Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 19, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Village Development Expenses - The village roads, assistance to schools, contributions to local festivals and other village activities - creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill - claim of expenditures allowed - AT
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Reassessment u/s 147 - Observations of the Assessing Officer speaks volume about the conduct of the petitioner and its desire to avoid furnishing Form 3 CEB as required under Section 92E - notice sustained - HC
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Charitable activity u/s 2(15) - Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to Section 2(15) and deny exemption available under Section 11. - HC
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Exemption u/s. 54F - Long term capital gains LTCG) - Joint ownership of new house property - no deduction shall be allowed if the assessee owns on the date of transfer of the residential asset more than one residential house - AT
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Search and Seizure Operations u/s 132 of Income Tax Act - Relying upon well-established principles of claiming privilege under Sections 123 and 124 of the Evidence Act application filed by the Income Tax department allowed - HC
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Condonation of Delay - Assessee, a corporate-assessee, filing returns of income of lacs of Rupees and assisted by highly qualified professionals cannot take shadow of umbrella of ignorance of the provisions of law - AT
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Applicability of Transfer pricing provisions - transactions with joint venture - transaction with associated enterprises - international transaction - DTAA with Malaysia - all the decisions relating to the Joint Venture are taken in India and, therefore, the JVs are to be treated as “residents“ only. - AT
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Valuation u/s 50C - Enhancement of sale consideration - unless the property transferred has been registered by sale deed for the purpose of the value has been assessed and stamp duty has been paid by the parties then section 50C of the Act cannot come into operation - AT
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Personal effect - assessee was holding paintings in a packed condition and is preserving them according to the norms required and is not displaying them at his house - these paintings cannot be held as personal effects - AT
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Depreciation on Electrical Fittings – 15% or 25% - once a particular depreciable asset enters the block it losses its identity and it is not possible to apply the new rates of depreciation on the written down value of the electrical installation by carving out its WDV from the block of assets, plant and machinery - AT
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MAT- Minimum alternate tax - where the assessee had shown receipts on account of prior period adjustment on account of income tax refund and reversal of provision of income tax, the said items of receipts are not income in the hands of the assessee and the same have to be excluded from the profits reflected in the Profit & Loss Account while computing books profits under section 115JB of the Act. - AT
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Deduction u/s 80P(2)(a)(i) - Spcial auditor u/s 142A concluded that the assessee was not a primary agricultural credit society and was also not a cooperative bank - Once the primary activity of providing loans to its members has been undertaken by the assessee society, its entitlement for exemption u/s 80P(2)(a)(i) of the Act merits to be allowed. - AT
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Adjustment of accrued demurrage charges with dues - assessee contended that since the amount is not credited to profit and loss account, it is not taxable - contention of assessee is not correct - additions confirmed - AT
Customs
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Refund of duty – principle of unjust enrichment is not applicable to refund of interest and redemption fine- - AT
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100% EOU - validity of LOP - Confiscation of goods – ssesse had made out a case for setting aside the confiscation ordered by the adjudicating authority and also for setting aside the penalties imposed u/s112 - AT
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Misdeclaration of goods - SEZ unit - importing seconds and defective metal sheets and clearing them to domestic tariff area – This was a strange situation - The buyer who was receiving goods knows what are the goods and their classification but the seller/importer/manufacturer does not know. - AT
Corporate Law
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Winding up of company - Dues not paid - winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company - HC
Service Tax
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Valuation - port services - gross amount - inclusion of differential amount not charged by the appellant - Rule 5 itself is not valid as high court - stay granted. - AT
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Service tax under the category, ‘Works Contract’ - Date of levy - stay - Appellant’s claim of the project being covered under works contract from 01.06.2007 is bonafide belief carried by the appellant - AT
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Valuation - Works Contract service - Revenue has allowed abatement of 2/3 of value of the contract towards cost of goods whereas the appellant submits the actual value of goods in their contracts were to the tune of 85%. - stay granted partly - AT
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Indian Railways though part of the Union Government is liable to pay Service Tax in case the activities undertaken by them fall within the definition of taxable services - the Government is liable to pay indirect taxes for the activities undertaken by it if the activity undertaken comes within the scope of taxable event - AT
Central Excise
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Refund - claim of interest - Period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon - AT
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Cenvat Credit - allegation of non receipt of inputs in their factory - statements of the transporters, owners, owners of the vehicles, drivers and CHAs who have given inculpatory statements against the assessee, should be made available for cross-examination - AT
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Area based exemption - Delay in filing the declaration / option to avail benefit of Notification No.50/2003-CE - Merely because formal letter was filed subsequently, the same cannot be a ground for denial of the benefit prior to the said date - AT
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Appeal - Clearance from Committee of Commissioner of Customs - mere appending of signatures on the opinion of lower officers, by itself, is not sufficient compliance with the provisions of Section 35B. - AT
Case Laws:
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Income Tax
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2013 (9) TMI 573
Disallowance of Village Development Expenses - The village roads, assistance to schools, contributions to local festivals and other village activities surrounding the factory of the assessee was meant to include within its fold to crate expression of care and concern for the society at large and the people of the locality in which the business of the assessee was located in particular, thereof creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill - Therefore, the said expenditure in view of the decision of CIT v. Madras Refineries Ltd.[2003 (11) TMI 47 - MADRAS High Court] - Therefore we find no infirmity in the order of Ld. CIT(A) - Decided against Revenue. Disallowance of Contribution made to Refrigerant Gas Manufacturer Association (REGMA) - Held that:- Whatever name called the amount was collected for the purpose of defraying expense of the association - The assessee had no right to any of the sums - No capital asset was being build up in the association from which the assessee can derive any benefit - Therefore, such payment had to be treated as expenditure in the line of business and deductible u/s. 37(1) - It was not the AO’s contention that relevant services were not rendered or that there was any other motive for making such payment - In the circumstances and facts, we find no infirmity in the order of Ld. CIT(A). Disallowance of Professional fees - The expenditure either falls u/s 14A or was incurred for earning income taxable under the head capital gain - assessee claimed exemption u/s Section 28(va)(ii)- Held that:- Disallowance of professional fees paid as consultancy fees for investment advisory services - the assessee company has invested in fixed assets, debentures, advances, ICD and bank deposits, immovable property and shares and mutual funds etc and therefore, it cannot be said that the services rendered by these two persons is in respect of investment in shares - no income is reported by the assessee under the head ‘income from other sources’ being on account of investment other than investment in shares for which this payment of professional fee was said to have been paid by the assessee - Following the decision of Assesse's own case [2012 (8) TMI 37 - ITAT, AHMEDABAD] the entire payment of professional fee has to be considered towards earning of dividend income in the absence of any other income from any other investment being shown by the assessee - Decided against Assessee. Reduction of Export Turnover - Deduction u/s 80HHC - The claim of shortage was further paid as compensation which makes the cost of exports higher, but actually does not reduce the export turnover - This was a normal business practice in all trades where shortage in handling was compensated by payment, but does not mean that goods were not cleared or payment not received for the full amount of export turnover. Disallowance of Extension of Time for Construction of Building - The deferment of the construction plan was for various commercial reasons - It was also evident that if this requisite fee was not paid the allotment of the land may stand cancelled - This clearly established that this amount was paid for retaining the title of the land or either to protect the title of the land - In these circumstances, the amount paid to the authorities was capital expenditure and accordingly, it had to be capitalized with the cost of the asset - Thus, we are in conformity with the orders of the revenue authorities and dismiss this ground raised by the assessee. Inclusion of Sales Tax and Excise Duty in total turnover for the purpose of computation of deduction u/s 80HHC - Held that:- As decided in Commissioner of Income-Tax Versus Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME COURT] excise duty and sales tax were includible in the "total turnover", which was the denominator in the formula contained in section 80HHC(3) as it stood in the material time - direction of CIT(A) for excluding it thus warranted - Decided in favour of Assessee. Disallowance of Dividend Earned - Deduction u/s 80M - Allocation of expenses to an activity was a primary principle to determine the correct income of the assessee which may be sometimes cumbersome, however, inevitable - The assessee ought to have allocated its expenses for earning the dividend income which it failed to do so - Therefore, the revenue had no other option but to make an addition on estimate basis = The learned CIT(A) was gracious to reduce the disallowance from 10% of the dividend earned to 3% - Considering the facts and circumstances of the case and in the interest of justice and equity, we are of the opinion that such disallowance of 1% on the dividend earned will suffice. Accordingly, this ground raised by the assessee was partly allowed.
