Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 20, 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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Rectification of mistake u/s 154 - Withdrawal of deduction u/s 32AB has a direct consequence on the non- earning of lease rental Thus, withdrawal of deduction u/s 32AB and taxation of lease rental cannot be taxed together - AT
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Royalty u/s 9(1(vi) - non resident assessee - Such payment for use of technical information and know how has to be considered as royalty both under the provisions of Income Tax Act and under the provisions of DTAA between India and Germany even if the payment is lump sump and not recurring - AT
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Revision u/s 263 - Merely because AO passed a cryptic order or might have made inadequate enquiry would not be a ground to set aside the assessment order The order passed by the AO thus cannot be termed as erroneous in so far as it is prejudicial to the interest of the revenue. - AT
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Depreciation - the claim of assessee to claim depreciation on demutualization or corporatization of the stock exchange of the Bombay Stock Exchange Card was not justified and legal - AT
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Disallowance of provision of Sludge Disposal Charges - liability of sludge disposal charges accrues the moment the sludge is generated and accordingly the provision for sludge disposal charges ought to be allowed as deduction under section 37 - AT
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Exemption u/s 10B - inflated profits - The Assessing Officer has correctly worked out interest on capital and remuneration payable to partners and excluded them from the overall profits of business for working out the profits eligible for exemption u/s 10B of the Income-tax Act. - AT
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TDS on Arrangers Fees - whether fee for technical services (FTS) or commission - u/s 195 r.w.s. 40(a)(i) -The amount paid by the assessee to the non-residents sub-arrangers was not a fees for managerial or technical or consultancy services - AT
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Allowance of depreciation - depreciation on toll road as building - ownership of the assets - depreciation allowed - AT
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Revenue appeal - tax effect is below 2 lakhs - the facts and the issue involved in the appeals for the assessment years 200203 and 2003-04 are inter-linked with the appeals for the subsequent assessment years - Therefore, it is necessary to decide the issue involved in the appeals for the assessment year 2002-03 as well on merits instead of dismissing the appeal in limine - AT
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Disallowance of non-compete fees - Capital or revenue expenditure - expenditure has to be disallowed as capital expenditure - however depreciation to be allowed - AT
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Addition on account of unaccounted profit earned from the undisclosed purchases and sales Assessment u/s 153A - It is well settled position of law that document found from the third person cannot be applied against the appellant and the burden lays upon the Department to show that same reflects transactions of the appellant company - AT
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Allowability of interest expenditure Business nexus of the amount borrowing merely because the assessee had maintained cash balances at its several branches being in angadia business should not be a cause of disallowance of interest on borrowed funds - AT
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Transfer pricing adjustments - ALP - The arm's length price can be determined only by making comparison with a comparable uncontrolled transaction and not a comparable controlled transaction. - AT
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Disallowance of Interest on the ground that there is huge cash balance and the borrowed money is utilized for the non-business purpose there is only one business of the assessee, part of which is not held to be illegal either by IT department or by any other government agency. - claim allowed - AT
Customs
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Stay petition for redemption fine appellate authority had the incidental and ancillary power to grant the interim relief asked for the release of imported goods on payment of duty but without payment of fine imposed in lieu of confiscation - AT
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Application for rectification of mistake if the Tribunal had come to a conclusion that the goods cannot be considered as melting scrap - there was no error apparent on record to be rectified - AT
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Valuation of goods - merely because the importer and the foreign supplier are related persons, the transaction value cannot be rejected and the onus to prove that the declared price did not reflect true transaction value was always on the department - AT
Corporate Law
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Constitutional validity of certain provisions of SEBI Act - Violation of Article 14 - provisions do not suffer from any over-breadth. The net of coverage had to be spread wide and high to check each and every attempt to loot the hard earned money of the aam aadmi for one's personal wrongful gain and so long as abuse of discretionary power is not demonstrated, the petitioners cannot expect any relief - HC
Service Tax
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Whether the introduction of the new, comprehensive definition of credit card, debit card, charge card or other payment card service vide section 65 (33a) read with section 65 (105)(zzzw) by the Finance Act, 2006, is substantive and seeks to levy all the transactions covered by use of Credit/Debit/Charge Card or is in continuation of the levy under Section 65 (10) or (12) - matter referred to larger bench - AT
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CENVAT credit - applicant cannot take CENVAT credit since the applicant did not incur the cost but only routed payments from the dealers to the service provider abroad - AT
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Support services of business or commerce - prima facie, Government of Karnataka does not render any services which are in the form of business or commerce at least in respect of the fees which has been collected by the appellant. - AT
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Service tax demand - appellant had collected the service tax from their customers but has not remitted the same to the department The question of showing any leniency would not arise at all - however benefit of cenvat credit to be extended - AT
Central Excise
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Availment of Cenvat Credit on input - Job work - Appellants had produced the documentary evidence in the form of delivery challans of receipt of the casting from the second job worker - The said delivery challans indicate the quantity dispatched to the Appellant - credit allowed - AT
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Confiscation of raw material - scope of Rule 25 - Besides, the use of the word any before the word excisable goods, in the said clause, makes it more clear and points out to a plausible interpretation that the said Rule is not only refers to the excisable goods manufactured and stored in the factory by a manufacturer but also excisable goods manufactured elsewhere and stored in the factory - AT
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Area based exemption - Exemption under Notification No.56/2002 - Whether an assessee availing of exemption under Notification No. 56/2002-C.E. can pay education cess and S & H Cess through BED Credit - Held no - AT
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100% EOU - Duty Chargeable on DTA Clearances -The benefit of Notification No. 8/97-C.E. would be available in respect of DTA clearances made in accordance with the provisions of EXIM Policy, only if the goods had been made out of the inputs of the Indian origin - AT
Case Laws:
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Income Tax
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2013 (9) TMI 631
Transfer Petition - Validity of amended provisions of Section 40(a)(ia) was challenged - Held that:- Court order for transfer of Writ Petition pending before the High Court of Andhra Pradesh at Hyderabad for consideration to the Apex Court - Registry was directed to list the matter.
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2013 (9) TMI 612
Rectification of mistake u/s 154 - Simultaneous taxability of addition on account of non-allowability of deduction u/s 32AB and lease rental Held that:- Assessee claim of deduction u/s 32AB made in the original return with consequential lease rental income - Machineries, subject matter of the lease transactions were not purchased by the lessees and the claim of deduction u/s 32AB was surrendered by the assessee by a revised return along with reduction on non- accrued rental income - Withdrawal of deduction u/s 32AB has a direct consequence on the non- earning of lease rental Thus, withdrawal of deduction u/s 32AB and taxation of lease rental cannot be taxed together Decided against the Revenue.
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2013 (9) TMI 611
Nature of Land - purchase and sale to be agricultural land Whether the land sold accrues business income or income under the head capital gain - Held that:- The land in question is recorded as agriculture land, in the revenue record, on the date of purchase and sale of the same. The land is assessed to land revenue. The assessee has not taken any step till the date of sale, to convert the agricultural land to non- agricultural purposes and to undertake any improvement project on such land - Cumulative effect of all the material evidences clearly suggests that the land in question is agricultural land and the land does not fall under the definition of capital asset, within the meaning of Section 2(14)(iii) of the Act - The fact that the land was sold to industrialist for setting up industrial units, is of no legal consequence, in determining the nature and character of the land in question. The land remained agricultural land till it was sold to various parties. The future use by the purchaser is also irrelevant and immaterial for the purpose of determination of true character and nature of the land in question. Lands in question do not constitute capital asset within the meaning of Section 2(14)(iii) of the Act. Therefore, surplus realized on sale of such lands cannot be taxed as capital gains u/s 45 r.w. Section 10(37) of the Act. The provisions of Section 10(37) were inserted by the Finance Act 2004 (No.2) w.e.f. 1.4.2005. The revenue merely made an assertion and treated the surplus realized from the sale of rural agricultural lands as business profit, which don't fall u/s 2(14) of the Act. Therefore, having regard to the fact-situation of the present case, relevant record and judicial verdicts, the surplus realized on sale of such land, is not taxable receipts Appeal of the assessee is allowed Decided in favor of Assessee.
