Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 28, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Indian Laws
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Penalty u/s 271(1)(c) - The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. - SC
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Amortization of premium on investment in government securities - Invest surplus fund in Government Securities as per RBI guidelines – assessee is entitled to claim this deduction. - AT
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Exemption u/s 54 - LTCG - for application of provisions of section 54, the assessee has to buy a property as an owner and not as tenant. - AT
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Tax planning versus Tax Avoidance - distribution of dividend, prior to sale of its shares by the assessee, even though tax advantageous cannot be termed as a colourable device or sham transaction - HC
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If an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment, AO cannot reopen the assessment even within a period of 4 years. - HC
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The interpretation of Section 40A(9) clearly brings out a dichotomy between 'contribution' and 'reimbursement' - ITAT to find whether the claim for deduction is being made for payments to the school promoted by the assessee or to some other educational institutions/schools - SC
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TDS on Payments made for hiring of buses - The buses remained in the possession of the owners. - TDS to be deducted u/s 94C and not u/s 194I - AT
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Availability of agreement is one corroborative factor which would eliminate the doubts, but in the absence of that agreement, the other circumstances ought to have been evaluated, which can goad the adjudicating authority towards a firm conclusion. - AT
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TDS u/s 192 - AO straightway applied Rule 3 without first establishing the case that the appellants have provided any concession in the shape of accommodation to its employees. - assessee cannot be treated as in default - AT
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Deemed Dividend - having accepted the interest income received by the company as business income, the Revenue cannot argue that lending and advancing of money is not the business of the company. - AT
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Presumptive taxation on receipt of advance u/s 44AD - Builder/Developer - no income can be assessed on presumptive basis in the AY 2006-2007 as the assessee has already shown the income in the subsequent year 2007-2008 - AT
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Addition u/s 68 in the hands of co-operative bank - Society/Bank not required to go for detailed verification of address/whereabouts of the customers and therefore, addition u/s 68 cannot be made merely because the address of the customers are incomplete. - AT
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Purchase of unis of UTI - non registration of the units in the actual holder's name. - If the Revenue had questioned the transaction as not legal, then Section 94 would not have come into play in considering the merits of the claim. - HC
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TDS u/s 195 - import of software or supply of software - payment made by the assessee to non-resident companies would amount to royalty, liable to TDS - AT
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Amortization of premium paid on Government securities – the assessee is entitled to deduction on account of amortization of premium on Govt. securities over its life. - AT
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Assessees who have paid agricultural income tax (state) on 100% of the income from centrifuged latex, will not be reassessed under the Central Act for any year prior to the assessment year 2002-03 - HC
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Deemed dividend u/s 2(22)(e) - assessee company is not holding a single share in company lending advance - no addition - AT
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Interest on FDRs made out of zero coupon convertible bonds - chargeable under section 56 - AT
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When a house is completed after expiry of three years from the transfer of the original asset, the assessee is entitled to exemption under section 54F - AT
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Alleged accommodation entries - allegation of providing bills and entries and charging commission for his services @ 0.25% of the aggregate transactions - no addition - in favor of assessee - AT
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Merely because the assessee has not carried out any charitable activity during the last 3 years does not mean that the assessee is not entitled to the certificate u/s 80G - AT
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Excise duty & Sales Tax to be excluded from turnover for computing deduction u/s 80HHE - AT
Customs
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Seeks to extend the validity of Notification No.99/2007-Customs, dated the 3rd September, 2007 by one more year i.e. up to and inclusive of 2nd September, 2013 - Notification
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Seeks to continue, up to and inclusive of 23rd September, 2013, the anti-dumping duty on imports of Presensitised Positive offset aluminium Plates/PS plates , originating in, or exported from, China PR. - Notification
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Specifies Jurisdiction of Chief Commissioner of Customs and Commissioner of Customs (appeals) - Notification
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Since misdeclaration of the value of the imported goods has been upheld, the goods are held liable for confiscation. - However, since the said goods are not available for confiscation, imposition of fine under Section 125 is not justified. - AT
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Since misdeclaration of the value of the imported goods has been upheld, the goods are held liable for confiscation. - However, since the said goods are not available for confiscation, imposition of fine under Section 125 is not justified. - AT
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There is no provision in the Customs Act for payment of interest on return of the seized currency or return of the sale proceeds of any seized goods which are ordered to be released - the power is vested with the High Court - AT
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Rebate claim - DFIA Licence - double benefit - No restriction in the Notification No. 40/2006-Cus., on claiming rebate of duty paid on exported goods and availment of Cenvat credit. - CGOVT
FEMA
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Foreign Direct Investment (FDI) in India -Allotment of Shares to person resident outside India under Memorandum of Association (MoA) of an Indian company – Pricing guidelines - Circular
Corporate Law
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Winding up Petition - share application money - Merely because a refund has been asked, neither is it a debt nor is the Company liable to pay the same. - HC
Indian Laws
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Suit for recovery of possession from a tenant - Whether the tenancy was for residential or commercial use of the property is wholly immaterial for the grant of a decree for possession - SC
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Invitation of Views on the draft National IPR Strategy as prepared by the Sectoral Innovation Council on IPR
Service Tax
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Since in the instant appeal the amount involved is Rs. 5,01,561/- only, In view of the circular dated 17.08.2011, the appeal could not have been preferred by the department before this Court. - HC
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Adjustments of excess payment of service tax - Rule 6(3) of the ST Rules, 1994 - That rationale would be defeated if the condition of refund is insisted to be satisfied only in a particular manner. - AT
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CENVAT credit - As in the case of F.O.B. exports, load port has to be considered as place of removal and therefore credit is admissible - AT
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Refund claim of service tax paid on terminal handling charges - period of limitation - matter remanded back to allow the benefit - AT
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Commissioner cannot go beyond the provisions applicable at the time of occurrence of offence - AT
Central Excise
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Absolute exemption notification - As the notification is subject to the condition provided at serial 10, therefore, prima facie merit in the contention of the applicant that the notification is not absolute exemption. - AT
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Pan Masala Packing Machine - Whether duty would be payable only on pro-rata basis for the number of days in the month during which the machine had functioned or would be payable for the whole month - prima facie against assessee - AT
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Whether cenvat credit cannot be taken on the basis of photocopy/true copy of the bill of entry – credit cannot be allowed on the basis of photocopy of bill of entry - AT