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2013 (9) TMI 572
Disallowance of Freight Charges - hire of trucks - CIT(A) has reduced it to 20% of 5% i.e., 1% which is in proportion to non- confirmation letters to total confirmation letters called for. Being so, the CIT(A) considered the disallowance at 20% of 5% = 1%. Admittedly, the Department not carried on detailed enquiry. There was enquiry on random basis. Considering the result of random enquiry, the CIT(A) sustained disallowance of 20% of the disallowance made by the AO. - Held that:- this kind of approach to disallow an expenditure cannot be sustained in its entirety. The Department is not disputing incurring of expenditure and, on the other hand, only disputing the quantum of expenditure - in this case the inflating of expenditure by the assessee cannot be ruled out. Considering the entire facts and circumstance of the case and chances of inflating the expenses by the assessee, to meet the ends of justice, we are inclined to sustain disallowance to the extent of non-confirmations from 37 parties in A.Y. 2008-09 and 8 parties in A.Y. 2009-10. - Decided partly in favor of assessee. Decisions in the case of Sassoon J. David & Co. Ltd. Vs. CIT [1979 (5) TMI 3 - SUPREME Court ] and CIT v. Goodlass Nerolac Paints Ltd. [1990 (8) TMI 72 - BOMBAY High Court] followed. Disallowance of Commission – Held that:- The commission paid for earlier assessment years and the commission paid by similar companies in similar circumstances and reasonableness of the payment can definitely quantify the excessive payment of commission at 15% of the total commission paid by the assessee for these assessments years under consideration before us - This disallowance at 15% of total commission paid by the assessee would meet the ends of justice - the assessing officer to disallow only 15% commission paid the assessee as excessive in these assessment years as inadmissible - the disallowance at 15% on cash payment of the commission and the payments by crossed cheque/DD shall not be considered for disallowance. Disallowance of Fixed En-Route Expenses - Held that:- Toll tax payment and payments to RTAs cannot be doubted - The assessee had furnished break up of these expenses - The other expenses like payments to local vehicle owners associations/ local drivers, spares and repairs expenses, there cannot be 100% foolproof evidences to support these payments - It was impossible to expect from the drivers and conductors foolproof supporting evidences and vouchers - it was appropriate to disallow 15% of these two expenses – Following CIT vs. Swaminarayan Vijay Carry Trade (P) Ltd [2013 (6) TMI 50 - GUJARAT HIGH COURT ] - The hiring of the trucks was also correlated to the actual trips made - These details were meticulously given in supporting vouchers - It would be appropriate to point out that disallowance of this expenditure was not made at least in the preceding 10 years prior to assessment year 2008-09 and also in the subsequent assessment years 2010-11 after full enquiry - There cannot be any disallowance for assessment year 2008-09 and 2009-10. The expenditure was incurred while transporting the goods from one place to another place by the drivers - These expenses were incurred in cash - While transporting the goods by road, no one can make payment by cheques, as the same were enroute expenses while transporting the goods by road - These payments include toll tax, payments to different RTAs of the States, payments to local vehicle owners associations, spares and repairs expenses – Decided partly in favour of Assessee.
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2013 (9) TMI 571
Reassessment u/s 147 - Notice u/s 148 after the expiry of four years - failure to respond to a notice u/s 142(1) - According to the petitioner, this alleged reason to believe is based upon the order of Assessment for the Assessment Year 2008-09 where the TPO had made adjustment of about Rs.9.9 Crores on account of the arms length price with regard to the International Transactions with Associated Enterprises. - Held that:- the policy of law is that there must be a finality to all legal proceedings including assessments and therefore, completed assessment can only be reopened if all the conditions prescribed by the Act for reopening of assessment are satisfied. The Supreme Court in the matter of CIT v/s. Kelvinator of India [2010 (1) TMI 11 - SUPREME COURT OF INDIA] has held that there is a conceptual difference between the power to review and the power to reassess. The Act gives no power to the Assessing Officer to review an assessment but only a power to reassess. However, this power can only be exercised subject to certain pre conditions as provided in the Act being satisfied. The argument that failure to respond to a notice under Section 142(1) of the Act calling upon the assessee to produce a document will lead to satisfaction of the proviso to Section 147 of the Act, to enable the Assessing Officer to take action to reassess after the expiry of four years from the end of the relevant assessment year is not acceptable. No Form 3 CEB as required under Section 92E of the Act had been filed by the petitioner with the Assessing Officer in respect of the Assessment Year 2006-07 prior to issue of penalty notice under Section 271AB of the Act - Moreover, it was clear that Section 92E of the Act mandates making disclosure by filing of Form 3 CEB - Therefore, there was a failure to disclose all material facts on the part of the petitioner for the Assessment Year 2006-07. Relying upon Siemens Information Systems Ltd. v/s. CIT [2012 (2) TMI 281 - Bombay High Court] - Assessment Order passed in a subsequent Assessment Year could well form the basis for obtaining tangible material to reach the belief that income chargeable to tax had escaped assessment - keeping in mind the fact that the petitioner had failed to disclose material facts necessary to be disclosed in terms of Section 92E of the Act, it must follow that there was reasonable belief that income chargeable to tax had escaped assessment in view of the fact that in a subsequent Assessment Year, the TPO had made adjustment to arm’s length price - Therefore, we find that there was reason to believe that income liable to tax had escaped assessment for the Assessment Year 2006-07. Observations of the Assessing Officer speaks volume about the conduct of the petitioner and its desire to avoid furnishing Form 3 CEB as required under Section 92E of the Act before the Assessing Officer for the Assessment Year 2006-07 - there was no reason to entertain the present petition challenging the notice dated 3 May 2012 under Section 148 of the Act and the order dated 25 July 2012 dismissing the petitioner's objections while seeking to reassess the petitioner for the AY 2006-07 – Decided against Assessee.
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2013 (9) TMI 570
Charitable activity u/s 2(15) - applicability of proviso of ection 2(15) - Exempted Income u/s 11 - Registration u/s 12AA - denial of exemption on the ground of commercial transactions - According to revenue The assessee is engaged in the activity of acquiring land, development of plots and construction residential as well as commercial places and sale thereof. The sales are also undertaken through auction process and sold to the highest bidder to earn more and more profits. The said activities are trade in nature and liable to tax. Held that:- For the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature. Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15). Registration u/s 12AA - Held that:- The effect of such a certificate of registration under Section 12AAA cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution was not fulfilling the conditions for applicability of Sections 11 12. Proceedings u/s 143(2) - Whether the ITAT was correct in law in holding that without exhausting the provisions contained in section 143(2) of the Act the proceedings initiated by the Assessing Officer by issuing notice u/s 148 of the Act were not valid - Held that:- The Assessing Officer had not given any defective in computation of income as per Section 11 as submitted in Form-XB, but observed that the activities of the assessee were not charitable - The activities of the assessees were genuine Following CIT vs. Andhra Pradesh State Road Transport Corporation [1986 (3) TMI 1 - SUPREME Court]. Exemption allowed - Decided in favour of Assessee.
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2013 (9) TMI 569
Addition of Rs. 32,716/- - Held that:- he A.O. observed that there was a capital addition of Rs.32,716/- in cash - Appellant has submitted that these deposits were made out of various household withdrawal made by the family members during the year – Held that:- Being small amount and various withdrawal made by the family members for the household purposes, it is possible that to that extent the family members can save the amount – Thus, the addition made is deleted. Addition of Rs.13,54,000/- being gift received from brother Shri Rajendra S Shah – Held that:- Evidences furnished by the Assessee has not been properly verified by the Commissioner(A) – Thus, ld. CIT(A) may give one more chance to examine the evidence furnished by the appellant after giving the reasonable opportunity of being heard to the appellant – Decided in favor of Assessee.
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2013 (9) TMI 568
Exemption u/s. 54F - Joint ownership of new house property - More than one residential house - Held that:- Exemption u/s. 54F has been granted to the assessee with a view to encourage construction of one residential house - The construction/purchase of a house other than one residential house was not covered by section 54F of the Act - The concession provided u/s. 54F w.e.f. 1.4.2001 would not be available in a case where the assessee already owns, on the date of transfer of the original assets, more than one residential house - Therefore, it was clear that emphasis had been given on owning more than one residential house by any assessee. The assessees, who already owns, on the date of transfer of the original asset, more than one residential house, were not eligible for the concession provided u/s 54F of the Act - Even if other residential house may be either owned by the assessee wholly or partially - Therefore, the concession had been given only to encourage that any assessee should have his own residential house - In other words, when any assessee who owns more than one residential in his/her own title exercising such dominion over the residential house as would enable other being excluded therefrom and having right to use and occupy the said house and/or to enjoy its usufruct in his/her own right should be deemed to be the owner of the residential house for the purpose of section 54F of the Act - The proviso to section 54F of the Act clearly provided that no deduction shall be allowed if the assessee owns on the date of transfer of the residential asset more than one residential house. - Decided in favour of Revenue.