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2013 (9) TMI 610
Royalty u/s 9(1(vi) - non resident assessee - lump sum payment - Whether the payment received is to be considered as capital gain or royalty income for the transfer of technology, know-how and trademark etc. - Taxability of the amounts received by the assessee in terms of the agreement for transfer of technology, know how and trademark to German Remedies/Cadila Health care Ltd. - Held that:- The agreement had originally been entered into with German Remedies on 17.2.2003 but later on merger of German Remedies with Cadila Healthcare Ltd., a fresh agreement on the same terms and conditions was entered into with Cadila Healthcare Ltd. on 2.12.2003 - True nature of transaction cannot be determined only on the basis of the words "transfer", "assignor", "assignee" used in the agreement but on careful consideration of the real nature of transaction after taking into account the effect of all the clauses in the agreement. Clauses of the agreement shows that the assessee has not been given ownership right over the technical information and trademark and there are limitations placed on exercise of such rights by the assignee Assignee cannot use or utilize the technical information or the trademark for sale of products either directly or indirectly outside the territory without prior approval of the assessee, which would be at its absolute discretion - Further the assignee cannot license or assign or transfer the technical information and trademark to any person other than the Cadila affiliates - There are also several restrictions on the assignee in the matter of use of technology, know how and trademark which makes it quite clear that the assignee has not been given ownership rights and only right to use - Such payment for use of technical information and know how has to be considered as royalty both under the provisions of Income Tax Act and under the provisions of DTAA between India and Germany even if the payment is lump sump and not recurring - The royalty is taxable in India under section 9(1)(vi) as well as under the provisions of DTAA Decided against the Assessee.
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2013 (9) TMI 609
Revision u/s 263 - Eligibility of deduction u/s 10B and 10A of the Income Tax Act - Assessee filed reply before Ld. CIT in the proceeding under section 263 of Income Tax Act dt. 21/02/2012 in which the assesse explained that the assessee company is registered under Software Technology Park of India being 100% export unit under Software Technology Park Scheme for developing / manufacturing of computer software / IT enabled services, copy of the certificate was also filed Held that:- Deduction under both the provisions of section 10A and 10B are entitled to such undertaking who have begun or beginning the manufacturing or produce articles or things or Computer Softwares. There is further requirement to furnish audit report from the Chartered Accountant certifying claim of the assessee in Form 56 F under section 10A and report 56 G in case deduction has claimed under section 10B of the Income Tax Act - Report and balance sheet as certified by Chartered Accountant in Form No. 56 F was filed before AO and copy of the same was also filed before Ld. CIT. It was also explained that assessee company had claimed deduction under section 10A of the Income Tax Act and complied with provision of Law. The assessee further filed reply before Ld. CIT on dt. 12/03/2012 in which the assessee explained that complete books of accounts and all the material were furnished before AO at the assessment stage to claim deduction under section 10A of the Income Tax Act. Similar facts were explained that assessee claimed deduction under section 10A being the assessee company 100% EOU for Computer Software and is duly registered with Software Technology Park in India. Form No. 56 F was also filed before AO and the AO after examining the complete details and reply allowed the genuine claim of assessee of deduction under section 10A of the Income Tax Act. It was also explained that the AO examined the complete books of accounts and was satisfied with the explanations of assessee and profit earned out of said business. The AO was satisfied with reasonableness of the profit earned by the assessee - Therefore assessee was rightly granted deduction under section 10A of the Income-tax Act Decided in favor of Assessee. Assessee duly complied with the provisions of Section 10A, therefore the AO at the original assessment stage even if passed a cryptic order was justified in granting deduction in favour of the assessee in accordance with provision of Section 10A of the Income-tax Act. The Ld. CIT in proceeding under section 263 of the Income Tax Act also had all these details and material before him, but had not been able to point out defects conclusively in the material / evidences for arriving at a conclusion that exemption under section 10 A is not allowable in the case of the assessee. Therefore the revision order under section 263 of the Income tax Act cannot be sustained Reliance has been placed upon decision of Hon'ble Gauhati High Court in case of Smt. Lila Choudhury Vs. Commissioner of Income-Tax And Others [2006 (3) TMI 112 - GAUHATI High Court] When all the evidence and material on record clearly support the case / explanation of the assessee that assessee is entitled for deduction under section 10A of the Income-tax Act, the Ld. CIT should have examined the explanation of the assessee and passed the order of revision in accordance with law. Merely because AO passed a cryptic order or might have made inadequate enquiry would not be a ground to set aside the assessment order The order passed by the AO thus cannot be termed as erroneous in so far as it is prejudicial to the interest of the revenue. - Decided in favor of Assessee.
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2013 (9) TMI 608
Disallowance u/s 14A by invoking Rule 8D - Whether the assessee was claiming exempt income and whether any expenditure had been incurred to earn the exempt income - Held that:- It cannot be said that no borrowed funds had ever been utilized by assessee for the purpose of making investment or undertaking transactions which yielded dividend income, which had been claimed as exempt - The assessee had not disputed the fact that it failed to produce any cash flow statement or any other material which could establish that borrowed funds had not been utilized for earning of exempt income. The contention of AR that no satisfaction had been recorded by AO before invoking Rule 8D, according to us, had no merits particularly when the AO at the time of making the assessment confronted the assessee in respect of investment in shares and expenses claimed and particularly when the AO asked the assessee as to why disallowance be not made u/s 14A read with Rule 8D of the Act in respect of the exempt dividend income. Revised Long Term Capital Gain Method of Charging Depreciation - Whether the assessee was justified to allocate the WDV of the Bombay Stock Exchange card to the cost of acquisition during the course of assessment proceedings and was to be allowed or not Held that:- The ld. CIT(A), was not justified in not considering the revised Long Term Capital Gains on sale of shares - The said revised computation of Long Term Capital Gains filed by the assessee had to be considered to adjudicate the issue as per law - Hence, we set aside the orders of authorities below and restore this issue to the file of AO with a direction to compute Long Term Capital Gain by considering the cost of shares taking into account the WDV of the Stock Exchange card - Long Term Capital Gain in respect of the shares hae to be considered after assigning the WDV of the Bombay Stock Exchange Card to the cost of 10000 shares allocated to the assessee - It was observed that the assessee in the assessment year under consideration has sold 4562 shares, therefore, proportionate cost of said Bombay Stock Exchange card has to be assigned to the said shares while computing the Long Term Capital Gains. From section 55(2)(ab) of the Act, it was evident that on demutualization or corporatization of the Bombay Stock Exchange, in the case before us, the cost of acquisition of ownership right and trading rights have been split - The trading rights were based on deposit system and in the case of existing member its cost deemed to be nil - The entire value of Bombay Stock Exchange card, as stands in the books of account of the assessee on the date of demutualization of Bombay Stock Exchange would be assigned to the shares allocated to said members - the claim of assessee to claim depreciation on demutualization or corporatization of the stock exchange of the Bombay Stock Exchange Card was not justified and legal - Therefore, the same was rightly denied by AO in the assessment year under consideration the appeal taken by assessee were allowed for statistical purposes by restoring the issue to the file of AO with a direction to compute Long Term Capital Gains.