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Shortage of various grades of lubricating oils manufactured by assessee and packed in unit containers – demand of duty and penalty upheld - CGOVT
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The storage tank has been held to be a component to the main machinery namely, boiler and the benefit is extended to the inputs used in the construction of the storage tank though it is also embedded to the land. - HC
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When a principal manufacturer gets his goods manufactured from a job worker on job work basis and the transaction between them are on principal to principal basis, it is the job worker who would be liable to pay duty. - AT
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Refund of education cess - export - rebate of duty - amendment is prospective or retrospective – held that amendment is retrospective in nature - refund of education cess allowed - HC
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Mandatory penalty u/s 11AC - if there is no intent to evade payment of duty, no penalty u/s 11AC - HC
Case Laws:
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Income Tax
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2012 (9) TMI 775
Penalty u/s 271(1)(c) - assessee providing multi-disciplinary management consultancy services and having worldwide reputation - claimed deduction of provision towards payment of gratuity in its return of income, when the same was not allowable as provision towards payment of gratuity was not allowable as per Statement of Particulars filed by the assessee in Form 3CD - assessee contended it to be genuine mistake - Held that:- Contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. Absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income. Imposition of penalty on the assessee is not justified - Decided in favor of assessee
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2012 (9) TMI 774
Disallowance of amortization of premium on investment in government securities - Invest surplus fund in Government Securities as per RBI guidelines – Though purchase made from open market at premium – Premium was written off as depreciation of value of securities – Held that:- Following the decision in case of Catholic Syrian Bank Ltd (2009 (8) TMI 858 - ITAT COCHIN), taking into account the totality of the facts and materials, assessee is entitled to claim this deduction. Decision in favour of assessee Disallowance the claim of bad debts – AO disallow the amount of claim for doubtful debts in excess of provision for doubtful debts provided in P&L – Held that:- As the provision for bad and doubtful debts equal to the amount mentioned in the section is a must for claiming such deduction. An amount of ₹ 36 lakhs is debited to the P&L account under the head "Provision for bad and doubtful debts" and however, the assessee had claimed deduction of ₹ 42,52,319- while computing the taxable income. Therefore appeal decides in favour of revenue
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2012 (9) TMI 769
Exemption u/s 54 - capital gain earned from sale of house property - assessee's contention that that tenancy right was perpetual and assessee was therefore deemed owner of the property - Held that:- Under the provisions of section 54 exemption of capital gain is available in respect of transfer of residential house owned by the assessee. The purpose of the section is to grant exemption in case the assessee acquires a new residential house by investing the capital gain as an owner. It is because of this reason, the words used in section 54 are "purchase" or "construction" of a new residential house. The requirement of section is not that assessee may acquire a new residential house by any other mode. As decided in CIT v. T.N. Arvinda Reddy [1979 (10) TMI 1 - SUPREME COURT] the word "purchase" appearing in section 54(1) has to be given its common meaning i.e. buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Thus, for application of provisions of section 54, the assessee has to buy a property as an owner and not as tenant. In case of doubt or ambiguity, benefit of it must go to the State. Thus following the said judgment, therefore, even if there is some ambiguity in the provision, the same has to be interpreted in favour of the revenue because it is an exemption provision. In the present case, there is no ambiguity. The provision refers to purchase or construction of a new residential house and it is quite obvious that the same should be as an owner and not as perpetual tenant - against assessee.
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2012 (9) TMI 768
Computation of long term capital gains - dubious method of declaration and payment of dividend to avoid payment of tax on LTCG by the assessee - Held that:- It is important to bear in mind uncontroverted claim of the assessee that there were sufficient reserves and surplus, which were eligible for distribution as 'dividend', and the NIPL had sufficient cash balances as well. The nature of amounts distributed as dividend has not been altered as a result of, what the revenue authorities describe as, colourable device to evade taxes. As decided in Azadi Bachao Andolan's case(2003 (10) TMI 5 - SUPREME COURT) "nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act". - Undoubtedly, the course adopted by the assessee was tax advantageous inasmuch as if NIPL, assessee's wholly owned subsidiary, was not to distribute dividend and sell the shares without this exercise, the tax outgo would have been ₹ 94 lakhs more than under the present arrangement, but then every tax advantageous action or inaction cannot be treated as a colourable device unless such an action or inaction is not bonafide, it conceals the true nature of transaction or is an exercise without any commercial justification. Thus distribution of dividend by NIPL, prior to sale of its shares by the assessee, even though tax advantageous cannot be termed as a colourable device or sham transaction and the receipt of these dividends cannot be recharacterized as sale consideration of shares in the hands of the assessee - in favour of assessee.
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2012 (9) TMI 767
Change of opinion - Whether assessment proceedings can be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment - Held that:- As decided in CIT Versus Kelvinator Of India Limited [2002 (4) TMI 37 - DELHI HIGH COURT] an assessment order passed under section 143(3) must be presumed to be one passed after full scrutiny and formation of opinion on the points raised in the return and in the course of the assessment proceedings. It has been observed that section 114(e) of the Evidence Act comes into operation and it must be presumed that the AO had performed his duty in the manner expected of him, that is, after examining and forming an opinion on all aspects of the return, though he has not been articulate about it in the assessment order. It has also been held that if such a presumption is not drawn, that would amount to putting a premium on a perfunctory discharge of duties by the assessing authority and permitting him to take advantage of his own wrong. The first proviso to section 147 can be resorted to only if the assessee has not discharged the duty. Where the assessee has discharged his duty and the assessment completed under section 143 (3) is reopened within the period of 4 years from the end of the assessment year, the assessing officer has to either show that the disclosure is not full and true or he has come into possession of some "tangible material", to borrow with respect the expression used by the Supreme Court in Kelvinator (supra), to come to the conclusion that there is escapement of income. The material must have a live link with the formation of the belief regarding escapement of income. When there is no failure on the part of the assessee to furnish full and true particulars and there is no tangible material on the basis of which the assessing officer can allege escapement of income, the only consequence would be that the assessing officer was exercising the power of review on the very same materials which he is presumed to have examined. This would amount to abuse of the power to re-assess and has to be checked. When the assessing officer fails to examine a subject matter, entry, claim or deduction, he forms no opinion, notwithstanding that the assessee had made a full and true disclosure and notwithstanding that the assessment was completed under section 143 (3) and to further hold that it would be a case of "no opinion", would be to fly in the teeth of the two rulings. It is not even open to the revenue to urge such a proposition - Thus the assessment proceedings cannot be validly reopened under section 147 even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made u/s 143(3), thus the issue is concluded by the judgment of the Full Bench of this court in Kelvinator (supra). So long as the assessee has furnished full and true particulars at the time of original assessment and so long as the assessment order is framed under section 143(3) it matters little that the assessing officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects. Again the answer to this question stands concluded by the judgment of the Full Bench of this court in Kelvinator (supra). It is that section 114(e) of the Evidence Act can be applied to an assessment order framed under section 143(3) provided that there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion.