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2013 (9) TMI 567
Deemed Payment of Sales Tax u/s 43B - Notional sales tax/ sales tax subsidy received under schemes by Government - Capital receipt OR Revenue Receipt - Held that:- The claim for treatment of notional sales tax was capital receipt - Following DCIT V.Reliance Industries Limited. [2003 (10) TMI 255 (Tri)] it was held that claim for treatment of notional sales tax was capital receipt, thus not liable to tax - Further, CIT(A) had rightly held that it was not necessary to go into the alternative plea of the assessee as claiming the notional sales tax as deductible u/s 43B - Decided in favor of assessee. Disallowance of Interest - dis-allowance of interest being interest referable to interest free loans and advances given to subsidiary companies - Held that:- Following Reliance Utilities & Power Ltd.[2009 (1) TMI 4 (HC)] - if interest free funds available to an assessee was sufficient to meet its investment, it can be presumed that the investments were made from the interest free funds available with the assessee - Therefore, considering the fact that assessee had its own funds more than loans given to its subsidiaries and also in absence of any nexus establishing that interest bearing borrowed funds were given as interest free to its subsidiaries - dis-allowance of interest was not justified - interest was allowable u/s 36(1)(iii) of the Act. Disallowance of Administrative Expenses u/s 14A - Dis-allowance u/s 14A of estimated expenses out of administrative expenses being expenditure incurred in relation to earning the exempt income u/s 10(33) and 10(23G) - Held that:- Assessee's own funds were far in excess than the investments made by the assessee giving exempt income, dis-allowance of interest was not justified as it had to be presumed that investments had come from interest free funds available with assessee - assessee was allowed in part by restricting disallowance towards administrative and general expenses u/s 14A of Act towards earning of exempt income u/s 10(23G) while computing total taxable income under normal provisions of Act - However, no disallowance u/s 14A be considered while computing book profit u/s 115JB of the Act - Decided partly in favor of assessee. Disallowance u/s 80HHC – Deduction u/s 80HHC under provisions of section 115JB - Held that:- Exclusion of gross interest or net interest - 90% of net interest expenses have to be considered while computing deduction u/s 80HHC - ACG Associated Capsules Pvt. Ltd. vs. DCIT[2012 (2) TMI 101 (SC)] - CIT(A) erred in confirming restriction of eligible export profit u/s 80HHC(3) of Act by applying provisions of section 80HHC(1B) of Act for computing book profit u/s 115JB - CIT(A) erred in holding that all provisions of section 80HHC of the Act applied while reducing book profits by eligible amount of export profit u/s 115JB - Decided in favor of assessee. Exclusion of profit allowed as deduction u/s 80IA/ 80IB with reference to all(exporting and non-exporting) units while arriving at deduction u/s 80HHC - assessee contended that exclusion should be restricted to export units with reference to which claim u/s 80 HHC was worked out - Held that:- When deduction u/s 80 HHC was to be considered, it was to be allowed in proportion to export turnover to total turnover of an undertaking and accordingly that proportion of deduction allowed u/s 80 HHC was to be considered and reduced while allowing deduction u/s 80 IA of those three exporting units subject to the condition that total deduction will not exceed the eligible profits of the undertaking - entire deduction allowed u/s 80 IA / 80 IB should not be reduced while computing deduction u/s 80 HHC - claim of export profits of these three units u/s 80 HHC should be reduced while allowing deduction u/s 80 IA in proportion of export turnover to total turnover - Decided in favor of assessee. Dis-allowance of expenses on account of traveling of spouse of executives - Held that:- Assessee had not been able to establish that above expenses pertaining to wives/family members of the executives was necessary for purpose of the business - such expenditure was dis-allowed - Decided against the assessee. Disallowance of Depreciation - Restriction of depreciation claimed - assessee didn't claimed depreciation in earlier years thus claimed depreciation on WDV whereas Revenue after considering depreciation for earlier years reduced WDV, thereon restricted depreciation - Held that:- Claim of depreciation prior to insertion of clause 5 to section 32(1), inserted w.e.f. 1/4/2002 as applicable from A.Y 2002-03, was optional and depreciation could not be thrust upon the assessee - Decided in favor of assessee. Disallowance u/s 92C - Transfer pricing - Working of 'Cost plus' method followed by TPO was in dispute - Held that:- A perusal of workings clearly demonstrated that TPO had taken 50% of total cost and whereas the assessee had taken actual cost relating to charter hire activity - This had made a difference to the calculation of cost - Actuals have to be taken to arrive at the correct cost and only then cost plus method can be applied - Cost plus method does not contemplate estimation of cost - When actual figures were replaced in the calculation made by TPO, then, no adjustment was called for as the payment was at arm’s length price - Decided in favor of assessee. Pre-operative Expenses - Held that:- Pre-operative expenses in question have been incurred for the purpose of business of assessee and expenditure was incurred for expansion of its existing activities - these preoperative expenses represent revenue expenditure incurred for purpose of business and be allowed as deduction u/s 37. MAT - Disallowance by increasing the Book Orofit u/s 115JB - Revenue contending adding back of provision for doubtful debts while computing profits u/s 115JB - Held that:- Considering amendment made by finance (No.2) Act 2009 with retrospective effect from 1/4/2001 by inserting clause “ i ” in Explanation -1 to section 115JB the issue was to be decided against the assessee and thus addition made by AO was restored. Commission to Associate – Held that:- CIT(A) had rightly deleted the adjustment made by AO in respect of transaction entered into by the assessee with its associated enterprises REL - similar adjustment made by AO in the preceding assessment year 2002-03 were deleted by CIT(A) and the department did not dispute the said order of CIT(A) in appeal before the Tribunal.
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2013 (9) TMI 566
Search and Seizure Operations u/s 132 of Income Tax Act - Privilege u/s 123 and 124 of Evidence Act - The Income Tax department has claimed privilege of disclosing the satisfaction note to the petitioner - Held that:- It cannot be denied that the Finance Intelligence Unit (FIU), Ministry of Finance, Government of India - a Central National Agency reporting directly to the Finance Minister, was responsible for receiving, processing, analyzing and disseminating information related to suspected financial transactions - It was also responsible for coordinating and strengthening the efforts of national and international agencies, investigation in pursuance to global efforts against money laundering, terrorist financing and related crimes - The source, method and manner in collecting the information may be relevant for the security of organisation and the personnel involved and the methods adopted by them for collecting and processing the information - The preparation of the satisfaction note on such information could thus be treated as unpublished documents for which the Head of the Department namely the Director General of Income Tax (Investigation), UP and Uttrakhand had validly claimed privilege under Sections 123 and 124 of the Evidence Act - We do not find that claim of privilege was not for bonafide purpose. The information of large amount of cash transactions in foreign bank may have generally raised doubts in bonafide manner on the nature of transactions - A large amount of accounted black money was floating in the market which poses a serious threat to the national economy - The Government of India had adopted several methods to discouraging the parallel economy being run by unscrupulous persons - The Financial Intelligence Unit (FIU), Ministry of Finance, Government of India was engaged in collecting such information against the money laundering, terrorist financing and related crimes - The sources and methods of the organisation collecting and processing such sensitive information cannot be subjected to public scrutiny to jeopardize the interest of the organisation and national interest. Relying upon well-established principles of claiming privilege under Sections 123 and 124 of the Evidence Act in the judgments cited as above, we allow the application filed by the Income Tax department. Decided in favour of Revenue.
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2013 (9) TMI 565
Condonation of Delay - CIT(A) rejected the appeal on the ground of delay - appellant contended that appeal was filed before the AO by mistake, that mistake came to its notice when it contacted office of the FAA, that once mistake was noticed assessee requested the AO to transfer it to the FAA, that dealy in filing appeal was because of bona fide belief that appeal has been filed before the right forum, that FAA should have condoned the delay, that a liberal view should be take - Held that:- An assessee who claimed that it had won the case at the level of the Hon'ble Apex Court or was successful before the ITAT, cannot be treated an ignorant assessee - the assessee was aware that the CBDT has issued instruction with regard to stay of demand - Assessee, a corporate-assessee, filing returns of income of lacs of Rupees and assisted by highly qualified professionals cannot take shadow of umbrella of ignorance of the provisions of law - It was also not the case of the assessee that it was guided by the wrong advice of the professional or it took time to consult professionals - An individual of a small place and an ISO 9001-2000-company cannot be equated, while considering the condonation of delay. - Decided against the assessee.