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2013 (9) TMI 607
Long Term Capital Gain u/s 45 - transfer u/s 2(47) - whether assessee is liable to capital gain tax in the year under consideration i.e assessment year 2007-08 in view of the Joint Development Agreement. The assessee is a member of Defence Services Co-op House Building Society Ltd. The Society has transferred 27.3 acres of land to the Developer i.e. M/s Tata Housing Development Company Ltd. and M/s Hash Builders Pvt Ltd. A Member having plot of 500 sqyd was entitled to monetary consideration of Rs. 80 lakhs and furnished flat measuring 2250 sqft which has been estimated by the Revenue at Rs. 5000 per sqft. Principal issue of taxation decided against the assessee following the decision in Charanjit Singh Atwal Versus Income-tax Officer, Ward -VI (1), Ludhiana [2013 (8) TMI 364 - ITAT CHANDIGARH]
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2013 (9) TMI 606
Disallowance of provision of Sludge Disposal Charges - Held that:- Sludge is generated in the Effluents treatment, which has to be disposed off as per the rules and regulation of GPCB, and the liability of sludge disposal .charges accrues the moment sludge gets generated. The Company is following mercantile system of accounting and accordingly provided for the sludge disposal charges to be incurred on the sludge generated upto 3I.March of the relevant year but could not be disposed off as on that date. The Average rate of sludge disposal works out to Rs.430/- per MT, to be on the conservative side the provision for disposal charges have been made at the rate of Rs.330.72 per MT on 5371.820 MT of sludge that could not be removed as on 31.03.2001 - assessee digs the pits, the liability does arise and it is entitled for deduction of the expenses which it is supposed to incur for filling those pits, as the assessee is following the mercantile system of accounting. It can claim the expenses incur as soon as it digs the pits. In view of the aforesaid facts and circumstances and relying upon the decision of Rajasthan High Court in case of Udaipur Mineral Development Syndicate Pvt. Ltd. vs. DCIT [2002 (8) TMI 26 - RAJASTHAN High Court], we allow the liability of sludge disposal charges accrues the moment the sludge is generated and accordingly the provision for sludge disposal charges ought to be allowed as deduction under section 37 of the Act as the same is provided following the mercantile system of accounting. In the result, the issue is decided in favour of the assessee - Decided in favour of assessee. Assessee has considered 10% of interest income amounting to Rs. 2,53,882/- as being expenses incurred for earning the interest income. We find that whether the expenditure incurred has a connection or nexus with the interest receipt has not been examined by lower authorities and there is no finding to that effect - Assessing Officer is therefore directed to verify the nexus between the expense incurred and the interest income and thereafter consider its allowability the same as per law and after giving a reasonable opportunity of hearing to the Assessee - Decided in favour of assessee.
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2013 (9) TMI 605
Exemption u/s 10B - inflated profits - Interest on Capital and Remuneration not debited to profit and loss account Held that:- payment of interest on capital and remuneration to partners is not hit by section 40(b) of the Income-tax Act. The mere fact that the partners have chosen to forego interest on capital and remuneration payable to them does not ipso-facto mean that they are not admissible for deduction. The fact that the assessee has not debited such interest and remuneration payable to partners to its profit & loss account in spite of their admissibility to deduction makes its intention quite evident, namely, to inflate the profits eligible for exemption u/s 10B. The Assessing Officer has correctly worked out interest on capital and remuneration payable to partners and excluded them from the overall profits of business for working out the profits eligible for exemption u/s 10B of the Income-tax Act. - Decided in favor of revenue.
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2013 (9) TMI 604
Disallowance u/s 14A rws Rule 8D - CIT upheld disallowance - Held that:- investments made by the assessee in the subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by the assessee to promote subsidiary company into the hotel industry. A perusal of the order of the CIT(Appeals) shows that out of total investment of ₹ 64,18,19,775/-, ₹ 63,31,25,715/- is invested in wholly owned subsidiary. This fact supports the case of the assessee that the assessee is not into the business of investment and the investments made by the assessee are on account of business expediency. Any dividend earned by the assessee from investment in subsidiary company is purely incidental. Therefore, the investment made by the assessee in its subsidiary are not to be reckoned for dis-allowance u/s. 14A r.w.r. 8D. The Assessing Officer is directed to re-compute the average value of investment under the provisions of Rule 8D after deleting investments made by the assessee in subsidiary company - Decided in favour of assessee.
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2013 (9) TMI 603
TDS on Arrangers Fees - whether fee for technical services (FTS) or commission - u/s 195 r.w.s. 40(a)(i) - Held that:- Following M/s. Credit Lyonnais (through their successors : Calyon Bank) and Others Versus The Asstt. Director of Income-tax (International Taxation) - 1(2) And Others [2013 (5) TMI 639 - ITAT MUMBAI] - The amount paid by the assessee to the non-residents sub-arrangers was not a fees for managerial or technical or consultancy services - Hence, the same cannot be brought within the ambit of 'fees for technical services' as per section 9(1)(vii) of the Act - If this payment was not fees for technical services but only commission, the provisions of section 195 requiring the assessee to make deduction of tax at source before remitting or crediting the amount to the accounts of sub-arrangers, cannot apply - If no deduction of tax at source was required, obviously the provisions of section 40(a)(i) do not come into play - Once it was held that the said commission/brokerage was not chargeable to tax in the hands of non-resident sub-arrangers under the provisions of the Act, there remains no need to examine the taxability or otherwise of this amount in their hands under the respective Double taxation avoidance agreements - CIT(A) was justified in reversing the AO's order insofar as the applicability of section 40(a)(i) was concerned Decided against Revenue. Exemptions u/s 10(15) and 10(33) - 'Interest from tax free bonds - UTI dividend - Whether the CIT(A) erred in holding that since there was no nexus proved between tax free income and interest bearing funds, no disallowance can be made from the gross income claimed as exempt u/s. 10 of the I.T. Act Held that:- No nexus had been proved between tax-free-income and interest bearing funds by the AO, that there were sufficient funds the findings shares/tax free securities that the action of the AO in disallowing exemption u/s 10 of the part of dividend/interest on tax free securities could not be sustained - AO had not given any details as how the alleged borrowed funds were used for earning tax free income, whereas the FAA had given a categorical finding; after considering the submissions made by the assessee bank during the appellate proceedings before him; that the interest free funds available to the assessee were far more than the investment made during the year The order of the FAA does not suffer from any legal or factual infirmity Decided against Revenue. Head office expenditure - section 44C - AO held that expenses incurred by the H.O. which were not debited to the books of account of the assessee were not allowable, that expenditure which was executive and administrative in nature had to be treated as office expenses in respect of which deduction was allowable only as per the provisions of section 44C of the Act. - Held that:- following the decision in assessee's own case [2012 (7) TMI 703 - ITAT MUMBAI] decided in favor of assessee.
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2013 (9) TMI 602
Allowance of depreciation - depreciation on toll road as building - ownership of the assets - Held that:- Assessing Officer while framing original assessment has raised this issue, but learned counsel for the assessee categorically stated that this toll road was constructed on B.O.O.T basis, i.e., means 'build', 'own', 'operate' and 'transfer'. According to him, the entire responsibility for maintaining and operating this toll road for 31 years is on the assessee as he has to collect toll-fee. Once this concept of B.O.O.T has been accepted by the Government of India under infrastructure policy and the Government of Gujarat also entered in a joint venture with the assessee and formed the SPV, the question of ownership rest with the assessee for the purposes of claim of depreciation. Accordingly, this issue on merits is allowed in favour of the assessee." Considering the above decision of the Tribunal, the learned Commissioner of Income-tax (Appeals) has allowed the appeal of the assessee in its favour. In these circumstances, we do not find it necessary to interfere with his order - Decided against Revenue.