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2012 (9) TMI 766
Transfer pricing ('TP') adjustment u/s 92CA(3) - as assessee performs the functions of a risk bearing agent and therefore, cost plus PLI adopted by the assessee for ALP determination is not the most appropriate - Held that:- No supporting material has been brought on record that assessee GIS India has borne any business risks arising from its activities with GAP USA. There are no adverse facts, material or evidence on the basis whereof Ld. TPO has made arrived at such a conclusion. The TPO has not given any examples or comparables whatsoever to demonstrate which major business risks much less any risk are borne by GIS India and how. In a sweeping manner it has been held that as functions follow risks, and since, in his wisdom GIS India undertakes key functions, therefore it must also be bearing the consequent risks. The observation is flawed as from the handbook and guidelines it clearly emerges that assessee had no wisdom or discretion in these terms. As it is common trend in garment that goods are generally supplied on credit based which the suppliers have to extend to GAP, USA entities and assessee bears no risk. The assessee' role, functions and activities are limited to scrupulously follow the handbook and other instructions provided by the parent group. These facts and circumstances indicate lack of authority or discretion with assessee in deviating or changing from the policies and procedures prescribed by the parent company. Therefore, it is unable to be agreed with the view that assessee incurred any significant risk in its functions. Development of substantial human resources intangibles by assessee - Held that:- There is no supporting material available on record to hold it against assessee. Except generalized assertions nothing reliable is placed on record to support these observations - Assessee had 230 employees on its payroll engaged in execution of preordained support nature activities as per the guidelines. Department has failed to demonstrate that any or few of employees were any acclaimed personalities or indispensable in garment procurement trade so as to constitute any human intangibles as alleged. With no decision making or entrepreneurial role embedded in their work profiles, it is not clear how the TPO or DRP can arrive at such a conclusion that these routine activities led to creation/development of any valuable supply chain or human asset. TPO has theoretically relied on a Hindustan Times news paper report published in 2008 in respect of cost of procurement services in various countries which is not acceptable as this news paper report by itself cannot partake the character of a comparable data - Location savings to developing economy arise to the industry as a whole, there is nothing on record that assessee on standalone basis was sole beneficiary - The intent of sourcing from low cost countries for a manufacturer/retailer is to survive in stiff competition by providing a lower cost to its end-customers the advantage of location savings is passed onto the end-customer via a competitive sales strategy. The arm's length principle requires benchmarking to be done with comparables in the jurisdiction of tested party and the location savings, if any, would be reflected in the profitability earned by comparables which are used for benchmarking the international transactions. Thus no separate/additional allocation is called for on account of location savings. Transactional Net Margin method ('TNMM') - use of Net Profit/Total Cost OR percentage of FOB value of goods procured by parent as PLI - Held that:- All the significant directions relating to procurement of goods from third party vendors in India, namely – (a) designs & trends of apparel (b) quality parameters of materials (c) terms & conditions for dealing with vendors, etc, are all provided by GAP US to the appellant through the voluminous vendor handbook & other correspondences which are placed on record and have not been controverted by the department. It emerges that assessee follows and executes them as a service provider. For such preordained support services, the assessee cannot be held to be entitled to remuneration in terms of Li & Fung case [2011 (9) TMI 204 - ITAT, NEW DELHI] on FOB value of goods procured by GAP US from third party vendors in India. In the case of Li & Fung India, assessee actually carried out significantly value added functions in India, which is not the case - thus the appropriate PLI will be net profit/total cost and not the % of FOB value of goods sourced by AE Looking at the sweeping observations of the TPO and DRP which are neither based on any cogent reasoning nor factual reliability, the assessments as framed give an impression of being work of adversarial approach in tax liability determination - No hesitation to accept a candid proposal given by the assessee and hold that assessee TP adjustments be made by adopting the 32% cost plus mark up of the assessee for AY 2006-07 and 2007-08. The mark-up proposal of assessee is higher than mark-up over total cost earned by all comparables placed on record. The assessments should be framed accordingly. Depreciation on computer peripherals, printers and UPS @ 15% instead of 60% as allowable under the Income Tax Rules - Held that:- Rate of depreciation it is by now settled that the computer peripherals are eligible for 60% depreciation which should be allowed to the assessee.
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2012 (9) TMI 765
Deduction u/s 37(1) - welfare expenses towards providing education to its employees' children & Payments to other educational institutions where the children of its employees were studying- Held that:- From the assessment order for AY 1985-1986 and from the Order of CIT (A) that the assessee has made payments to schools other than Sandur Residential School and Sandur Education Society, which fact has not been discussed either in the Order of ITAT or in the Order of the High Court. The interpretation of Section 40A(9) clearly brings out a dichotomy between 'contribution' and 'reimbursement' - Section 40A(9) was inserted as a measure for combating tax avoidance - In the present case how the ITAT and the High Court have come to the conclusion that these payments made by the assessee constituted reimbursement. As for the AY 1985-1986, the AO records that an amount of Rs. 11,40,641/- has been incurred by payments to other educational institutions and not by way of payments made to school or the society promoted by the assessee. For each assessment year, therefore, the ITAT will have to record a separate finding as to whether the claim for deduction is being made for payments to the school promoted by the assessee or to some other educational institutions/schools and thereafter apply Section 40A(9) which has not been done in the present case - in favour of assessee.
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2012 (9) TMI 764
Interest paid on optionally convertible debenture - CIT(A) deleted the disallowance - Held that:- There was no contingency involved in the accrual of liability with reference to the interest on the debentures. CIT (A) has rightly observed that debentures, whether fully or partly or optionally convertible, are nothing but debt till the date of conversion and any interest paid on these debentures is allowable as normal business expenditure. The only uncertainty in the optionally convertible debentures issued by the assessee is whether the debenture holder will go for conversion into shares or will continue to hold them as debentures. CIT (A) has rightly held that this uncertainty in no way impacts the assessee company's liability to pay interest till the date of conversion - in favour of assessee.
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2012 (9) TMI 763
Payments made for hiring of buses - applicability of Section 194C or 194I - assessee contended it to be payment for contract of service whereas Revenue contended it to be rent for hiring a plant - Held that:- It is observed that assessee has not taken the buses simplicitor on lease as a plant and machinery rather it entered into a work permit whereby buses were taken for transportation of the passengers. The bus owner is responsible for upkeep as well as operation of the bus. He kept his own driver and helper. The buses remained in the possession of the owners. Hence, CIT(A) has rightly held that it was a service contract and hence applicability of Section 194C - Decided against Revenue.