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2013 (9) TMI 564
Applicability of Transfer pricing provisions - transactions with joint venture - transaction with associated enterprises - international transaction - DTAA with Malaysia - Held that:- all the decisions relating to the affairs of the Joint Venture are taken in India and the business is executed in India through a Joint Venture Agreement in India. Indisputably, Joint Ventures are residents in India. Even otherwise, Clause 3 of Article 4 of Malaysia provides that a person which includes AOPs also shall be deemed to be residents of the State in which its place of effective management is situated. On perusal of the Joint Venture agreements, it can be seen that all the decisions relating to the Joint Venture are taken in India and, therefore, the JVs are to be treated as "residents" only. The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs in terms of section 92A(1) and 92A(2) of the Act. After considering the entire facts and circumstances of the present case and the findings of the DRP, we are of the opinion that the transactions taken place are with domestic enterprises and at least one among the AEs are not non-resident. Both the assessee and other parties which whom the assessee entered into transactions are the residents for the purpose of Indian Taxation. Any transaction between them will not constitute an international transaction. The transactions between the assessee and IJMII do not fall under section 92B(2) of the Act and same is the position in case of other entities with whom assessee carried on the impugned transactions - Provisions of transfer pricing not applicable - Decided against the revenue. Nature of expenses - whether for the purpose of business - genuineness - Deduction was not allowed on the reason that this payment is not verifiable and they doubted the genuineness of the payments. - Held that:- The claim of payment of subcontract by the present assessee was not disqualified for deduction under the Act - Now, coming to next question as to whether the expenditure was capital expenditure or not, we are of the opinion that the expenditure was not a capital expenditure since the assessee did not acquire any capital asset. Whether the payment was in the nature of personal expenditure or not, again, in our opinion, this was not the payment relating to personal benefit of any employees or directors of assessee-company - Being so, it was not personal expenditure. Whether the expenditure was incurred wholly and exclusively for the purpose of business - In the case of Sassoon J. David & Co. Ltd. v. CIT [1979 (5) TMI 3 - SUPREME Court ] - the expression 'wholly and exclusively' used in s. 10(2)(xv) does not mean 'necessarily'. Ordinarily, it was for the assessee to decide whether any expenditure should be incurred in the course of his or its business - Such expenditure may be incurred voluntarily without any necessity and it was incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure - The fact somebody other than the assessee was also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv), if it satisfied otherwise the tests laid down by the law - The entire payment of subcontract cannot be disallowed as there was no evidence for such payment. Whether the assessee had established the payment of subcontract by producing the necessary evidence - Held that:- Commissioner Of Income-Tax Versus Sigma Paints Limited [1990 (9) TMI 52 - BOMBAY High Court] - The payment vouchers giving the relevant details, including the names of the payees, and also bearing the signatures of the payees as recipients, had been produced by the assessee-company before the Assessing Officer - The payment vouchers contained full details of the nature of transaction - In other words, the details of all transactions in respect of which the subcontract payment had been paid by the assessee-company were duly recorded in the payment vouchers and other evidence - The only missing link was the address of the payees, which it was all along submitted and, however, the letters written by the Assessing Officer to those parties were returned by the postal authorities and these things cannot jeopardise the claim of the assessee-company - The payments were correlated to the transactions which the assessee had with those persons - The only missing link was stated to be the names of the particular parties to whom the payments were made - This, the Tribunal held, could not be supplied without detriment to the business interests of that assessee, considering the very nature of things. The initial onus and burden of proof was on the assessee - In the instant case, such initial onus and burden of proof had been duly discharged by the Assessee Company by producing its audited books of accounts, payment vouchers-and other documents giving full details as to the nature of transactions, which necessitated the payment of such subcontract works and that this was an accepted norm and established in this line of business and that without such payment, it was not possible to survive in this line of business, as well as the prevalent trade practice in the line of business carried on by the Assessee Company all along. However, in this case the inflating of expenditure by the assessee cannot be ruled out. Considering the entire facts and circumstance of the case and chances of inflating the expenses by the assessee, to meet the ends of justice, we are inclined to disallow 15% of this payment. - Decided partly in favor of assessee.
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2013 (9) TMI 563
Valuation u/s 50C - Enhancement of sale consideration - Held that:- Commissioner of Income-tax (Appeals) called a specific report from the Tehsildar-cum-Sub-Registrar, Ludhiana, regarding location and applicable circle or collector rate in the financial year 2006-07 and the stamp valuation authority informed him that the land sold was situated at village Dhandari Khurd and applicable circle of collector rate for the said land in the year 2006-07 was Rs. 1,300 per sq. yd. and the sale consideration actually received by the assessee was much higher than the above circle rate. CIT(A) rightly held that unless the property transferred has been registered by sale deed for the purpose of the value has been assessed and stamp duty has been paid by the parties then section 50C of the Act cannot come into operation. In such a situation, the position existing prior to section 50C of the Act would apply and the onus would be upon the Revenue to establish that the sale consideration declared by the assessee was understated with some clinching or comparable evidences. Assessing Officer was working on the wrong location of the land sold and the learned Commissioner of Income-tax (Appeals) passed the impugned order on the basis of report submitted by the Revenue authority as well as the Sub-Registrar and he rightly held that the land sold was located at village Dhandari Khurd and the applicable collecteral rate on that land was Rs. 1,300 per sq. yd. and the assessee sold the land at much higher price than the collector or circle rate. Therefore, we are constrained to hold that the findings of the learned Commissioner of Income-tax (Appeals) in the impugned order are based on the reports of the Revenue authorities and there is no reason before us to interfere with the same - Decided against Revenue.
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2013 (9) TMI 562
Unexplained investment u/s 69 - Sale and purchase of paintings - Personal effect - Purchases shown as stock in trade - Held that:- assessee is a connoisseur of art. The object of art is not only the pride possession but it also satiates the aesthetic quench for the art of the connoisseur. It gives joy to the possessor which is different from the pride of possession. The expression 'personal effect' as per the Black's Law Dictionary means articles associated with person, as property having more or less intimate relation to person of possessor - The apex court in the case of H. H. Maharaja Rana Hemant Singhji v. CIT [1976 (2) TMI 1 - SUPREME Court] has said that an intimate connection between the effects and the person of the assessee must be shown to exist to render them 'personal effects' within the meaning of that expression used in clause (ii) of the exceptions in section 2(4A) of the Indian Income-tax Act, 1922. We make it clear that these holdings of paintings cannot be considered as personal effects. It is also on record that the assessee was holding these paintings in a packed condition and is preserving them according to the norms required and is not displaying them at his house. These aspects were admitted in the course of arguments. Therefore, these paintings cannot be held as personal effects. To that extent the assessee's contentions are rejected. - Decided against the assessee. Whether the transaction is in the nature of "adventure in the nature of trade" so as to consider it as business or as an "investment" by the assessee. - For deciding whether trade or investment, it is to be examined afresh in the light of past conduct of the assessee and necessary details/evidences, including the running account in Synergy Art Foundation. Additions u/s 69 - While accepting that the amount of Rs. 5 lakhs was made subsequent to the search and seizure proceedings, the Commissioner of Income-tax (Appeals) surprisingly confirmed the same as an afterthought to explain the discrepancies detected. - Held that:- There is no dispute with reference to the cost of the painting and also no dispute with reference to the payment over 2 years. The Assessing Officer has already accepted the payment of Rs. 15 lakhs which was stated to have been paid by way of cheques and subsequently Rs. 9 lakhs was paid in three instalments of Rs. 4 lakhs and Rs. 2.5 lakhs each and were evidenced by the statements of ICICI Bank. In the light of the facts above, no amount can be considered as unexplained investment, unless there is confirmation from the other party that the amounts were paid in cash other than what was stated by the assessee. - Decided in favour of assessee.