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2013 (9) TMI 601
Revenue appeal - tax effect is below 2 lakhs - whether maintainable Held that:- the appeals of the Department for the assessment years 2002-03 to 2004-05 are liable to be dismissed in limine, but we observe that the facts and the issue involved in the appeals for the assessment years 200203 and 2003-04 are inter-linked with the appeals for the subsequent assessment years, viz., the assessment year 2005-06 and the assessment year 2006-07. Therefore, it is necessary to decide the issue involved in the appeals for the assessment year 2002-03 as well on merits instead of dismissing the appeal in limine. Decided in favor of revenue. Disallowance of depreciation on the inflated price of windmill - Disallowance of depreciation of ₹ 9 crores considering the cost of per windmill as inflated by Rs. one crore considering the cost of per windmill of other buyers Held that:- Reliance placed on the cost price of windmill installed by M/s. Savita Chemicals Ltd. , i.e., the assessee as well as M/s. Savita Chemicals Ltd., have installed windmills on identical models at the same site and having many matching parameters. Considering the above facts, the assumption made by the Assessing Officer that the assessee inflated the cost price at Rs. one crore per windmill is not based on evidence and/or cogent material but is based on assumption and surmises - If the Assessing Officer wants to change the cost price, the onus is on the Assessing Officer to bring on record the relevant documents that price as shown by the assessee is not the actual price Commissioner of Income-tax (Appeals) has rightly held that disallowance of depreciation of ₹ 9 crores in the assessment year 2002-03 on the presumption that there was inflation in the purchase price at Rs. one crore per windmill is not justified Decided against the Revenue. Excessive lease rent paid by the assessee to be disallowed Application of section 40A(2) of the Income tax act - Held that:- IREDA had financed the said project and the lease rents payable by the assessee to M/s. Weizmann Ltd., has been structured taking into consideration the instalment of principal and interest payable to IREDA by M/s. Weizmann Ltd - Lease rents paid by the assessee is based on lending rates of the financial institution, namely, IREDA - Assessee had made payment of lease rent by account payee cheque to the lessor, i.e., M/s. Weizmann Ltd which had accounted for the same in its books of account - Nothing on record to prove that there was excessive payment of lease rents by the assessee Decided against the Revenue. Adjustment in the book value Disallowance of depreciation Held that:- Sub-section (2) of section 115JB of the Act provides the situation in which the Assessing Officer can make adjustment to the book profit - Considering the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002 (5) TMI 5 - SUPREME Court], disallowance of depreciation made by the Assessing Officer of ₹ 31,68,000 in each of the assessment year under consideration is not justified Decided against the Revenue.
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2013 (9) TMI 600
Disallowance of non-compete fees - Capital or revenue expenditure - Deferred revenue expenses - Purchase of Merchant Banking Division - Held that:- non-compete agreement was valid for a period of three years which in our view has to be considered as sufficient length of time to treat the expenditure as capital in nature. The protection acquired by the assessee from competition was not part of the working of the business and went on to appreciate the whole of the capital amount as held by the hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. [1954 (11) TMI 2 - SUPREME Court], and, therefore, on that ground also it has to be treated as capital in nature. Therefore, we hold that expenditure has to be disallowed as capital expenditure - Decided against Assessee. Disallowance of SEBI fees - Fees paid on pro rata basis - Held that:- The assessee had paid a sum of ₹ 5 lakhs to the SEBI for granting registration for a period of three years to enable the assessee to perform certain stipulated functions. The Assessing Officer held that the expenditure was for smooth running of the assessee and was allowable as revenue expenditure but since benefit was for three years, he allowed expenditure on pro rata basis only for one year. - There is no provision in the Income-tax Act for amortisation of such expenditure. Therefore, once the expenditure has been found allowable as revenue expenditure, the same has to be allowed in full - Decided in favour of assessee. Disallowance of service tax - Section 43B - Held that:- the same issue has already been considered by the Mumbai Bench of the Tribunal in case of Pharma Search [2012 (5) TMI 90 - ITAT MUMBAI] - as per service tax law, service tax is payable as and when the payment/fees for underlying services provided are realised. Therefore, if for any reason the payment for service rendered is not realised, there is no liability as to payment of service tax. - As the assessee had not realised any payment for services during the relevant year, it had no liability to pay service tax and once there was no liability for payment of service tax, the provision of section 43B were not applicable as the said provisions can be applied only if any liability has been incurred on account of service tax during the year. The addition made was, therefore, deleted. - Decided in favour of assessee. Disallowance of depreciation - Payments made under the transfer of business agreement - Held that:- It has not been explained before us as to why the assessee would pay for rules and regulations and procedures which are available in the market and, therefore, we have to conclude that the payment of ₹ 25 lakhs had been made for the transfer of business and contracts including clients and client relationship which cannot be considered as know-how. The Commissioner of Income-tax (Appeals) has not accepted the finding of the Assessing Officer that payment was for goodwill nor any material has been produced before us to show that any part of the payment related to acquisition of goodwill. the payment was for transfer of business and contracts including clients and client relationship which in our view is not an intangible asset as defined in section 32(1)(ii) on which depreciation can be allowed - Decided against assessee. Depreciation on the non-compete fee - Held that:- by obtaining non-compete right on payment of noncompete fee, the assessee can run his business without bothering about competition and, therefore, non-compete right was an intangible asset falling in the category of any other business or commercial right under section 32(1)(ii) - depreciation will be allowed to the assessee on the non-compete expenditure incurred by it - Following decision of Real Image Technologies (P.) Limited. Versus Assistant Commissioner Of Income-Tax [2008 (2) TMI 490 - ITAT MADRAS-B] - Decided in favour of assessee.
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2013 (9) TMI 599
Addition on account of unaccounted profit earned from the undisclosed purchases and sales Assessment u/s 153A - Held that:- Reliance has been placed upon the assessees own case for the A/Ys 2001-02 to 2004-05 On account of undisclosed purchases, Commissioner(A) has held that evidence found at the premises of Mr. Prem Kumar Arora cannot be taken as any basis to hold that the assessee made unaccounted purchases - Seized paper does not contain any name of the appellant - Neither in the statement, Mr. Prem Kumar Arora has alleged that such transactions pertained to the appellant - It is well settled position of law that document found from the third person cannot be applied against the appellant and the burden lays upon the Department to show that same reflects transactions of the appellant company. Reliance is placed on the judgment in the case of Sukhdayal Rambilas v. CIT reported in [1982 (1) TMI 49 - BOMBAY High Court] wherein it has been held that what is apparent is not real, the burden to establish this is on the person who alleges this - Since the issue in the assessment years 2005-06, 2006-07 and 2007-08 is identical to that of the earlier assessment years, respectfully following the decision of the Income-tax Appellate Tribunal, additions made by the Assessing Officer are deleted. Addition on the ground of undisclosed speculation business income Held that:- During the course of search, no evidence was found to the effect that the assessee-company was engaged in speculative trading in agricultural commodities - On birthday of Mahashaya Dharam Pal Gulati, gold chains are distributed to the dealers, who achieve certain targets. For this purpose the assessee had purchased gold and alloy and got them converted from the jeweller, namely, Vijay Kumar Jewellers. The assessee had regular account with him for manufacturing of gold chains - The expenditure incurred by way of making charges as well as purchase of gold is reflected in the books of account This transaction can not be treated as speculation transaction - The assessee is not engaged in purchase and sale of gold on the basis of which it could be presumed that the asses- see was engaged in speculative business No evidence was brought on record Decided in favor of Assessee. Disallowance of 20% of advertisement expenses - The Assessing Officer disallowed the expenditure on the ground that an attempt has been made by the company to promote Shri Dharam Pal Gulati and not the product Held that:- Had the assessee engaged a big celebrity for promotion of its products, the assessee would have incurred huge expenditure and that would have been allowed in full by the Assessing Officer. The expenditure has been incurred on promotion of the product - Merely because Mr. Dharam Pal Gulati name comes to prominence, it cannot be said that the expenditure was not incurred for the purpose of business Decided in favor of Assessee. Addition because of inflation of purchase price of raw-materials Held that:- No such evidence during the course of search was found from the possession of the assessee indicating that actual beneficiary of over invoicing was the assessee - Since the addition has been made in the hands of Shri Sushil Kumar, no disallowance to that extent could be made in the hands of the assessee No addition need to be made Decided in favor of Assessee. Addition on account of arms length price Addition made at average rate in the absence of comparables in the public domain Held that:- Arm's length price cannot be determined without proper comparables - Nearly similar types of spices, condiments and their mixtures are sold by other brands like, Everest Masala, Ramdeo Masala, Ashok Masala and other manufacturers, therefore, there is no absence of comparables - In 2012, public domain comparables should be abundantly available - Set aside the transfer pricing adjustments to the file of the Assessing Officer to undertake the same afresh in accordance with law Decided in favor of Assessee for statistical purpose.