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2012 (9) TMI 762
Dis-allowance of professional charges claimed against professional receipts in absence of any agreement between the parties - assessee contended that due to unavoidable circumstances, it was not in a position to complete the work and it has assigned the work to M/s Dayal - Held that:- When the explanation of an assessee is based on number of facts supported by evidence and circumstances required considerations, whether the explanation is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the fact in their setting as a whole. Availability of agreement is one corroborative factor which would eliminate the doubts, but in the absence of that agreement, the other circumstances ought to have been evaluated, which can goad the adjudicating authority towards a firm conclusion. CIT(A) order of deleting dis-allowance upheld Notional interest on Interest free advances - addition - Held that:- CIT(A) rightly deleted the addition on observation that assessee has not claimed any interest expenditure in the P/L A/c, therefore, no interest bearing funds were given to the parties without charging any interest. Dis-allowance of payments made for delay in filing the various statutory returns with ROC on ground of it being penal - Held that:- Payments made by assessee on account of delay in submitting certain statutory returns are compensatory in nature and not on account of fraction of any law. These are not penal in nature. Therefore, CIT(A) has rightly deleted the addition - Decided in favor of assessee
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2012 (9) TMI 761
Assessee in default u/s 201 and 201 (1A) – accommodation provided by university to its employees against license fees – Revenue contended deduction of TDS on the value of perquisite of the rent free accommodation as per the procedure provided in Rule 3 of the Income-tax Rules, 1962 - Held that:- On reading the findings of the ITAT in the case of Financial Officer, Maharishi Dayanand University, Rohtak (2007 (12) TMI 247 - ITAT DELHI-I), which covers issue in favor of assesse, along with the finding of the AO in the light of the law propounded by the Supreme Court in case of Arun Kumar Vs. Union of India(2006 (9) TMI 115 - SUPREME COURT ) upholding validity of the Rule 3, it gets revealed that AO has nowhere held in the impugned order that any concession was given by the employer to its employees and they have provided the accommodation on a concessional rates. AO straightway applied Rule 3 without first establishing the case that the appellants have provided any concession in the shape of accommodation to its employees. Assessees cannot be treated in default without factually establishing that they have extended any concession to their employees. Revenue authorities have also not looked into the dispute with this angle. In view of the above discussion, it is held that assesse is not in default u/s 201(1) and 201(1A) - Decided in favor of assessee
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2012 (9) TMI 760
Denial of registration u/s 12AA - original trust deed was modified - Held that:- CIT has held that those supplementary trust deed submitted by assessee are not in accordance with the provisions of Indian Trust Act 1882 and judicial decision but has not pointed out any provision of the Indian Trust Act 1882 or any judicial decision which shows as to how the supplementary trust deeds dated 5.9.2008 and 22.9.2008 are not in accordance with law. As both the supplementary trust deeds are duly registered by the Sub-registrar, Faridabad and there is no reason to doubt the explanation of the appellant that modifications were made in the original trust deed to make the objects of the trust more clear. It is not the case of the revenue that in the supplementary trust deed some non-charitable objects have been introduced. In absence of such observation by the revenue no reason to doubt the validity of the supplementary trust deed executed on 22nd Sep. 2008 which is the finally amended trust deed. The Ld. CIT has not specified as to how the supplementary trust deed dated 22.9.2008 is not in accordance with law. The finding of Ld. CIT in this regard is thus not justified - no substance in the contention of the DR that while making alteration in the trust deed the appellant has violated the provisions laid down in clause 17 of the original deed which provides the manner of making, altering or rescinding Rules and Regulations - direction to grant registration u/s 12A - in favour of assessee. Refusal in granting approval u/s 80 G - Held that:- As grant of registration u/s 12A has been allowed application for exemption u/s 80 G too need to be allowed - in favour of assessee.
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2012 (9) TMI 759
Deemed Dividend - receiving of loan from company in which assessee hold more than 10% of the shares - assessee contesting the order on ground that company had advanced the loan to the assessee in ordinary course of business of granting loans and advances - Held that:- There is no dispute that lending and advancing of money is one of the objects of the company. The said company had been receiving interest from loans and advances given which had been offered as business income and it was also being accepted by the department u/s 143(1). Therefore, having accepted the interest income received by the company as business income, the Revenue cannot argue that lending and advancing of money is not the business of the company. Therefore, amount was received as loan from the company in the ordinary course of business of the company and hence cannot be assessed as deemed dividend - Decided in favor of assessee Addition u/s 68 of Rs 16.50 lacs being cash deposited in the bank account of the assessee on the ground that source had not been explained satisfactorily - Held that:- Assessee had explained the source as sale proceeds of land at Madurai, in which the share of assessee was Rs. 14,63,459 and income had been offered as capital gains. There is no dispute about sale of land. Cash received on account of sale was duly reflected in the balance sheet for AYs 2005–06 and 2006–07. Further, assessee had shown cash in hand of Rs. 16,46,701, as on 31st March 2006 in the balance sheet for that year which has been carried forward to the current year in which the cash was deposited in the bank. In view of aforesaid facts, AO was not justified in rejecting the explanation of the assessee only on the ground that cash had been held for a long time. There is no legal ban for keeping the money in cash. Order of Commissioner (Appeals) in deleting the addition is upheld - Decided in favor of assessee.
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2012 (9) TMI 758
Presumptive taxation - Builder/Developer - assessee following the ‘project completion method’ for recognising income from such projects - Revenue estimated business income at the rate of 8% on booking advance collected by the assessee during the year on the basis of Revised AS 7(Construction Contracts) issued by ICAI - AY 06-07 - Held that:- It is noted that the project of the assessee had commenced on 9-1-2005 by execution of development agreement and the project was approved on 17-2-2005. It is also admitted that the project was mostly completed in the FY 2006-2007 (i.e. AY 2007-08), and income was shown in AY 07-08. Tribunal in case of Unique Enterprises has held that assessees, who are following ‘project completion method’ and have offered income-tax in the year in which substantial work has been completed, the same should be accepted. In view of aforesaid it is held that no income can be assessed on presumptive basis in the AY 2006-2007 as the assessee has already shown the income in the subsequent year 2007-2008 as per the regular accounting method of project completion employed by the assessee. Addition confirmed by the CIT(A) stands deleted - Decided in favor of assessee
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2012 (9) TMI 757
Dis-allowance of expenditure on adhoc basis on ground of it being excessive - Pharmaceutical Sales Representative (PSR) expenses and PSR salary - assessee company engaged in the business of trading of pharmaceutical products - Held that:- It is observed that AO though doubted higher percentages of expenditure claimed by the assessee; however, no enquiry or investigation has been made to find out the genuineness of the claim of the assessee. Nature of business is such expenditure on marketing of pharmaceutical products is bound to happen, which is not disputed by Department. Without giving a finding that the claim of the assessee is bogus, the same cannot be disallowed merely on the ground that the claim of the assessee is excessive. In the facts and circumstances of the case when the actual expenditure incurred by the assessee has not been doubted and the payment has been made to the various Medical Representatives, who are not related parties of the assessee, than no adhoc disallowance is called for on account of excess PSR expenses and PSR salary. Dis-allowance deleted – Decided in favor of assessee