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2013 (9) TMI 561
Addition u/s 41(1) - Addition of Capital Reserve - amount credited to capital reserve on account of waiver allowed by Centurion Bank of principal amount. - Held that:- The orders of the revenue authorities were not clear as to how the amount of principal waived by the bank was arrived at a sum - On the waiver of the principal amount due to the bank and the benefit that accrues to assessee on waiver of such waiver provisions under section 41(1) cannot be applied - One had to look at the statement of the Bank to identify what was the principal amount waived and the interest amount waived and the terms of the loan in respect of which the liability in question arose - It had also to be verified as to what was the interest expenditure that was claimed by the Assessee as deduction in the past while computing its taxable income and what was the amount that was actually allowed as deduction in the past assessments - Neither the order of the AO nor the that of the CIT(A) was clear on this aspect. In principle the provisions of section 41(1) of the Act will not be applicable to waiver of principal amount - We direct the AO to examine the issue with regard to the actual quantum of principal waived and the quantum of interest that was waived by the bank and restrict the addition to be made under section 41(1) of the Act to the extent that the waiver relates to the interest liability of the assessee which had been claimed as deduction by the assessee while computing its income in the past. Depreciation on Electrical Fittings – 15% or 25% - Held that:- The electrical installation once they form part of the block of assets, plant and machinery prior to A.Y 2003-04, depreciation has to be allowed on the written down value of the block - We are of the view that once a particular depreciable asset enters the block it losses its identity and it is not possible to apply the new rates of depreciation on the written down value of the electrical installation by carving out its WDV from the block of assets, plant and machinery - We, therefore, agree with the submissions of the assessee and direct the AO to allow depreciation as claimed by the assessee. - Decided in favor of assessee. Expenses related to discontinued business or not - Held that:- Following Triumph Securities Ltd. Versus Deputy Commissioner of Income-tax, Central Circle 40, Mumbai [2010 (4) TMI 874 - ITAT MUMBAI] and KNP Securities P. Ltd. Versus Assistant Commissioner of Income-tax [2009 (5) TMI 840 - ITAT MUMBAI] - The reasoning of the Tribunal is that the Assessee could not do business because of the ban imposed on its trading by SEBI which he was challenging and the business could not be carried on for reasons beyond the Assessee’s control - We therefore following the order of the co-ordinate bench hold that the Assessee is entitled to carry forward the loss for set off in subsequent assessment years as allowed by the AO. - Decided in favor of assessee.
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2013 (9) TMI 560
MAT- Minimum alternate tax - Disallowance of Deductions out of Book Profits as per Explanation 1 to section u/s 115JB(2) - Adjustment on account of FBT - Held that:- There was no merit in the order of the Assessing Officer in not deducting the amount of expenditure relatable to fringe benefit tax from the profits of business, while computing the book profits of the assessee for the relevant assessment year - The said expenditure debited to the Profit & Loss Account was to be allowed as an expenditure and there was no merit in adding back the same while computing book profits under section 115JB of the Act The circular provided that however this prohibition does not apply to the computation of book profits for the purpose of section 115JB and the same is to be allowed as a deduction. In view of the clarification issued by the CBDT vide Circular No.8/2005. Adjustment on account of agricultural income - Held that:- The assessee had declared agricultural income in its Profit & Loss Account and the said agricultural income in view of the definition of book profits is to the reduced from the profits of the business in order to work out book profits of the company under the provisions of section 115JB of the Act. Adjustment on account of prior period items - Held that:- where the assessee had shown receipts on account of prior period adjustment on account of income tax refund and reversal of provision of income tax, the said items of receipts are not income in the hands of the assessee and the same have to be excluded from the profits reflected in the Profit & Loss Account while computing books profits under section 115JB of the Act. Allowability of Expenditure of Die Tooling Charges – Held that:- Following DCIT vs Metalman Auto Private Ltd [2000 (6) TMI 123 - ITAT CHANDIGARH-A] - To be revenue in nature since the expenditure were incurred for modernization of existing projects, which was already manufacturing the same products, and simply to increase the business more efficiently and more profitability, especially when the expenses were incurred for making technological changes - It was not the case of the revenue that new machinery was installed rather the assessee incurred expenses for the improvement of product and quality with an object of achieving maximum output by improving the already existing machinery, therefore, it cannot be said that it is setting up of altogether new business - The assessee company by incurring such expenditure had only improved the efficiency in manufacturing of existing products more economically for the purposes of getting maximum business advantage. Allowability of Technical Know-How Expenditure – Held that:- Following CIT vs Mihir Textiles Ltd [2006 (3) TMI 108 - GUJARAT High Court ] and CIT vs Ashoka Mills Ltd. [1995 (10) TMI 35 - GUJARAT High Court ] - Technical service fee was deductible - the amount so paid under the agreement was revenue expenditure - composite payment for supply of technical know how and services for setting up plant and manufacture of product was held that the expenditure was of enduring benefit to the assessee, therefore, was of capital nature - the assessee was allowed and the appeal of the Revenue was dismissed.
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2013 (9) TMI 559
Agricultural income or not - AO denied the exemption and treated the same as income from other sources - Held that:- finding of the lower authorities goes against the revenue records which show that the land was under cultivation during the financial year 2006-07 and for 2004-05 and also against VRO’s Certificate. Being so, in our opinion, the certificate issued by the VRO, who is concerned revenue authority to issue the said certificate has to be relied upon and it is not possible to reject the same without examining the deponent - the agricultural income declared by the assessee is to be accepted as agricultural income only. - decision of the Supreme Court in the case of Mehta Parikh & Company vs. CIT [1956 (5) TMI 4 - SUPREME Court] followed - Decided in favor of assessee. Exemption u/s 54B - purchase of agriculture land - Computation of Capital Gains - Exemption u/s 54B - Treating the land sold by the assessee as nonagricultural land – Held that:- The lower authorities were justified in determining the land in question, as capital asset liable for income-tax - With regard to determination of cost of acquisition of the land disposed of, we are of the opinion that considering the proximity of the land to the city, it was reasonable to fix the value of as on 1.4.1981 at Rs.30,000 per acre, instead of Rs.10,000 determined by the Assessing Officer, as against Rs.1,40,000 claimed by the assessee. One of the reasons for which the claim of the assessee for relief under S.54B was rejected by the assessing officer was that what was paid by the assessee was only an advance for purchase, and unless it was actual purchase of land, assessee would not be entitled for relief under S.54B. There was some merit in this reasoning of the assessing officer - However, in terms of S.54B of the Act, assessee had to purchase the agricultural land within a period of two years. Hence, though mere payment of advance does not entitled the assessee for relief under S.54B of the Act, if ultimately whole transaction of purchase of land was completed within a period of two years as contemplated under S.54B of the Act, assessee was entitled for relief under S.54B of the Act - we set aside the orders of the lower authorities, and restored this issue to the file of the assessing officer for verifying whether the assessee had purchased the agricultural lands within a period of two years, so as to qualify for relief under S.54B of the Act, and accordingly re-decide this issue in accordance with law and after giving reasonable opportunity of hearing to the assessee.
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2013 (9) TMI 558
Disallowance of Deduction u/s 80P(2)(a)(i) - granting the status of Cooperative Society - providing credit facilities to its members - Spcial auditor u/s 142A concluded that the assessee was not a primary agricultural credit society and was also not a cooperative bank. - Held that:- the assessee is primary co-op agriculture and rural development bank, entitled to benefit of deduction u/s 80P(2)(a)(i) of the Act. Merely because certain deficiencies were noted in not holding the meetings on periodic intervals or the membership number of members were not available in particular list, etc., does not make the activities under taken by the assessee society to be not in the nature of providing credit facilities to its members. The basic activity carried on the assessee society as enshrined in its bye laws was to provide long term loans to its members for specified purposes and the assessee admittedly is doing so. Once the primary activity of providing loans to its members has been undertaken by the assessee society, its entitlement for exemption u/s 80P(2)(a)(i) of the Act merits to be allowed. Commissioner Of Income-Tax Versus Pondicherry Co-operative Housing Society Limited [1990 (11) TMI 132 - MADRAS High Court] - various objects of the society were distinct and independent objects - A perusal of clause 2(j) of the bye-laws of the society showed that to obtain a loan from the society, it was not necessary that the member should have constructed the house through the society or under its supervision - The restriction imposed on the user of the credit facilities extended by the assessee-society for house building could not be construed as means intended to secure one of the objects of the society, viz., house building - At best it could be regarded as imposition of a condition for obtaining credit facilities - The activity of the assessee-society in making funds available to its members had to be regarded as one of providing credit facilities to its members - the assessee was entitled to the benefit of special deduction under section 80P(2)(a)(i).” The object of the assessee-society was to give long term loans to its members for its utilization for specific purposes and the assessee was carrying on such activities and had earned interest income on such loans provided to its members under various schemes - The Special Auditors have also admitted to the above said facts that the assessee had generally given credit to the members for agriculture and rural development activities - Once the assessee was found to be carrying on its primary activity and similar activity was being carried on in earlier years and accepted by the department from year to year, we find no merit in rejecting the claim of the assessee vis-ŕ-vis its status under section 80P(2)(a)(i) of the Act - The deficiencies pointed out by the Special Auditors and even the Auditors of Govt. of Punjab which have been complied with by the assessee, does not justify the rejection of exemption under section 80P of the Act - Thus we direct the Assessing Officer to allow deduction under section 80P(2)(a)(i) of the Act – Decided in favour of Assessee. Disallowance u/s 14A – Held that:- Following CIT Vs Kings Exports 2009 (8) TMI 54 - PUNJAB AND HARYANA HIGH COURT] - Where the income had not been claimed as exempt, we find no merit in applying the provisions of section 14A of the Act in computing the disallowance of expenses which were attributable to the earning of dividend income – Assessing Officer was directed to delete the disallowance made in view of the provisions of section 14A of the Act – Decided in favour of Assessee.