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2013 (9) TMI 598
Selling and distribution expenses - Disallowance in regard to partners remuneration AO disallowed the expenses as higher in comparison with another company SPIL - Held that:- the total percentage of expenses during the impugned year is higher than expenses of SPIL inspite of the fact that there is difference between nature of business carried on by the assessee and that of SPIL as pointed out by the ld. counsel for the assessee.. Selling and distribution expense has to be considered while taking both the components i.e. expenses directly incurred and remuneration paid to working partner (SPIL) for using inter-alia marketing and distribution set up - Book results are duly audited has neither been rejected nor any deficiency was found by the lower authorities. It was also argued there cannot be any assessment of expenses on notional or assumption basis - Disallowance on selling and distribution expenses made by the AO is not justified Decided in favor of Assessee.
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2013 (9) TMI 597
Allowability of interest expenditure Business nexus of the amount borrowing Amount borrowed to be utilized in the business of the assessee - Assessee had maintained cash balances at its several branches being in angadia business Held that:- Reliance has been placed upon the judgments in the cases s.a. Asst.CIT vs. M/s.Patel Ambalal Hargovandas & Co [2013 (9) TMI 594 - ITAT AHMEDABAD] ACIT vs. Shri Vasantlal Ambalal Patel [2013 (9) TMI 593 - ITAT AHMEDABAD] - It was alleged by the Revenue Department that the borrowed money was kept as cash in hand and borrowed money was not in fact utilised for the purpose of the business - It could be a possibility that the assessee might be imprudent in holding large amount of cash but when this act of the assessee is to be visualized vis-ΰ-vis the business activity, then the allegation of the Revenue Department appears to be a conjuncture. Otherwise also, the outstanding cash is nothing but a business asset of the assessee. There is nothing illegal to maintain cash at various branches - It was not objected by the AO that claim of expenditure was not genuine - No fallacy in the view taken by the ld.CIT(A) that merely because the assessee had maintained cash balances at its several branches being in angadia business should not be a cause of disallowance of interest on borrowed funds Decided against the Revenue.
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2013 (9) TMI 596
Transfer pricing adjustments - ALP - Violation of Rule 10B(1)(a) - Determination of arm's length price - Internal Comparable Uncontrolled Price - CIT upheld adjustment made by TPO - Held that:- method upheld by the CIT(A), for the purposes of ascertaining ALP, is Internal CUP, but then the application of this method is clearly incorrect inasmuch as any application of any CUP (Comparable Uncontrolled Price) method involves dealing with prices of a product not the profit margin earned thereon - even in the case of 'internal CUP', the arm's length price to be adopted is the price, subject to admissible adjustments, at which the similar transactions are carried out between the assessee and an independent enterprise. Internal CUP has nothing to do with the margins earned by the same enterprises from other transactions - Following decision of Technimont ICB Pvt Ltd v Additional Commissioner of Income Tax [2013 (9) TMI 595 - ITAT MUMBAI] - Decided in favour of assessee. Binding nature of earlier ITAT decision - Division bench decision in Bayer Material Science Pvt Ltd v. Additional Commissioner of Income Tax (2011 (12) TMI 393 - ITAT MUMBAI) or Third member decision in Technimont ICB Pvt Ltd v Additional Commissioner of Income Tax (2013 (9) TMI 595 - ITAT MUMBAI) whereas the judicial member in the Bayer case is the third member in the ICB case - Held that:- As far as the question of binding nature of these judgments is concerned, there does not seem to be much dispute on the proposition that a Third Member decision overrides the decision of a division bench and has a greater binding force. It has the same precedence value as that of a special bench. Elaborating this principle, a special bench of this Tribunal, in the case of DCIT v Oman International Bank SAOG (2006 (5) TMI 117 - ITAT BOMBAY-H), that a Third Member decision is defacto a decision of larger bench, and , in coming to this conclusion, the Special Bench was guided by Hon'ble Delhi High Court's judgment in the case of PC Puri v. CIT (1984 (2) TMI 48 - DELHI High Court).
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2013 (9) TMI 595
Transfer pricing adjustments - ALP - uncontrolled transaction - Comparables relied on by the assessee differ in their risk and functional profile from that of the assessee and thus cannot be accepted as comparable Held that:- What is an "uncontrolled transaction" has been clearly defined under rule 10A(a) to mean "a transaction between enterprises other than associated enterprises whether resident or non-resident". A plain reading of the meaning given to the expression "uncontrolled transaction" leaves no room for any doubt that it is a transaction between two non-associated enterprises. If the transaction is between two associated enterprises, it goes out of the ambit of "uncontrolled /transaction" under rule 10A. When section 92C is read along with rules 10B(e) and 10A, it becomes abundantly clear that in computing the arm's length price under the transactional net margin method, a comparison of the assessee's net profit margin from international transactions with its associate enterprises has necessarily to be made with that of the net profit margin realised by the same enterprise or an unrelated enterprise from a comparable but definitely uncontrolled transaction, i.e., a transaction between non-associated enterprises. The arm's length price can be determined only by making comparison with a comparable uncontrolled transaction and not a comparable controlled transaction. Internal comparable, being the subsidiary company of the assessee company, be taken as comparable for computing the ALP for an international transaction Held that:- Arm's length price represents the true value of transaction or profitability as will be there in the ordinary course without having any regard to the relationship between the concerns - Arm's length price of the transaction or the arm's length profit cannot be considered as benchmark for the purposes of making comparison in other cases Legislature restricted the ambit only to uncontrolled transactions for computing the arm's length price in respect of international transactions between two associate enterprises - The basic purpose behind the transfer pricing provisions is to ensure that the multinational companies do not arrange their intra group cross border transactions in such a way as to reduce the incidence of tax in India. A multinational company, having concerns across the world, may resort to pricing the intra group transactions in such a manner that lower income gets offered in countries with high tax rates and higher income gets reflected in countries with lower tax rates, so that its overall tax liability is shrinked. Net profit margin realised from a transaction with an associate enterprise cannot be taken as a comparable being internal comparable for computation of the arm's length price of an international transaction with another associate enterprise even though the net margin from a transaction with associate enterprise is found and accepted at the arm's length price Therefore, M/s. ICBC, a wholly owned subsidiary of the assessee are dismissed as comparable for computing price for international transaction.
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2013 (9) TMI 594
Disallowance of Interest because the money borrowed is being used in the non-business purpose Held that:- The nature of business shown by the assessee is transfer of parcels and cash from one place to another. If for certain unavoidable circumstances like delay in transportation on account of cancellation of trains or other problems not in the control of the assessee, the assessee was not able to make delivery of the cash then cash lying with it, is utilized for delivery back and to fulfill its commitment. The assessee is himself to judge about the requirement of cash in his line of his business. Even otherwise cash balance is fully covered by partners capital and, therefore, there is no reason to disallow a part of interest payment - Assessee discharges the onus then for making disallowances it is for the AO to produce evidence to show that money borrowed was utilized for nonbusiness purposes - There is no material on record to show that money borrowed was utilized for non-business purposes the disallowance of interest cannot be upheld Decided against the Revenue.
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2013 (9) TMI 593
Disallowance of Interest on the ground that there is huge cash balance and the borrowed money is utilized for the non-business purpose Also, alleged that part of business is illegal business Held that:- The assessee carried out only one business of Angadia and from such composite business, profit/loss is worked out in the respective years and the AO himself has treated the business of the assessee to be one business Presumption of A.O. is that part of business is illegal business and part is legal business - However, fact on record remains that there is only one business of the assessee, part of which is not held to be illegal either by IT department or by any other government agency. Interest payment is allowed as a business expenditure Decided against the revenue.