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2012 (9) TMI 756
Addition u/s 68 in respect of deposit accepted by the assessee - Revenue contended that assessee not produced the details namely, address of the depositor or any particulars of the depositor - co-operative society carrying on banking business for its members - Held that:- In the present case, assessee is a Society carrying on the Banking business to its own members and the business is carried on with certain set of guidelines and procedures. It is operating through 23 branches and each of the branches is headed by a Branch Manager and other staff. Deposits were accepted by staff along with the application at the counters. To the extent of the maintenance of the records is concerned, it is already seen that a systematic record was maintained by the assessee with regard to the transactions by the Bank. It has accepted all the documents as required under KYC norms. From the above facts it is proved that the assesses has proved the identity of the depositor. When the Society is having members of 63,000, one cannot come to a conclusion that the bank does not have furnished identity and proof of depositor by verifying few numbers. Being so, amounts in the accounts maintained by the assessee are deposits of the customers and/or not under the control of the assessee, and therefore, provisions of S. 68 are not applicable to the Bank. Further, Society/Bank not required to go for detailed verification of address/whereabouts of the customers and therefore, addition u/s 68 cannot be made merely because the address of the customers are incomplete. CIT(A) rightly deleted the addition - Decided in favor of assessee Deduction u/s 80P(2)(a)(i) - denial - Held that:- It is the fact that certain activities carried on by the assessee not complying with the requirements of the principles of Cooperative Society, more so, the assessee also engaged in the activity of bill discounting, providing accommodation cheques by taking cash from the member, being so, for the AY 2006-07 the claim of the assessee u/s 80P(2)(a)(i) cannot be allowed. For AY 2007-08 & 2008-09, it is observed that Society is carrying on the Banking business and for all practical purpose it acts like a co-op bank. It is governed by the Banking Regulations Act. Therefore the Society being a co-op bank providing banking facilities to members is not eligible to claim the deduction u/s 80P(2)(i)(a) after the introduction of sub-section (4) to section 80P, hence entitled for deduction u/s 80P(2)(a)(i) for AY 2007-08 & 2008-09 - Decided in favor of Revenue. Dis-allowance of advertisement expenditure u/s 40a(i)(a) for no deduction of TDS - Held that:- Section 40(a)(ia) of the Act is applicable only to the expenditure which is payable on 31st March of every year and cannot be invoked to disallow the amounts which are already been paid during the previous year, without deducting tax at sources. see Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM). Accordingly, this issue set aside to the file of the assessing officer for reconsideration. Interest on account of interest receivable on the loans advanced which are pending recovery for more than 6 months - assessee contesting direction of CIT(A) to AO for verification of claim - Held that:- CIT(A) was justified in issuing directions to verify the nature of interest whether it is on non performing assets or not and decide thereupon, since Supreme Court in the case of UCO Bank v. CIT [1999 (5) TMI 3 - SUPREME COURT ] held that interest credited to the suspense account and NPAs is to be excluded from the income - Appeal of assessee dismissed
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2012 (9) TMI 755
Whether loss arising from purchase and sale of units is not allowable as the transaction is a colourable device to avoid tax despite the fact that the actual purchase and sale has taken place and the assessee has actually incurred the loss - Assessee had purchased units of the UTI from Bank of America – Sold back the same units to Bank of America on very next day – Assessee receive dividend and incurred a STCL, set off with LTCG and carried forward the balance STCL – AO point was that the units sold by them on 31.5.1991 were in the name of the assessee - Bank had purchased these units from the assessee earlier in two lots in 1990’s remained in the name the assessee – UTI confirmed that the transfers were registered in the name of the assessee from 31.5.1990 till 14.5.1994 and assessee received dividends till 1994 - Held that:- As the revenue does not dispute that the transactions in fact had taken place between the assessee and the Bank of America. Revenue’s only point is that there was no registration of the units in the actual holder's name. If the Revenue had questioned the transaction as not legal, and not based on the amendment to Section 94, which came into existence only with effect from 1.4.2002, then Section 94 would not have come into play in considering the merits of the claim. Thus, on principle, when the Revenue had accepted the transfer, the sole ground on which the transaction was held to be a colourable one could not be sustained. Appeal decides in favour of assessee
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2012 (9) TMI 754
Disallowance of interest expense in relation to advance given to sister concern - Assessee has not charged any interest on its advance to a 100% subsidiary and to a group company – Assessee contended that such amount was given in the ordinary course of the business – Subsidiary company have no other business and only having land on which construction is not permissible – No increase in share capital & reserves but secured loan has been raised - Held that:- As concluded from the facts of case the interest free funds available with the assessee are far more than the interest free advances. Interest free advance granted by the assessee to the subsidiary company was less than cash profit generated by the assessee. Therefore, it should be presumed that the subsidiaries were paid out of the profit of the assessee which is far in excess of the amount paid to the subsidiaries. Decision in favour of assessee Disallowance of employees' contribution to P.F – Assessee contended that these payments have been made within the due date of filing of return u/s. 139(1) – Held that:- As the dates provided by assessee are not available in either of the orders of the authorities below. Therefore for verification issue remand back to AO. Disallowance of prior period expenses – Assessee argued that said expenditure related to the electricity charge – Held that:- Only expenditure which is related to the accounting year under consideration has to be allowed against the declared receipts except the expenditure which was not crystallized in earlier accounting years. Further assessee has failed to prove that the expenditure in question was crystallized only in the accounting year. Appeal decides in favour of revenue Depreciation on Hotel building – Assessee claim depreciation on hotel building claimed by assessee at 15% - AO allow 10% - Held that:- As decided in earlier years by CIT(A)that depreciation for hotel building will be allowable only @ 10%. Appeal decided in favour of revenue Ad-hoc disallowance of interest expenses against dividend income u/s 14A – Held that:- The AO must adopt reasonable basis for effecting the apportionment with reasonable opportunity of being heard provide to assessee. Disallowance should be restricted to 1% of dividend income. Therefore, earning exempt dividend income should be restricted to 1% of dividend income. Decision in favour of assessee
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2012 (9) TMI 753
Addition on account of valuation of investment portfolio – Assessee is a Bank treating the investments as stock-in-trade – Bank showing opening and closing stock securities valued at cost or market value whichever is lower as prescribed by RBI for the purpose of books of accounts – AO observe that assessee has followed RBI guidelines for the purpose of books of account, but not for computation of income for the purpose of income tax purposes – Held that:- Following the decision in case of United Commercial Bank (1999 (9) TMI 4 - SUPREME COURT) assessee Bank is entitled to value all the investment at cost prices or market value whichever is lower by treating such investment as stock-in-trade. Decision in favour of assessee
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2012 (9) TMI 752