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2013 (9) TMI 557
Adjustment of accrued demurrage charges - assessee contended that since the amount is not credited to profit and loss account, it is not taxable - Held that:- If a receipt has accrued but not shown in the books then it does not mean that such accrual of money is not to be considered for income. When a person gets a right to claim debt from others then such debt stand accrued - Decided against the assessee. The auditor has pointed out that due to not making such entry of demurrage charges in profit and loss account, then loans and advances are understated by Rs.5,00,080/- and liability overstated by Rs.2,70,726/-. It means that assessee has to pay Rs.2,70,726/- to those parties from whom demurrage was to charged. Hence to this extent, the assessee can recover through journel entry without writing off debt unless demurrage is waived by Board of Directors and allowed by revenue u/s 37 of the I.T. Act. CIT (A) was justified in confirming the addition of Rs.7,70,606/- - Decided against the assessee. Payment of Privilege fees - Nature of expenditure - exclusive privilege for wholesale trade of Indian made Foreign Liquor Beer - Held that:- The issue is whether the fee paid is for the purpose of business or not. If it is in conteravention of provisions of Excise Act, the Excise Authority will take appropriate action, but if the same is paid for business purpose, then the payment cannot be held as in genuine or held as not allowable in view of provisions of section 37 (1) of the Act. It is further seen that even there is no contravention in paying the privilege fee as the fee is paid under section 24 of the Excise and the provisions of section 28, 29 are not applicable as they are on separate aspect - held as business expenditure - Decided in favour of assessee.
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2013 (9) TMI 556
Deduction under section 80IA – Infrastructure facility – Whether the contractor was synonymous with the developer within the meaning of section 80IA (4)(i) of the Act - Whether the condition placed in clause (c) was applicable to the case of a developer, who was not carrying on business of operating and maintaining the infrastructural facilities - The assessee claimed special deduction under section 80IA - The assessing officer rejected the claim but the commissioner (Appeals) Tribunal allowed it - Held that:– Assessee was engaged in the civil construction work like construction of flyover, bridge underpass, sewerage, water supply etc. for various local bodies, railways, Central/State Governments - Following COMMISSIONER OF INCOME-TAX Versus ABG HEAVY INDUSTRIES LIMITED [2010 (2) TMI 108 - BOMBAY HIGH COURT] - The main thrust of the decision was that a developer need not be the owner of the land on which development was made - Although that decision was rendered in the context of a developer of buildings and the deduction was in respect of 80IB(10), but the definition of ‘developer’ given in that case is also relevant for this purpose - Moreover, we are in agreement that in incentive provisions, the construction should be liberally given as held by the Hon'ble Supreme Court rendered in the case of Bajaj Tempo Ltd vs CIT [1992 (4) TMI 4 - SUPREME Court]. When the assessee makes investment and himself executes development work and carried out civil works, he was eligible for tax benefit u/s 80IA of the Act - the assessee was entitled to deduction u/s 80IA(4) of the Act. Entering into a lawful agreement and thereby becoming a contractor should in no way be a bar to the one being a ‘developer’ - The assessee had developed infrastructure facility as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee was referred to as a contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a ‘developer’; nor will it debar the assessee from claiming deduction u/s 80IA(4) - Section 80IA(4)(i)(b) required development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of the material on record that the assessee had transferred the infrastructure facility developed by it by handing over the possession thereof to the concerned authority as required by the agreement - The handing over of the possession of developed infrastructure facility/project is the transfer of the infrastructure facility/project by the assessee to the authority. The handing over of the infrastructure facility/project by the developer to the Government or authority takes place after recoupment of the developer’s costs whether it be “BT’ or ‘BOT’ or ‘BOOT’ because in ‘BOT’ and ‘BOOT’ this recoupment is by way of collection of toll therefrom whereas in ‘BT’ it was by way of periodical payment by the Government/Authority - The land involved in infrastructure facility/project always belongs to the Government/Local authority etc., whether it be the case of ‘BOT’ or ‘BOOT’ and it is handed over by the Government/Authority to the developer for development of infrastructure facility/Project. The same has been the position in the given case as well - So, deduction u/s 80IA(4) is also available to this assessee which had undertaken work of a mere ‘developer’ - Decided against Revenue.
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2013 (9) TMI 555
Disallowance u/s 14A - Disallowance of 10% of dividend income - Held that:- Even prior to assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer had to enforce the provisions of sub-section (1) of section 14A. - The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case - Following decision of Godrej and Boyce Manugacturing Co. Ltd., Vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT) - Decided in favour of assessee. Deduction u/s 80IB - Held that:- Assessing Officer disallowed the deduction u/s.80-IB on interest income, lease rental and other income and the CIT(A) in appeal disallowed the deduction to the assessee on interest income and lease rental following his predecessor’s order for the assessment year 2001-02 in assessee’s own case and allowed deduction to the assessee on other income. The order of the CIT(A) was confirmed by the Tribunal in further appeal filed by the assessee. The assessee has therefore very fairly considered that the issue of allowing deduction u/s.80-IB on interest income and lease rentals are covered against the assessee. Therefore, the ground of appeal of the assessee is dismissed. Regarding the deduction allowed u/s.80IB on other income, we find that all the facts regarding the details of income are not available from the order of the Assessing Officer and the CI(A) and neither party before us has filed the same. Therefore, we are not in a position to adjudicate the issue completely. Therefore, in our considerate opinion, the issue needs to be adjudicated afresh by the Assessing Officer after bringing all relevant details and facts on record by passing his speaking order. We therefore, set aside the orders of the lower authorities and remand the matter back to the file fo the Assessing Officer to adjudicate the matter afresh by passing his order after allowing reasonable opportunity of hearing to the assessee - Decided against assessee.
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Customs
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2013 (9) TMI 587
Refund of duty – interest, redemption of fine – applicability of principle of unjust enrichment - appellant made a pre-deposit which was later on appropriated towards fine and penalty - when the fine and penalty were set aside - Court relied upon United Spirits Ltd. CC, Mumbai (2009 (6) TMI 23 - BOMBAY HIGH COURT) – principles of unjust enrichment does not arise in a case of redemption fine - No authority had been brought to our attention by either side where the principles of ‘unjust enrichment' have been applied insofar as the fine or penalty is concerned - both on general principles and considering that the itself imposes restriction only on refund of duty under Section 28, it would not be possible to attract the principles of ‘unjust enrichment' – refund of excess redemption fine paid to be allowed – decided in favour of assessee.
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2013 (9) TMI 586
Period of limitation – validity of review order – Held that:- The findings of the lower appellate authority that the review had been done beyond the period of limitation prescribed in law was patently wrong - the argument of the revenue that they received the order on the date of the order and that date was relevant was not acceptable - the date of receipt in the review section is the relevant date - the date of receipt of the order in the concerned section and the review had been done within a period of three months – order was set aside – appeal was allowed by way of remand – decided in favour of assessee.
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2013 (9) TMI 585
100% EOU - validity of LOP - Confiscation of goods – demand of duty u/s 111(o) – redemption fine u/s 112 r.w. 72 – assesses were directed by the lower authorities to produce extension of the validity of a Letter of Permission from the Development Commissioner in order to install the said machinery - relied upon the judgement of NAVA BHARAT ENTERPRISES LTD. Versus COMMR. OF C. EX., GUNTUR [2009 (12) TMI 396 - CESTAT, BANGALORE] – Held that:- Order confiscating the capital goods and raw materials and imposing redemption fine and penalty on the EOU - the machinery imported by the assesse were liable for confiscation - penalties imposed on the assesse set aside - uphold the confirmation of duty liability and interest thereof, we find that the - Assesse had made out a case for setting aside the confiscation ordered by the adjudicating authority and also for setting aside the penalties imposed u/s112 – Decided partly in favor of assessee.
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2013 (9) TMI 584
Misdeclaration of goods - SEZ unit - importing seconds and defective metal sheets and clearing them to domestic tariff area – Held that:- It was strange that after opening the container for one month the assesse did not chose to intimate either SEZ or customs port about the goods found which were not according to declaration – one of the customers to whom the goods were sold had clearly admitted that he was aware that goods had to be classified under Chapter 80 and stated that he did not know why the supplier did not do so - This was a strange situation - The buyer who was receiving goods knows what are the goods and their classification but the seller/importer/manufacturer does not know. Jurisdiction - Whether Commissioner had the power to confiscate or initiate proceedings against the appellant had to be considered – Held that:- The matter was remanded back to the original adjudicating authority with a direction that all the issues are kept open and he should decide the issue afresh - The observations regarding bills of entry assessment and mis-declaration had come out of the consideration of legal provisions and the regulations while considering the issue - the assesse did not had the opportunity to consider the aspect and make submissions and it would be a totally new legal observation which would be unjustified to rely upon to come to a conclusion – order set aside – decided in favor of assesse.