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Customs
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2013 (9) TMI 622
Stay petition for redemption fine Held that:- stay can be granted against recovery of fine also even though the Section 129E which deals with grant of stay does not specifically mention about redemption fine - court granted waiver of pre-deposit of redemption fine on the goods imported by the assessee and stay recovery court relied upon the judgement of Babubhai Patel & Co. Vs. Collector of Customs, Bombay (1984 (3) TMI 349 - CEGAT, BOMBAY) - appellate authority had the incidental and ancillary power to grant the interim relief asked for the release of imported goods on payment of duty but without payment of fine imposed in lieu of confiscation decided in favour of assessee.
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2013 (9) TMI 621
Application for rectification of mistake Held that:- The application for rectification of mistake was rejected except for minor editorial change of the order - Loyds Steel Industries Ltd. Vs CC (2006 (7) TMI 509 - CESTAT, MUMBAI) - there was no merit in the argument of Revenue that this was a case of mis-declaration of description of goods - Such case had to be examined if the Tribunal had come to a conclusion that the goods cannot be considered as melting scrap - there was no error apparent on record to be rectified decided against the revenue.
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2013 (9) TMI 620
Waiver of pre deposit - Stay application - whether they are willing to make a pre-deposit in the case and if so to what extent assessee submitted that they were willing to make a pre-deposit Held that:- Accepted the offer made by the assessee and directed the assessee to make a pre-deposit on such submission Commissioner (Appeals) shall hear the appeal decided in favour of assessee.
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2013 (9) TMI 619
Valuation of goods - transaction with related parties - Held that:- There was no reason to reject the transaction value declared by the assesses - there was no evidence led by the department to show that the transaction value declared by the appellant had been influenced by the relationship between the foreign supplier and the appellant importer - evidences available on record show that the prices declared are comparable with prices of similar supplies made to importers in other countries relied upon CC, New Delhi Vs. Prodelin India (P) Ltd. (2006 (8) TMI 186 - SUPREME COURT OF INDIA) - merely because the importer and the foreign supplier are related persons, the transaction value cannot be rejected and the onus to prove that the declared price did not reflect true transaction value was always on the department and in the absence of any evidence that identical or similar goods imported by other importers are at higher price - the department was bound to accept the transaction value decided in favour of assessee.
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Corporate Laws
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2013 (9) TMI 624
Fixation of Price of Gas Calculation of Price of Gas - Whether the Division Bench of the Gujarat High Court was justified in entertaining the writ petition filed by the respondent under Article 226 of the Constitution in the matter of Fixation of Price of the Gas supplied by the appellant and whether a mandamus could be issued requiring the appellant to engage itself with the respondent to arrive at the price of gas effective from 1.1.2014 Held that:- The appellant had offered to sign fresh long term sale agreement with all the existing customers including the respondent for supply of RLNG upto April, 2028 at a uniform pooled price in terms of the policy decision of the Government of India - A reading of the draft RLNG contract and Price Side Letter sent by the appellant to the respondent also shows that the appellant had offered to supply gas to the respondent at the pooled price but the latter did not agree and insisted on negotiation for the contract price of RLNG to be effective from 1.10.2009. 150 existing buyers had signed long term agreements with the appellant without any provision for review of price during the currency of contract - However, the respondent did not accept the offer and did not sign long term sale agreement - Instead, it agreed to sign the second Price Side Letter which contained a provision for review of the price before expiry of 5 years term on 31.12.2013 - The respondent also insisted that RLNG price for the period from 1.4.2014 to 1.1.2019 should be mutually agreed between the parties - These terms were incorporated in the Price Side Letter sent by the respondent to the appellant vide e-mail dated 26.12.2008 - The Price Side Letter which was finally signed by the parties indicate that the price of gas had been mutually agreed between the parties - This was also mentioned in letters dated 1.10.2011 and 26.12.2011 sent by the respondent to the appellant - Therefore, the premise on which the High Court recorded the conclusion that the appellant had acted arbitrarily was non-existent and on this ground alone the order under challenge was liable to be set aside. The remedy of arbitration available to the respondent under paragraph 15.5 of the GSA was an effective alternative remedy and the High Court should not have entertained the petition filed under Article 226 of the Constitution of India - The contents of the GSA, the Price Side Letters and the correspondence exchanged between the appellant and the respondent give a clue of the complex nature of the price fixation mechanism - Therefore, the High Court should have relegated the respondent to the remedy of arbitration and the Arbitral Tribunal could have decided complicated dispute between the parties by availing the services of experts - Unfortunately, the High Court presumed that the negotiations held between the appellant and the respondent were not fair and that the respondent was entitled to the benefit of the policy decision taken by the Government of India despite the fact that it had not only challenged that decision but had also shown disinclination to accept the offer made by the appellant to supply gas at the pooled price and had insisted on mutually agreed price - Decided in favour of Appellant.
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2013 (9) TMI 623
Constitutional validity of certain provisions of SEBI Act - Violation of Article 14 - Held that:- The doctrine of equality embodied in Article 14 as well as the other articles in the Constitution have to be understood in the light of social justice assured by Articles 38, 39, 39A, 41 and 46 thereof. The State exists for serving the public good and to advance public interest. While considering a challenge to a provision of law enacted by the Parliament or by any of the legislatures as offending any of the fundamental rights that the Constitution guarantees, the Court has to presume that the law is valid and has validly been enacted. The onus of establishing that the law in question is ultra vires is quite heavy. Nevertheless, whatever be the impugned law and the ground on which a challenge is thrown, the aforesaid principles are imperatively to be borne in mind. After all, Article 14 guarantees equality before law and equal protection of the laws not only to the petitioners before me who challenge a particular law but also to the vast cross-section of the society with whom they have and intend to have business relationships - If a rational nexus between the policy and the object it seeks to achieve is discernible, the Court would unhesitatingly guard against substituting its view for the legislative judgment. Should the policy be found sustainable, it would then exercise the consideration of the Court as to how implementation of the policy is to be worked out by the administrative authority. If guidelines exist for regulating the exercise of power, which are not unreasonable or unworkable, the Court would stay at a distance - However, if the policy, its object and ways and means to implement it are found to serve the cause of public good, irrespective of some crudity here and there, prejudicial affectation of one's business interest by reason of the regulatory framework being put in place has to yield to larger public interest or else the latter would be the casualty. The preamble of an Act is said to afford useful light as to what the statute intends - Insofar as the charge of excessive delegation of essential legislative functions is concerned, the same is equally without merit. As regards laying down of principles or guiding norms, law seems to be well-settled that it is not essential that the very section in the statute which confers the power should also lay down the rules of guidance, or the policy for the administrator to follow. If the same can be gathered from the preamble, or the long title of the statute and other provisions therein, the discretion would not be regarded as uncontrolled or unguided and the statute in question will not be invalid. At times, even vague policy statements to guide administrative discretion have been held by the courts as complying with Article 14. I have no hesitation to hold that the CIS Regulations viewed in the light of the object that the SEBI Act after its amendment seeks to achieve - Besides, it appears that the CIS Regulations were duly placed before the Lok Sabha on December 10, 1999 and the Rajya Sabha on December 14, 1999 in accordance with the statutory mandate in Section 31 of the SEBI Act. If indeed the SEBI, as delegate, had transgressed the permissible limits, the Parliament had the authority to intervene to set things right. No modification having been suggested by the Parliament, it is clear that the CIS Regulations were found to be in order. Abdication of authority by the Parliament, on facts and in the circumstances, also does not arise - impugned provisions do not suffer from any over-breadth. The net of coverage had to be spread wide and high to check each and every attempt to loot the hard earned money of the aam aadmi for one's personal wrongful gain and so long as abuse of discretionary power is not demonstrated, the petitioners cannot expect any relief - Decided against petitioner.