TDS u/s 195 - Whether the payment made for import of software or supply of software by the non-resident companies was royalty or not - Assessee imported certain software products from UK for onward distribution – Held that:- Following the order in case of Samsung Electronics Co. Ltd.(2012 (8) TMI 112 - ITAT BANGALORE) payment made by the assessee to non-resident companies would amount to royalty within the meaning of Article 12 of the DTAA with the respective countries and there was obligation on the part of the assessee to deduct tax at source u/s. 195 of the I.T. Act. Appeal decided in favour of revenue
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2012 (9) TMI 751
Monetary limit for appeal in Tax related matters before ITAT – Appeal filed with Tribunal prior to the instruction regarding the minimum monetary limit stipulated by the Board – Revenue contended that the amount in appeal is above the minimum prescribed limit as per previous instruction – Held that:- Following the decision in case of Seedi Builders (2011 (11) TMI 402 - KARNATAKA HIGH COURT) it is clear that the instructions issued in the Circulars by CBDT are applicable for pending cases also. Appeal decides in favour of revenue
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2012 (9) TMI 750
Disallowance of provision made for leave encashment - Assessee in the relevant period had made a provision for encashment of privilege leave on the basis of actuarial valuation - AO holding that it is contingent liability which had not crystallized and therefore not allowable as a deduction - Held that:- Following the decision in case of BEML(2000 (8) TMI 4 - SUPREME COURT) and Exide Industries Ltd.(2007 (6) TMI 175 - CALCUTTA High Court ) struck down the provisions of section 43B(F), that the assessee’s claim for deduction of the provision for privilege leave encashment is not a contingent liability and is to be allowed. Issue decided in favour of assessee Amortization of premium paid on Government securities – Following the decision in case of Sir M. Vishveswaraya Co-operative Bank Ltd. (2012 (9) TMI 774 - ITAT, BANGALORE) hold that the assessee is entitled to deduction on account of amortization of premium on Govt. securities over its life. Decision in favour of assessee
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2012 (9) TMI 749
Disallowance of interest – AO made disallowance of interest on borrowed funds because the same were utilized in making interest free advances to two of its subsidiary companies – Held that:- As concluded from the facts the amounts advanced by assessee to the above mentioned five concerns are out of internal accruals or out of profits earned by assessee by way of sale of shares or by way of consideration received on account of sale of shares. Therefore, assessee is entitled for allowance of interest on borrowed capital which is used for the purpose of business. Appeal decides in favour of assessee
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2012 (9) TMI 748
Agricultural income - plantation company engaged in rubber cultivation - assessee is also buying latex from small planters convert into centrifuged latex and sell the same - assessee returned 100% of income from their plantation obtained on sale after conversion of field latex into centrifuged latex for assessment under the Kerala Agricultural Income Tax Act and no part was offered for assessment under the Central Income Tax Act – Held that:- Circular No.5 of 2003 dated 22/05/2003 prohibiting reopening of assessment under Section 147 as well as under Section 263 of the Income Tax Act for any assessment year prior to the assessment year 2002-03 - Assessees who have paid agricultural income tax on 100% of the income from centrifuged latex, will not be reassessed under the Central Act for any year prior to the assessment year 2002-03 - assessee's case is covered by the circular and the assessee cannot be called upon to pay tax again under the Central Income Tax Act on that part of the income assessed under Rule 7 over which also tax was paid under AIT Act Charging provision of assessment of part of the income from the sale of items of rubber covered by Rule 7A should be deemed to have come into force only when Rule 7A was introduced i.e. with effect from 01/04/2002 - from the assessment year 2002-03 onwards, income from centrifuged latex could be assessed under Rule 7A of the Rules.
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2012 (9) TMI 734
Disallowance of transport and octroi charges u/s 40(a)(ia)r.w.s. 194C - A.Y. 2005-06 - Held that:- On perusing the records of assessee there is nothing on record to show that the assessee has paid the entire sum of transportation charges before 31st March,2005 and there is nothing payable as on 31st March, 2005 - As the allowability of deduction u/s. 40(a)(ia) has not been examined by the A.O. in the light of decision of Special Bench in the case of Merilyn Shipping (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) the issue needs to be re examined, thus the matter should be remitted back to the file of A.O. for verification - in favour of remand by way of remand. Disallowance of wages - Held that:- As A.O. had not pin pointed any defect in wage register & has merely disallowed the payment for the reason that there were no signatures of the recipient on revenue stamp in the wage register and has further presumed that the assessee has inflated expenses on wages without pin pointing to any specific instance no disallowance on adhoc basis can be made - in favour of assessee. Addition in respect of valuation of closing stock - partial relief by CIT(A)- Held that:- As the assessee had not considered stock of work in process while valuing the closing stock and the assessee has submitted that it does the job of dyeing and printing on job work charges and while valuing the closing stock, the stock of WIP is already included based on that CIT (A) has granted partial relief - As assessee here has not pin-pointed the working of valuation of closing stock which would show that valuation of work in process is also included in it & has also not been in a position to demonstrate as to what was the break up of own material and that received for processing on job work basis no reason to interfere with the order of CIT (A) - against assessee. Non deduction of TDS - Disallowance of labour charges u/s 40(a)(ia)- A.Y. 2006-07 - Held that:- As decided in M/s. Alpha Projects Versus DCIT, Ci rcle-1(1) [2012 (4) TMI 466 - ITAT, AHMEDABAD] since the TDS has been paid to the account of Govt. before filing of return of income, no disallowance is called for - as in this case assessee has credited the amount on 31-3-2005 and tax was also deducted on that date. The TDS of RS.17,728/- was deposited in the Govt. account on 24-5-2005 i.e. before the date of filing of the return. (return was filed on 29-10-2005) no addition seems to be warranted - in favour of assessee. Addition on account of inflated purchases - Held that:- Difference of Rs.4,33,130/- was observed in the purchase register and the A.O. made addition on the basis of the difference and the statement of Accountant of assessee - As it is undisputed fact that the books of accounts of the assessee are audited by the auditors. CIT (A) had primarily agreed with the contention of the assessee and therefore directed the A.O. verify the reconciliation and delete the addition if the assessee’s contention was found correct. No infirmity in the directions of CIT (A) to the A.O. to verify and then delete if the assessee’s contention is found correct, thus no interference is called for in the order of the CIT (A) - in favour of assessee. Disallowance of transport and octroi charges u/s 40(a)(ia) - Held that:- The provisions of section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS as in the present case, since there is no sum payable as on 31-3-2006, following the decision of Special Bench in the case of Merilyn Shipping (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) we delete the addition made by A.O. - in favour of assessee.
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2012 (9) TMI 733
Penalty u/s. 271(1)(c)- unaccounted money - A.Y. 2002-03 - Held that:- As initially addition of Rs.4,61,500/- was made u/s. 68 which has been finally made of Rs.1,27,500/ - as the addition on which the penalty u/s. 271(1)(c) has been levied has itself been reduced from Rs.4,61,500/- to Rs.1,27,500/- the present penalty cannot survive. However, since the addition of Rs.1,27,500/- u/s. 68 has been sustained issue of penalty on the addition be restored back to the file of A.O. for deciding it afresh - in favour of assessee for statistical purposes. Penalty u/s. 271(1) (c ) - gift as unexplained cash credit u/s.68 - A.Y. 2003-04 - Held that:- Merely because the assessee could not prove the credit-worthiness of the donors, it does not justify the imposition of the penalty under section 271(1) (c). The facts of the case may justify the additions of the gift amounts for taxation purpose in the assessment of the assessee, but are not sufficient to justify the imposition of the penalty under section 271(1) (c) - in favour of assessee.
