletter September 17, 2012

Articles

1. BUNDLED SERVICES.

2. SERVICES OF NON EXECUTIVE DIRECTORS TO THEIR COMPNY.

3. Service Tax – Reverse charge method (RCM) will be more effective and simple than mechanism of Service Tax Deduction at Source(STDS) .

News

1. Permitting FDI in multi-brand product retail trading.

2. Amendment of conditions in the policy on Foreign Direct Investment in single-brand product retail trading.

3. CCI launches a Knowledge Partnership Initiative (KPI) with Prominent Law Schools .

Notifications

1. 35/2012 - dated 14-9-2012 - CE

2. F. No.1/1/2003 – CL.V (Pt. file) - dated 30-8-2012 - Co. Law

3. 41/2012 - dated 13-9-2012 - ADD

4. 52/2012 - dated 13-9-2012 - Cus

5. 51/2012 - dated 13-9-2012 - Cus

Circulars / Instructions / Orders

1. 04/2012 - dated 14-9-2012

2. 29/2012 - dated 10-9-2012

Highlights / Catch Notes

Income Tax

High Court Rules Finnish Liaison Office in India Not a Permanent Establishment for Tax Purposes.

Special Audit u/s 142(2A) Ordered, AO Cannot Delegate Powers to Auditor, Meant to Assist AO with Complex Accounts.

Court Rules Sections 201(1) & 192 of Income Tax Act Inapplicable if TDS Based on Fair Income Estimate.

High Court Rules Extraordinary Profits Alone Don't Prove Collusion; Efficient Businesses Shouldn't Be Penalized.

Section 2(22)(e) Income Tax Act: Common Director Alone Doesn't Trigger Deemed Dividend for Inter Corporate Deposits.

High Court Rules: Assessee Must Substantiate Claims for Business Expenses; Commercial Expediency Not a Factor Without Evidence.

Cooperative Banks Must Invest in Approved Securities for Tax Deductions u/s 80P(2) of Income Tax Act.

Court Rules 50% of Husband's FDR Interest Income Taxable for Surviving Spouse in Succession Case.

Challenges in Allocating Interest Costs for Acquiring Tenancy Rights: Legal and Tax Complexities Explored in Recent Case Law.

Court Denies Deduction u/s 80HHD; Money Exchange Business Profits Considered Business Income, Not Eligible for Deduction.

High Court Orders Issuance of No Deduction Certificate u/s 197 for FY 2009-10, Despite Department's Delay.

Non-deduction of TDS on unpaid amounts by March 31 can lead to disallowed expenses u/s 40(a)(ia).

Misclassification of Doctor Payments Leads to TDS Non-compliance: Salaries vs. Professional Fees u/ss 192 and 194J.

High Court Invalidates Reassessment Notice Issued u/s 148; Original Assessment Already Considered Section 57(iii) Claim.

Assessee's tax status as resident or non-resident depends on stay duration; arrival day excluded if after late hours.

Section 143(3) Additions Deleted: Closing Stock Valuation, Bogus Liabilities, Unaccounted Sales Investments, Section 40A(3) Disallowance Removed.

Assessee's Attempt to Use Income Tax Act for Loss Computation u/s 115JB Denied as Non-compliant.

Court Rules in Favor of Assessee: 10% Income Deemed u/ss 40(a)(i), 44BB, and 195; TDS at 4.1% Applied.

Supreme Court Rules Contingent Deposits Collected for Sales Tax Liability are Taxable Income.

Interest Income on Foreign Currency Deposit: Business Income or Other Sources? Case Sent Back to ITAT for Review.

Assessee companies can maintain consolidated accounts; no unit-wise accounts needed per Sections 80HH and 80I.

Maintaining Parks in Mumbai Deemed Charitable u/s 2(15) of Income Tax Act for Environmental Preservation.

Court Criticizes AO for Ignoring Binding Circular on Film Royalty Expenses, Labels Decision as Speculative and Hyper-Technical.

Court Upholds No TDS Requirement on Travel Agent Commission u/s 40a(ia) of Income Tax Act.

Interest on Income Tax Refund for Permanent Establishment Not Taxable Under Articles 12(5) or 12(2) of India-France DTAA.

Court Remands Case for Further Review on Section 14A Disallowance; Assessee Failed to Provide Necessary Expense Details.

Correction of Business Loss u/s 154: Carry Forward Until 2006-07, Not 2007-08.

Benefit u/s 54F Allowed Despite Uncertainty in Building Condition for Long-Term Capital Gains Exemption.

Capital Gains Tax on Cooperative Housing Society Flat Sale: Cost of Acquisition, Registration Expenses, and Improvement Costs Analyzed.

CIT cannot use Section 263 to force AO to revisit issues not in original order or CIT(A) appeal.

Income Must Be Assessed in the Year Earned, Not Carried to Other Tax Periods, Per Tax Regulations.

Government Company Denied Deduction for Unpaid Loan Interest Due to Non-Payment of Principal and Interest Installments.

Customs

High Court Rules Discrepancies Between Goods and Customs Receipts Alone Don't Prove Smuggling.

Amendment to Notification 94/1996-Customs: Updates on Exemption Criteria for Re-Imported Goods under Export Promotion Schemes.

Amendment to Notification No.12/2012-Cus Proposes Concessional Duty on Gold Findings; Expands Serial No. 282 Item List.

India Extends Anti-Dumping Duty on Chinese Ductile Iron Pipes Until September 2013 Under Notification No. 103/2007-Customs.

Assistant Commissioner Sentenced to 3 Months for Contempt Over Illegible Search, Defying Court Orders in Customs Case.

Conversion of Shipping Bill from DEPB to Duty Drawback Scheme Requires Commissioner of Customs Approval, Not Assistant Commissioner.

DGFT

DGFT Sets Import Quotas for Rough Marble and Travertine Blocks for 2012-13 Financial Year.

FEMA

Penalty for Firm's Export Proceeds Non-Realization Reduced to 35%; Individual Partners' Penalty Removed.

Corporate Law

Ordinary Society Conversion to Producer Company: Follow Part IX A of Companies Act, 1956 for Compliance and Legal Identity.

Sections 17, 18, 19, 141, 188 of Companies Act, 1956 delegate powers to Regional Directors for streamlined company management.

Supreme Court allows appeal: Order 2 Rule 2 CPC may impact winding-up proceedings under Companies Act Sections 433, 434, 439.

Indian Laws

Supreme Court Addresses SEBI's Confidentiality Breach and Media Reporting Guidelines on Sub Judice Matters.

Service Tax

Tax Credit Allowed for Rent-a-Cab Services Used for Transporting Employees or Business Visitors to Offices or Factories.

Grinding and smoothing rough castings, called fettling, is exempt from service tax.

Court Rules Furniture Making and Related Activities Not Classified as Interior Decorators for Service Tax Purposes.

Central Excise

Cenvat Credit Approved for Copper Wire Imports: Process Deemed Ancillary to Final Product Manufacturing.

Court Rules No Prejudice in 100% Cenvat Credit on Capital Goods Despite Rule Allowing Only 50% Initially.

100% EOU Gets Cenvat Credit for In-House Electricity as Factories in Same Compound Count as Single Entity.

Amendments to Serial Numbers 70 and 71 of Notification No. 12/2012-Central Excise Impact Excise Duty Calculations.

Export Units Can Claim SAD Exemption for DTA Goods; Eligibility Tied to State Sales Tax Status.

TMI Tax Updates - e-Newsletter
September 17, 2012