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Service Tax
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2013 (9) TMI 630
Demand - Evasion of tax - Credit card facilitates - Whether the introduction of the new, comprehensive definition of "credit card, debit card, charge card or other payment card service" vide section 65 (33a) read with section 65 (105)(zzzw) by the Finance Act, 2006, is substantive and seeks to levy all the transactions covered by use of Credit/Debit/Charge Card or is in continuation of the levy under Section 65 (10) or (12), as the case may be, as held in the case of ABN Amro [2011 (7) TMI 312 - CESTAT, NEW DELHI] decision in so far as credit card services are concerned - Held that:- Matter referred to larger bench. Whether the sub-clause (iii) in the definition of taxable service viz. "credit card, debit card, charge card or other payment card service" in section 65 (33a) can be said to be applicable retrospectively, i.e. from 16 July 2001 when section 65 (72) (zm) became effective - Held that:- Matter referred to larger bench. Can merchants / merchant establishments' be considered as customer' as envisaged in Section 65 (72)(zm) of the Finance Act, 1994 as it stood prior to 1-5-2006 - Held that:- Matter referred to larger bench. Whether Merchant Establishment Discount can be said to be received "in relation to" credit card services when in fact in a particular transaction, the Acquiring bank receiving ME Discount may not have issued that particular credit card at all - Held that:- Matter referred to larger bench.
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2013 (9) TMI 629
CENVAT credit - Payment made to universities abroad for various training courses of employees - Held that:- In the matter of service availed for conducting market research regarding the performance of the dealers in sale of product and in the matter of after sales service, we are of the prima facie view that it will form part of input service under Rule 2(l) of the CENVAT Credit Rules, 2004. However, in the case, that portion of the service for which the cost has been recovered from the dealers, we are prima facie of the view that applicant cannot take CENVAT credit since the applicant did not incur the cost but only routed payments from the dealers to the service provider abroad - services received from the Universities will not form part of the input service - prima facie case is against the assessee - stay granted partly.
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2013 (9) TMI 628
Support services of business or commerce - Whether support services of business or commerce envisage services rendered by the appellant - Held that:- services have to be rendered in relation to the business or commerce. In our considered view, prima facie, Government of Karnataka does not render any services which are in the form of business or commerce at least in respect of the fees which has been collected by the appellant. In our considered view, appellant has made out a strong prima facie case for complete waiver of the amounts involved. Accordingly, applications for waiver of pre-deposit of the amounts involved are allowed and recovery thereof stayed till the disposal of appeals - Decided in favour of assessee. Stay application - Held that:- the department's stay petition against the impugned order is not maintainable for the simple reason that there is no demand that needs to be waived - when the departmental authorities have taken two different views on the very same issue in respect of the same assessee, it is also an additional ground made out by the assessee for waiver of pre-deposit of the amounts involved in earlier stay petitions - stay granted.
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2013 (9) TMI 627
Application u/s 35C(2) seeking review of stay order Held that:- Any application under sub-section (2) of the Section 35C purported to seek amendment of an order passed under sub-section (1) - The stay order was not passed under sub-section (1) of Section 35C - It was passed under Section 35F of the Central Excise Act - In this view of the matter, the present application is not maintainable in law. Power of Review Held that:- The power of review, oft-referred to by the learned counsel, was limited insofar as an application for modification of stay order passed by this Tribunal is concerned Following Baron International Ltd. vs. Union of India [2003 (9) TMI 97 - HIGH COURT OF JUDICATURE AT BOMBAY ] - the Tribunal should first make a prima facie enquiry to find out whether sufficient materials existed warranting modification of the stay order passed under Section 35F of the Central Excise Act - If no such prima facie case was found, the modification application should be rejected without elaborate hearing - If prima facie case existed warranting modification of stay order, only then the Tribunal should hear both sides elaborately on the modification application. waiver of Pre-deposit - All the submissions made before the Bench from both sides were correctly and completely recorded direction was made for the pre deposits to be made -The plea of financial hardships which was seen reiterated in the Managing Partner s Affidavit Partial stay granted.
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2013 (9) TMI 626
Credit on Tower and shelters as well as input services relating to tower and shelters - Held that:- The amount in respect of towers and was required to be waived BHARATI TELE VENTURES LIMITED Versus CCE, PUNE-III (2010 (11) TMI 77 - BOMBAY HIGH COURT) the waiver of predeposit and stay of recovery was allowed. Demand related to insufficient information on input invoices/payment not made for services - there was factual dispute on denial of the credit - Held that:- Some of the input services like loan for corporate, commission paid for purchase of land, consultancy for corporate, collection charges would apparently prima facie establish that services rendered were in relation to their business. Waiver of pre-deposit of CENVAT credit - Interest and Penalty 20 lakhs were ordered to be submitted as pre deposit stay granted partly.
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2013 (9) TMI 625
Service tax demand - appellant had collected the service tax from their customers but has not remitted the same to the department Held that:- The question of showing any leniency would not arise at all - appellant has played a fraud on the exchequer and any leniency would send wrong signals which should be avoided. CENVAT credit matter remanded back to the adjudication as to the claim of the CENVAT credit facility - even after allowing the margin for eligible credit, there is a differential tax to be paid by the assessee. One third amount of duty ordered to be submitted appellant eligible to examination of Cenvat credit would be admitted on the production of satisfactory evidence by the appellant. - Decided against the assessee.
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Central Excise
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2013 (9) TMI 618
Availment of Cenvat Credit on input - Cenvat credit of central excise duty paid on the inputs viz. CHE zinc. The assessee herein directed the supplier of zinc to deliver the same to their job worker for conversion into alloy and availed Modvat credit at their end - Revenue were of the view that the assessee is not eligible to avail such Modvat credit as they are unable to evidence the receipt back of the goods from job worker Held that:- Honble CESTAT vide final order dated 19-4-2004 remanded the case to the original adjudicating authority for the limited aspect is to be examined the receipt of casting from the 2nd job worker - Accordingly, the assessee has submitted statements showing the quantity of the Zinc, Aluminum and Magnesium sent by the first job-worker M/s. Sun Metal Industries, Ahmedabad to the second job-worker M/s. Gujarat Die Casting Industries, Surat and also the statements showing the quantity of Castings received by them from the second job-worker M/s. Gujarat Die casting Industries, Surat during the period under reference. The statement indicates the supply of three ingredients separately by M/s. Sun Metal Industries, Ahmedabad, to the second job-worker M/s. Gujarat Die casting Industries, Surat, even though the final product is an alloyed product of Zinc, Aluminum and Magnesium. These statements only give the details of the movement of the inputs and semi-processed material from one job-worker to another and lastly to the assessee - Appellants had produced the documentary evidence in the form of delivery challans of receipt of the casting from the second job worker from M/s. Gujarat Die Casting Industries, Surat. The said delivery challans indicate the quantity dispatched to the Appellant Decided in favor of Assessee. Interest on the amount of pre-deposit which were ordered by the Tribunal and the Commissioner (Appeals) for hearing and disposing their appeal Held that:- Impugned orders in the earlier two rounds of litigation, were set aside by the Tribunal and the matter remanded back to the lower authorities would mean that the appellant is entitled for refund of the amounts which were ordered as pre-deposit. In this case, it is undisputed that an amount of Rs. 4,50,000/- was directed to be deposited by the higher judicial foras, for hearing and disposing the appeal, which eventually gone in assessees favour Relying upon the judgment of the division bench of the Tribunal in the case of Goenka Woollen Mills Ltd. [2011 (3) TMI 1136 - CESTAT, KOLKATA ], it was held that payment of interest when the claim was not settled within a period of 3 (three) months of the disposal of the appeal in the assessees favour Revenue are liable to pay interest to the assessee-appellant in this case Decided in favor of Assessee.