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Corporate Laws
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2013 (9) TMI 574
Winding up of company - Dues not paid - Whether, winding up proceedings can be initiated for non payment of debt - Held that:- winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company - petition presented ostensibly for a winding up order but really to exercise pressure on the company will be dismissed and under certain circumstances may even be stigmatised as a scandalous abuse of the process of the Court - The defence put up by the respondent is not mere moonshine or of such nature as to be thrown out at the threshold itself as being without merit. It appears to me that these are issues which have to be examined in depth and that the Company Court cannot do so in proceedings under section 433(e) of the Companies Act. This is a hotly contested debt - Following decision of Amalgamated Commercial Traders Pvt. Ltd. vs A.C.K. Krishnaswami And Anr [1965 (1) TMI 16 - IN THE SUPREME COURT OF INDIA] - Decided against petitioner.
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Service Tax
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2013 (9) TMI 592
Delay in payment of Service Tax and Education Cess – Held that:- The original authority had to re-quantify the exact amount of service tax and education cesses to be paid by the assessee in terms of the appellate Commissioner’s decision. Waiver of pre deposit - Stay application – Held that:- The payments claimed to had been made by the assesse towards the dues and direct that there will be waiver and stay in respect of the balance dues till final disposal – stay granted.
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2013 (9) TMI 591
Valuation - port services - gross amount - Appellant is charging less amount from M/s. Hindalco Industries for utilising the machinery which has been erected by them at Dahej Harbour/ Port – This charging of less amount is due to the fact that M/s. Hindalco Industries Limited had installed their own machineries which are being used by the appellant for rendering the said services. It is his submission that the issue is of inclusion of differential amount not charged by the appellant on M/s. Hindalco Industries Limited for the purpose of discharge of service tax liability. Held that:- Entire issue revolves around the definition of the amount gross value charged, which has already been decided by the Hon’ble High Court of Delhi in the case of Intercontinental Consultants and Technocrats Pvt. Limited [2012 (12) TMI 150 - DELHI HIGH COURT], wherein it is held that: - Appellant has made out a strong prima facie case for the waiver of pre-deposit of the amounts involved – stay granted.
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2013 (9) TMI 590
Service tax under the category, ‘Works Contract’ - Date of levy - stay - Service Tax liability has arisen on the appellant on the ground that the appellant had not discharged the correct Service Tax liability under the category of commercial and industrial construction services up to 01.06.07 for the contract entered by them with M/s Essar Oil Limited - Contract entered by the appellant with M/s Essar Oil Ltd. is a works contract - Appellant had discharged VAT applicable on such contract as and when running bills are raised and had filed returns with the VAT authorities – Held that:- Decision of Hon'ble High Court in the case of Indian National Shipowners Association [2009 (3) TMI 29 - BOMBAY HIGH COURT], had settled the law that as and when a new entry comes into existence in the statute for levy of Service Tax, it would indicate that the said entry was not covered by any services earlier. Appellant’s claim of the project being covered under works contract from 01.06.2007 is bonafide belief carried by the appellant as they had indicated in the return that they have received an amount as an advance for such contract - There are two views on this issue in as much as the Tribunal in the case of ABB Limited [2010 (7) TMI 335 - CESTAT, BANGALORE], held the view that Service Tax liability under the works contract will come into effect from 01.06.007 and it cannot be covered in any earlier entries while the decision of the co-ordinate Bench in the case of Alstom Projects India Ltd.[ 2011 (3) TMI 538 - CESTAT, NEW DELHI] , takes a different view. When there are two views possible and both the matter being contested before the Hon'ble Apex Court, the appellant’s proposition that it is covered by the Stay Order of co-ordinate Bench in the case of M.M. Constructions [2012 (12) TMI 301 - CESTAT, NEW DELHI], is correct – Appeal allowed – Waiver of pre-deposit allowed – stay granted.
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2013 (9) TMI 589
Valuation - claim of abatement - Works Contract service u/s 65(105)(zzzza) – Whether by supply of the goods before commencing of the service to be done or having two separate contracts would disturb the nature of the contract as a works contract or whether the whole activities have to be seen as part of the same contract – Held that:- The services were classified under works contract service if the benefit of Notification No. 12/2003-ST (providing exemption for value of goods sold) can be claimed by the appellant if it was beneficial to them - the activity when seen as a whole has got essential characteristics of a turn-key project. Revenue has allowed abatement of 2/3 of value of the contract towards cost of goods which is built into the rate prescribed under works contract whereas the appellant submits the actual value of goods in their contracts were to the tune of 85%. Waiver of pre deposit – 80 lakhs were ordered to be paid – on such submission pre-deposit of the balance dues waived till the disposal – stay granted partly.
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2013 (9) TMI 588
Service tax demand - Renting of Immovable Property Service, Sale of place or time for Advertisement Service and Mandap Keeper Service, Section 65(19)(a), 65(105)(zzzm) and Section 65(105)(m) – Held that:- Indian Railways though part of the Union Government is liable to pay Service Tax in case the activities undertaken by them fall within the definition of taxable services - the Government is liable to pay indirect taxes for the activities undertaken by it if the activity undertaken comes within the scope of taxable event – as decided in Re: The Bill To Amend S. 20 of The Sea Customs Act (1963 (5) TMI 57 - SUPREME COURT). Pre – deposit of duty – One – fifth of the duty was ordered to be submitted – remaining amount was allowed to be stayed – stay granted partly.
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Central Excise
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2013 (9) TMI 583
Special procedure to be applied to the Independent Textile Processors. - Limit to the Investment of 3 crores - Eligibility for Benefit - Benefit of Payment of Duty - Appellants were engaged in the manufacture of Cotton Fabrics, Man Made Fabrics, Terry Towel, Terry Fabrics, etc. - Held that:- The interpretation of the Notification and Rules were correct and cannot be faulted that - the appellants had not been able to make out a case that they were eligible for the benefit based on annual production capacity in terms of Rule and Notification - The appellants did not have the heat setting and drying in the absence of chamber in the hot-air stenter installed by them and therefore they did not have the facility of heat setting and hence they were not eligible - The Circular supported the arguments that the production capacity and determination of duty in the Notification had been made on the basis of chambers in the hot air stenter and therefore the manufacturer who was having an open air stenter without chamber cannot be extended the benefit of the Notification - The Circular also clearly shows why the Government did not think it fit to issue a Notification fixing any production capacity in the case of an open air stenter - This would also show that if a manufacturer had an open air-stenter in addition to hot-air stenter the capacity of production of textile fabrics would definitely increase. The whole purpose of the explanations was to clear any doubts that for heat setting and drying one should exclusively use hot-air stenter only and though one may have open air stenters installed in the process house they cannot be used for heat setting or drying but may be used for other process - Explanations to the rules and the notifications cannot be read in isolation of its purpose - Rule 96ZNA(1) wherein an independent processor of textile fabrics, who was engaged exclusively in the manufacture or production of processed textile fabrics “with the aid of a hot-air stenter”, was eligible for the benefit under the scheme - The reference to “independent textile processor” according to him refers to a processor who was engaged exclusively in the production of fabrics with the aid of hot-air stenter and no one else - The order rejecting the application for availing the facilities for payment of duty under Rule 96ZNA of Central Excise Rules, 1944 was upheld – Decided against Assesses.
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2013 (9) TMI 582
Penalty under Rule 26 of Central Excise Rules - Whether when the person against whom demand had been raised by way of show cause notice approaches Settlement Commission and get the dispute settled on terms and conditions, as contained in the order, whether the same would bring an end to the penal proceedings against the co-noticee, or not – Held that:- The co-accused should not be penalized more than the main accused - To simply state if an accused had been acquitted for murder, co-accuse cannot be held guilty for conspiracy to murder - The main person against whom demand was proposed to be confirmed in the show cause notice having approached Settlement Commission and the Settlement Commission having passed the final order directing to deposit the entire duty along with interest and having granted immunity to them from penalty and prosecution - the proceedings against all co-noticees were required to be closed and it was not open to the authorities below to impose penalties on the co-noticee - the penalty on the co-noticee was set aside on the ground that the dispute between the main noticee and the revenue stands settled in Settlement Commission - the order of imposition of penalties was set aside upon the appellants and the appeal was allowed - Decided in favour of Assessee.