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2012 (9) TMI 732
Disallowance u/s. 14A - CIT(A) deleted the addition - Held that:- As decided in Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - DELHI HIGH COURT] as under the expression “expenditure incurred” refers to actual expenditure and not to some imagined expenditure. The “actual” expenditure that is in contemplation u/s. 14A(1) of the Act is the “actual” expenditure in relation to or in connection with or pertaining to exempt income - as in the present case A.O. had made the disallowance for interest and other expenses pertaining to the investments on an estimate basis at 10% of the dividend income A.O. has not given any finding with respect to incurring of expenses for earning tax free income. Thus disallowance of expenses on adhoc basis @ 10% of dividend income without giving any finding of fact warrants to be deleted - in favour of assessee. Inclusion of amount of sales tax and excise duty while computing the total turnover for the purpose of deduction u/s. 80HHC - CIT (A) directed to reduce the addition - Held that:- As decided in CIT 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 whereas amendments to section 80HHC(3) indicate exclusion of book profits but reasoning in this judgment is confined to the workability of the formula in section 80HHC(3) as it stood at the material time - in favour of assessee. Computation of deduction u/s 80HHC - 90% exclusion of net interest/rent or gross interest/rent - Held that:- As the facts in the year under appeal are identical to that of earlier year wherein the co-ordinate Bench has taken a view with respect to interest income and held that 90% of not the gross interest/rent but only the net interest/rent have to be reduced from business profits while computing deduction u/s. 80HHC. Further in the case of ACG Associates Capsules (P) Ltd. (2012 (2) TMI 101 - SUPREME COURT OF INDIA) the Hon’ble Apex Court has held that net interest needs to be reduced under Cl.(1) of Explanation(baa) to Sec. 80HHC for determining profits of business. Thus 90% of the net interest be reduced for determining profit for the purpose of deduction u/s. 80HHC. We therefore direct the A.O. to allow the deduction after verification - in favour of assessee. Computation of deduction u/s. 80HHC - receipt of insurance claim - Held that:- there is no profit element involved in insurance receipts, as the insurance claim is purely for the recovery of loss of material and asset of the company due to damage to the material and assets. We are of the view that the expenditure incurred by the assessee on material and assets lost due to damage is more than the insurance claim and there was no income to the assessee in the nature of insurance claim - the same will not be included either in the total turnover nor in the business profits of the assessee for the purpose of computation of deduction u/s. 80HHC of the Act - in favour of assessee. Computation of deduction u/s. 80HHC - brokerage of investment - Held that:- As this brokerage income in any way is not related to export earning but the expenditure relating to this brokerage income of any expenditure, the same will be reduced and only net income has to be excluded to the extent of 90% under clause (baa) while computing deduction u/s. 80HHC - partly in favour of assessee. Adhoc disallowance of 5% of Sales promotion - Held that:- The co-ordinate Bench on identical matter, in assessee’s own case, in earlier year has decided the matter by holding that the assessee has not vouched the expenses and the AO on scrutiny found that these expenses include the office expenses incurred at its branches at Madras, Bombay, Delhi and Kolkata and on scrutiny of these expenses finds that there are many expenses which have been incurred in providing tea, coffee, refreshments cold drinks, etc. to various visitors but nature of all these expenses reveals that these are many expenses which are not subject to verification and not properly vouched also - even now before that the assessee could not adduce anything to controvert that the expenses are vouched fully and there is no personal element in these expenditures accordingly the disallowance is confirmed - against assessee. Disallowance of Interest on loan - loan is for nonbusiness purpose - Held that:- That Revenue has not brought any nexus of borrowed funds being used for investments and the basis of the conclusion is on the basis of assumption. On the other hand the assessee has demonstrated with the help of details and its accounts that the investments have been made out of the sale of investments and out of free reserves. It has not utilized unsecured loans for the purpose of making investments - as Revenue has not been in a position to rebut the facts by bringing any material on record no disallowance can be warranted - in favour of assessee.
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2012 (9) TMI 731
Non deduction of TDS on payment of transport charges - Disallowance u/s.40(a)(ia) - Held that:- Nothing has been brought on record the goods were transported in pursuance of any sub-contract so as to apply the provisions of Sec.194C(2), thus in the absence of transfer or pass-over of any contractual responsibility to transporters as a sub-contractor, the assessee being an individual was not responsible for the deduction of tax at source as prescribed u/s.194C(2). As the AO has recorded a finding that the impugned amount was paid to truck-owners. The AO has noted that when the payments were made to various truck-owners, no TDS was deducted. In this regard, the Respected Special Bench has taken a view in the case of Merilyn Shipping & Transports, Visakhapatnam vs. Addl.CIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) that the word quote “ “payable” used in section 40(a)(ia) has to be given its natural meaning and, going by a strict interpretation, section 40(a)(ia) is applicable only to expenditure which is payable as on March 31 of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting tax at source.”. Thus,the provisions of section 40(a)(ia) are not applicable under this situation, hence the impugned disallowance is hereby deleted - in favour of assessee.
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2012 (9) TMI 730
Disallowance of payment of incentive to the drivers - the liability was contingent in nature for the year under consideration - Held that:- As decided in Bharat Earth Movers Versus CIT [2000 (8) TMI 4 - SUPREME COURT] if an assessee is maintaining accounts on mercantile system and a liability accrued, though discharged at a future date, held to be an allowable deduction while working out the profit and gains. The Hon’ble Court has held that having regard to the accepted principle of commercial practice and accountancy such deduction is permissible, so the liability was held as not a contingent liability. Decision of the AO was nothing but simply following the past history of the disallowance. Meaning thereby, even after the extreme step of search was taken by the Revenue Department, but the genuineness of the payment of the incentive to the drivers was not doubted - the liability of payment of incentive had definitely arisen during the accounting period under consideration and that liability was undisputedly discharged at a future date. The incurring of the liability was ascertainable for the year under appeal, therefore it is to be satisfied that it was not a contingent liability. In the result the findings of the authorities are reversed and direct to allow the claim - in favour of assessee.
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2012 (9) TMI 729
Addition on account of deemed dividend u/s 2(22)(e) - CIT(A) deleted the addition - Held that:- The deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder & the expression shareholder referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provisions of section 2(22)(e) will not apply - the similar issue in assessee’s sister concern for assessmentyear 2005-06, wherein clear finding is given in para- 14 that the assessee-company in which public is not substantially interest and one of the Director, Shri K.K. Bansal holds more than 20% share both in assessee- company and MMRML that assessee-company is not holding even a single share in MMRML and no shareholding is held by assesseecompany in MMRML - The perusal of the share holding indicates that the assessee company is not holding a single share in company lending advance, Accordingly, this issue is squarely covered in favour of the assessee. Addition on account of the payment made to GMB as plot development fees - CIT(A) deleted the addition - assessee is engaged in the business of Ship Breaking - Held that:- As the assessee-company possessed plot No.96 and on request made to GMB, permission sought was granted for plot No.V-5. The original plot No.96 was acquired by paying premium of Rs.9,11,250/- for 30 months. Since the same was used for 8 months the previous year relevant to assessment year 2003-04 the value written off is Rs.2.43 lakh - as in the year under consideration the total premium for the period from 01.10.2004 to 30.09.2005 was Rs.16.20 lakh and the assessee has claimed a sum of Rs.8.10 lakh for this period. The balance amount of Rs.8,74,200/- was claimed for the period from 01.12.2002 to 30.09.2004 and Rs.1,82,250/- for the period ending 30th September, 2004. In view of this face the assessee has rightly claim deduction of Rs.18,66,460/-, which was allowed by CIT(A)- in favour of the assessee.