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2013 (9) TMI 617
Availment of Modvat Credit - Credit was availed on the invoices of grey fabrics purportedly endorsed and supplied by M/s. Deep Textiles - M/s. Deep Textiles is found to be fake and ficticious and obtained rebate of more than one crores based on fraudulent export documents - Appellant establish genuineness of transaction starting with receipt of grey fabrics Held that:- The amount of Rs. 4,61,250/- is the duty on invoices of processed fabrics corresponding to the grey fabrics The appellant has claimed that Rs. 52,777/- was paid through P.L.A. Thus the credit amount on impugned grey fabrics is Rs. 4,08,473/- - Relying upon the case of Shree Shiv Vijay Processors Pvt. Ltd. [2010 (11) TMI 280 - CESTAT, AHMEDABAD], it is held that apart from using the said Modvat credit for payment of duty, the appellants have also paid an amount from the P.L.A. account. According to the appellant no prudent man will pay duty to the government without actually receiving the grey fabrics - This fact tilts the weight of the evidence in favour of the appellant Decided in favor of Assessee.
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2013 (9) TMI 616
Confiscation of raw material - scope of Rule 25 - Excisable goods procured as raw materials found in the factory premises were not stored in a routine manner, but were purposely kept unaccounted - Categorical statement of the Director, Mr. Kamalesh Ladha, that the said excisable goods were procured with a specific intention to use it as raw material in the manufacture of finished excisable goods intended to be removed clandestinely without payment of duty Held that:- Clause (b) of Rule 25(1) of Central Excise Rules, 2002 could be invoked for confiscation of the said non-accounted excisable goods stored in the factory premises for its use as raw materials by a manufacturer In none of the judgments referred to by the appellant, admission like the one made by the Director, Shri Ladha that the raw materials were procured with an intention for its utilization in the manufacture of finished goods meant to be removed without payment of duty, was present - Therefore, the judgments referred to by the ld. Advocate are not applicable to the facts of the present case Appeal rejected Decided against the Assessee. Meaning of excisable goods used in the Rule 25 of the Central Excise Rules, 2002 Submitted by appellant that expression excisable goods mentioned in clause (b) of the said sub-rule, refers only to the goods manufactured by the manufacturer Held that:- The said Rule 25 is a penal provision and enumerates various situations and clause (b) of the sub-rule (1) is directed against non-accountal of excisable goods produced or manufactured or stored refers, inter alia, also to a manufacturer, who does not account for any excisable goods produced or manufactured or stored by him. The word or in the said clause should be read disjunctively - Excisable goods defined at Sec. 2(d) of Central Excise Act, 1944 as goods specified in [[the First Schedule and the Second Schedule] to the Central Excise Tariff Act, 1985 (5 of 1986)] as being subject to a duty of excise and includes salt - Besides, the use of the word any before the word excisable goods, in the said clause, makes it more clear and points out to a plausible interpretation that the said Rule is not only refers to the excisable goods manufactured and stored in the factory by a manufacturer but also excisable goods manufactured elsewhere and stored in the factory. - Decided against the assessee.
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2013 (9) TMI 615
Cenvat Credit - Capital goods under Rule 2(a) of Cenvat Credit Rules, 2002 - CENVAT credit on structural items viz. plates, beams, angles, channels, joists etc. for fabricating structural support to machinery whether the structural items could be considered as capital goods Held that:- Relying upon the judgment in the case of Saraswati Sugar Mills [2011 (8) TMI 4 - SUPREME COURT OF INDIA ], wherein it was held that in the light of the meaning of the expression component parts that the iron and steel structures are not essential requirements in the sugar manufacturing unit. Anything required to make the goods a finished item can be described as component parts. Iron and steel structures would not go into the composition of vacuum pans, crystallizers etc. If an article is an element in the composition of another article made out of it, such an article may be described as a component of another article Also, the case of Rajasthan Spinning & Weaving Mills [2010 (7) TMI 12 - SUPREME COURT OF INDIA] and held in favour of the assessee on a similar issue vide Final Order No.616/2011 ibid will not be applicable as the apex courts decision dt. 02/08/2011 in Saraswati Sugar Mills case [2011 (8) TMI 4 - SUPREME COURT OF INDIA] was not brought to the notice of this Bench when the said Final Order was passed on 23/09/2011 [2013 (7) TMI 494 - CESTAT BANGALORE] Appeal allowed Decided in favor of Revenue.
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2013 (9) TMI 614
Area based exemption - Exemption under Notification No.56/2002 - Whether an assessee availing of exemption under Notification No. 56/2002-C.E. can pay education cess and S & H Cess through BED Credit - Held that:- A unit availing of exemption under Notification No. 56/2002-C.E. cannot utilize BED credit for payment of education cess and S & H cess which were not exempted under the notification - Extra BED paid through PLA on account of diversion of BED credit for payment of education cess and S & H cess would not be refundable under Notification No. 56/2002-C.E. A manufacturer availing of Notification No. 56/2002-C.E. cannot utilize BED credit for payment of education cess and S & H cess - it will amount to the indirect refund of education cess and S & H cess, which was not permissible - The payment of education cess and S & H cess through BED credit was in conflict with the scheme of this exemption which does not exempt the education cess and S & H cess and which was available only in respect of the duties mentioned in it subject to following of condition of the notification - CCE, Shillong v. Dharampal Satyapal Ltd. [2011 (8) TMI 99 - GAUHATI HIGH COURT]- the notification does not exempt education cess. These two education cess were not covered by Notification No. 56/2002-C.E. the same cannot be paid by the respondent in the manner they seek to pay the same i.e. by utilizing BED credit before utilizing the BED credit to the extent possible for payment of BED as doing so would result in refund of education cess also. A manufacturer availing of exemption under Notification No. 56/2002-C.E., while the restriction on utilisation of Cenvat credit of duties/taxes as mentioned in Rule 3(7)(b) would be applicable, there would be one more additional restriction on utilization of credit of duties/taxes other than those mentioned in Rule 3(7)(b), i.e. credit of BED, AED (GSI) etc. and this restriction was that this credit cannot be used for payment of duties not exempted under this notification if this was permitted, this would result in refund of duties like education cess, S & H cess, NCCD etc. which was not permitted under this notification, while it is well settled law that what was not permissible directly cannot be allowed indirectly. Therefore, in order to ensure that an assessee availing of exemption under this notification does not end up availing this exemption in respect of education cess and S & H cess also, he cannot be allowed to use BED credit for payment of education cess and S & H cess, though this may be permitted under the provision of Rule 3(4) of the Cenvat Credit Rules, 2004 - The orders were set aside Decided in favour of Revenue.
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2013 (9) TMI 613
100% EOU - Duty Chargeable on DTA Clearances - Exemption under Notification No. 8/97-C.E. - The appellant had made DTA clearances of galvanised pipes by availing duty exemption under Notification No. 8/97-C.E - The department was of the view that the appellant were not eligible for the exemption under the notification - Whether the appellant during period were eligible for Notification No. 8/97-C.E. in respect of their DTA clearances - Held that:- The benefit of Notification No. 8/97-C.E. would be available in respect of DTA clearances made in accordance with the provisions of EXIM Policy, only if the goods had been made out of the inputs of the Indian origin - the benefit of Notification No. 8/97-C.E. can be allowed to a 100% EOU in respect of DTA clearances even if the unit was using indigenously procured as well as imported raw materials, provided the unit was able to satisfy the Jurisdictional Central Excise Authorities beyond doubt that inputs used in the manufacture of goods which were to be sold in DTA had been manufactured out of indigenous raw material only by the way of maintenance of records, physical scrutiny/verification of manufacturing process etc. The appellant were not eligible for Notification No. 8/97-C.E. - the duty demand and penalty was set aside and the matter was remanded to the original Adjudicating Authority for re-quantification of the duty demand after examining the appellants plea regarding their eligibility for Notification No. 2/95-C.E. and also re-determining the quantum of penalty on the basis of duty demand re-determined. - Matter Remanded back Decided partly in favour of Assessee. Period of Limitation - As regards the Revenues appeal - the Revenues contention that the duty demand if any, for the period from July 1997 to November 1997 raised vide show cause notice 4-2-1998 would be within time and no part of the duty demand would be time-barred was upheld Decided in favour of Revenue.
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