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2013 (9) TMI 581
Refund - claim of interest - Period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon - Demand notice is issued only on 7-8-2009, the demand for recovery of interest for the period prior to July, 2008 will be beyond the reasonable period of one year – Held that:- Demand of interest is blatantly barred by limitation - Only for the period from July, 2008 (for which the return is required to be filed in August, 2009), the demand for interest can be considered to be within the reasonable period. Accordingly, directed the original adjudicating authority to re-quantify the interest liability for the normal period of one year as discussed above and communicate the same to the appellant who shall, thereafter, discharge the interest liability. As per the decision in the case of Kwality Ice Cream Company & Anr. [2012 (1) TMI 88 - Delhi High Court] wherein their lordship relying upon the judgment of TVS Whirlpool Ltd. [1999 (10) TMI 701 - SUPREME COURT OF INDIA] has held that the period of limitation prescribed for demand of duty under Section 11A is normally one year and, in exceptional circumstance of a case falling under the proviso to Section 11A(1) the period of limitation is five years. But that would be applicable only in case of misstatement, fraud, concealment etc., which is not the case here. As such, in the present case, the period of limitation for the demand for duty would be one year. By the same logic, the period of limitation for demand of interest thereon would be one year - Show cause notice issued on 26-4-2005 for the demand of the interest for a period from April 2001 to March 2004 is blatantly time-barred and any order confirming the demand of the interest due under such show cause notice is unsustainable – Decided in favor of Assessee.
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2013 (9) TMI 580
Cenvat Credit - allegation of non receipt of inputs in their factory - right to corss examination - The request for cross-examination had been rejected in view of the fact that statements had not been retracted and further inculpatory statements were recorded from the Director and employees of the company - third member decision - Held that:- statements of the transporters, owners, owners of the vehicles, drivers and CHAs who have given inculpatory statements against the assessee, should be made available for cross-examination and it is also held that there were many statements which were inculpatory - Decisions in NICO Extrusions Pvt. Ltd. [2009 (8) TMI 903 - CESTAT AHMEDABAD] followed. The charges of availment of Cenvat credit without receipt of the inputs are serious allegations which cannot be held as correct without adequate/cogent evidences and it is also imperative that the witnesses be cross-examined to bring the truth on record as to how they have stated that the goods were never transported to the appellant. - stay to be granted.
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2013 (9) TMI 579
Extended period of limitation - Demand Beyond Normal Period - wrong availment of Notification No. 6/2002 - The Commissioner has held that the wires and cables falling under Heading 85.44 were mis-declared as parts of aeroplanes and Helicopters for claiming Notification No. 6/2002 - Whether demand for the period beyond normal period can be confirmed or not in respect of clearances made under Notification No. 6/2002 - Held that:- The demand for extended period cannot be sustained and appellant was not liable to any penalty being a matter of dispute and question of interpretation - the issue was the subject matter of dispute and it cannot be said that the view taken by the appellant was totally unviable and unreasonable and there were no other evidences to show that appellants deliberately misled the department or attempted to suppress the facts - it would be unfair to hold that extended period can be invoked - It was to be stated that appellant was not disputing the issue on merits and the challenge was only for invoking the extended period. They were eligible for exemption under another notification which was predecessor to Notification No. 6/2002 should be considered as a favorable point for not invoking extended period - mere interpretation of a notification in a manner beneficial to the assessee cannot be equated with the case of clandestine removal and no penalty can be imposed - appellant had no objection and had made submission that even if it was held that under Notification No. 6/2002, benefit was not available, the same can be claimed under other notifications - assessee was entitled to interpret the notification in a manner beneficial to them - it was also to be noted that in the case the goods were manufactured mainly for Public Sector units who had also given certificates stating that these items are part of Aero planes and Helicopters. This has been the viewed adversely.
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2013 (9) TMI 578
Refund Claim - Whether the Refund claim should be made - Held that:- The refund claim should have been and could have been filed only after the issue of classification and liability to duty had been determined especially in view of the fact that the show cause notice proposing to demand Customs duty was issued on 25.10.2002 - It had to be noted that Hyundai preferred refund claims on 05.7.2002 and 21.01.2003 and both of them were rejected on 23.12.2003 by which time show cause notice had already been issued proposing demand of Customs duty which was the claim of the Hyundai for claiming the refund - After the rejection of both the refund claims on 23.12.2003 and 07.4.2003 ignoring the subsequent development of passing the order of the adjudicating authority, the Commissioner on 24.9.2003, Hyundai have continued parallel litigation in respect of the refund claims never disclosing the fact that the very same facts have already been considered and decided and had attained finality - appeal filed by the Revenue was allowed.
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2013 (9) TMI 577
Area based exemption - Delay in filing the declaration / option to avail benefit of Notification No.50/2003-CE - Appellant commenced their commercial production on 28.12.2004 and started clearance of their final product with effect from 27.1.2005, by claiming the benefit of Notification No.50/2003-CE. The said notification was duly mentioned in the invoices showing clearance of the goods without payment of duty - A formal application exercising option to avail benefit of Notification No.50/2003-CE was filed by the appellant on 27.6.2005 - The appellant was served with show cause notice proposing to deny the benefit of Notification for the period January 2005 to June 2005 on the ground that proper declaration was filed only on 27.6.2005 – Held that:- Relying upon the decisions in various cases such as Bombay Processors vs. C.C.E., Mumbai [2005 (3) TMI 206 - CESTAT, MUMBAI]; Super Plateck Pvt. Ltd. vs. C.C.E., Chandigarh [2004 (11) TMI 445 - CESTAT, NEW DELHI ] etc., it is held that once the assessee satisfies eligibility clause of the notification, exemption clause has to be construed liberally. Further, assessee is required to file option giving details, which already stand given by them in the first letter. Further, while issuing invoices, the appellant was claiming the benefit of notification in question. As such, there was enough intimation to the Revenue about availment of the benefit of the Notification in question. Merely because formal letter was filed subsequently, the same cannot be a ground for denial of the benefit prior to the said date in the absence of dispute about availability of the benefit of the Notification. – Appeal allowed – Decided in favor of Assessee.
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2013 (9) TMI 576
Appeal - Clearance from Committee of Commissioner of Customs - Mandate under section 35B(2) of the Central Excise Act, 1944 for review – Held that:- Notes sheets filed by the Revenue were prepared by the Inspector and Superintendent and forwarded to the higher officers which in turn placed the file before the Committee of Commissioners. There is no independent recording of the fact that said Committee of Commisisoner’s has gone through the impugned order and has arrived at a conclusion that the same need to be challenged before the Tribunal – Relying upon the Delhi High Court judgment in the case of CCE, Delhi-I v. Kundalia Industries reported in [2012 (8) TMI 789 - DELHI HIGH COURT] and the judgment of Hon’ble Punjab & Haryana High Court in the matter of CCE, Delhi-III v. B.E. Office Automation Products Pvt. Ltd. reported in [2009 (12) TMI 128 - HIGH COURT OF PUNJAB & HARYANA], it is held that mere appending of signatures on the opinion of lower officers, by itself, is not sufficient compliance with the provisions of Section 35B. As such, we, by following the precedent decisions, hold that the Revenue’s appeal is not valid – Decided against the Revenue.
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2013 (9) TMI 575
Duty demand - demand in respect of grey fabrics allegedly woven in the applicants 100% EOU for 14 different merchant manufacturers on job work basis and demand of woven in the applicants 100% EOU – these were required to be examined along with assesses claim of having made payments to these weavers through cheque - It gets established that the job work were actually done by these weavers - generalized and vague findings arrived at by the adjudicating authority regarding some discrepancies and incompleteness in some bills was not sufficient to dis-credit the evidentiary value of the seized documents - Commissioner had shown non-application of mind - he agrees that the evidence produced by the assesse to prove that the fabric which was alleged to had been clandestinely removed was woven in the applicants 100% EOU unit, and is supplied by the third party - he had not dropped the demand and mixed up the issue with the first demand - and confirmed the demands without giving any acceptable reasoning. Validity of order - Held that:- Order was non-speaking and had been passed without proper appreciation of evidences, fact and not following the direction of the Tribunal in remand proceedings - set aside the order and remand the matter back to the adjudicating authority to reconsider the issue afresh after following the principles of natural justice – findings recorded by the adjudicating authority go beyond the scope of show cause notice as there was no such allegation - Commissioner had not dealt with the assesses submission that the duty demand was highly exaggerated and incorrect rate of duty had been applied for arriving at the demand of duty that needs to be confirmed – matter remanded back - decided in favor of assesse.
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