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2012 (9) TMI 728
Interest on FDRs made out of zero coupon convertible bonds - Business income OR income from other sources - Held that:- If accompany has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. The company may keep the surplus funds in short term deposits in order to earn interest. Such interests will be chargeable under section 56. As the assessee made FDRs of the funds, therefore, making such FDRs was not at all related to the construction activity or any other capital installation, therefore, earning of interest on FDRs, before commencement of business, is income from other sources as decided in Commissioner Of Income-Tax Versus Modi Rubber Limited [1994 (3) TMI 70 - DELHI HIGH COURT] - against assessee.
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2012 (9) TMI 727
Income form lease rent - business income OR income from other sources - Held that:- Considering the main objects of assessee it is to develop residential and commercial complexes for the public at large and the ground rent was charged from immovable properties which were either sold or given on lease to various persons. Such land on which such development or construction activities were done by the assessee were made available by the Government on lease basis and such properties were also either sold on lease basis or leased out on rent fixed by the Government, therefore, such lease rent is directly connected with the objectives of the assessee, consequently, the character of such lease rent is business income, therefore, it was not income from other sources. Income from rent/rental - CIT(A)'s direction to AO that the income from rent/rental is to be taxed as income from house property - Held that:- the amount of Rs. 41,04,721/- was received by the assessee from letting out of buildings of the assessee which was claimed as such earning of such rental income is not the regular business of the assessee. Our view is fortified by the ratio of the decision in the case of Potdar Cements Private Limited and others; 226 ITR 625 and CIT vs. Dhoompalam Commercial Complex Industry Pvt. Ltd [2003 (1) TMI 52 - KARNATAKA HIGH COURT] therefore, the learned CIT(A) rightly directed to treat such income as income from house property and not business income. Interest from deposits in the bank - Held that:- As the surplus money deposited with the bank in itself is not sufficient to give it the character of business income. This interest income is the additional source to the assessee and is not “directly linked” with the business of the assessee. Surplus funds were deposited, therefore, such interest income is income from other sources. Interest on delayed payment- Held that:- The interest on delayed payments is essentially connected with the main objects of the assessee which is obtained out of housing/commercial units/industrial units, as the case may be, and is not an independent source of income. It is also connected with the business activities of the assessee, therefore, the true character of such receipt is also part of business income.
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2012 (9) TMI 726
Deduction u/s 54F - house was not constructed on the date of inspection by the Inspector - Held that:- As the assessee had invested the total sale consideration (net consideration) within three years after the transfer of the original asset. The words mentioned in section 54F are that the amount should be invested in the construction of a residential house. Therefore, once the assessee having been invested total sale consideration into construction of a residential house, then it is not necessary that the residential house should have been completed within three years of the transfer of the original asset. The residential house may be completed even after completion of three years of the transfer of the original asset. In such a situation, when a house is completed after expiry of three years from the transfer of the original asset, the assessee is entitled to exemption under section 54F as decided in CIT v. Sardarmal Kothari [2008 (6) TMI 15 - MADRAS HIGH COURT] The assessee had submitted application under Rule 46A admitting additional evidence which in fact, could not be submitted by the assessee before completion of the assessment but on having completed the house, after the expiry of three years from the transfer of the original asset along-with electricity bill which was not accepted by the CIT(A) as the same should have been accepted by the CIT(A) - in favour of assessee.
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2012 (9) TMI 725
Denial of interest u/s. 244A - no interest on the refund of self assessment tax - rectification application u/s. 154 withdrawing interest granted u/s 244A - Held that:- As decided in CIT vs. Ashok Leyland Ltd. [2001 (10) TMI 71 - MADRAS HIGH COURT] it is trite of law that wherever the assessee is entitled to refund, there is a statutory liability on the Revenue to pay interest on general principles on general principles on sums wrongfully retained. As decided in CIT vs. Gujarat State Warehousing Corporation [2001 (8) TMI 24 - GUJARAT HIGH COURT] assessee is entitled to interest u/s. 244A (1A) payment of tax made u/s. 140A and as in the present case undisputedly, the refund is on account of self assessment tax made u/s. 140A ssessee is entitled to interest u/s. 244A - in favour of assessee.
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2012 (9) TMI 724
Dis-allowance of commission expenses - alleged accommodation entries - survey u/s 133A undertaken at assessee's business premises on the basis of statement given by one Mr. Gupta alleging that the said Mr. Gupta was merely providing bills and entries and that he had been charging commission for his services @ 0.25% of the aggregate transactions - denial of cross examination of Mr Gupta - Held that:- In absence of any contrary material placed on record by the Revenue to show that the cross examination of Mr. K.K. Gupta was provided to the assessee, and keeping in view that the assessee had been showing profit ranging between 40 to 45% on the said purchases with Mr Gupta has not been uncontroverted by the Revenue even at this stage and also keeping in view the books of accounts have not been rejected, it is held that CIT(A) was not justified in sustaining the addition of commission and accordingly we delete the same. Dis-allowance of depreciation on certain P&M purchased from said Mr Gupta - Revenue contended such purchases of capital assets as fictitious - Held that:- It is not the case of the Revenue that the plant and machinery were not installed at the assessee’s business premises or the same were not used for the purpose of the business of the assessee or the rate of depreciation claimed by the assessee is not according to the Rules. Estimated disallowance of depreciation made by the A.O. is not sustainable in law and accordingly order of CIT(A) in deleting the same is upheld - Decided in favor of assessee.
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2012 (9) TMI 723
Rejection of application for grant of certificate u/s 80G on ground that applicant trust has not carried out any charitable activities during the last three years and has not incurred any expenditure on the same - contravention of the benevolent provisions of section 80G - Held that:- It is not the case of the Revenue that assessee has not satisfied all the conditions laid down in Clauses (i) to (v) of sub-section (5) of section 80G. Merely because the assessee has not carried out any charitable activity during the last 3 years does not mean that the assessee is not entitled to the certificate u/s 80G if other conditions as laid down under Clauses (i) to (v) of sub-section (5) of section 80G read with Rule 11 AA of the Income Tax Rules, 1962 are fulfilled. In the absence of any material to show that the amount received by the assessee has been spent for any other purposes other than charitable purpose or not for construction of houses for poor and needy people as per object of the trust, DIT(E) has erred in not granting the approval u/s 80-G to the applicant trust. He is, therefore, directed to grant approval u/s. 80-G to the Trust - Decided in favor of assessee
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2012 (9) TMI 722
Misc application filed against ex parte and non-speaking order passed by Tribunal for non-prosecution - Held that:- There is no dispute that the applicant had engaged a counsel and was, therefore, justified in presuming that the counsel would attend the case. However, due to certain mistake in noting the date of hearing in the diary maintained by the assessee’s counsel, he could not attend on the date of hearing. In the absence of any contrary material placed on record by the Revenue, we are of the view that the lapse on the part of the assessee’s counsel appears to be bonafide. It is also undisputed that Tribunal while dismissing the Misc. Application filed by the assessee has not passed any speaking order and has dismissed it on the ground for non-prosecution only. there was a reasonable cause, therefore, it is held that the mistake of the counsel was bonafide and the applicant cannot be made to suffer for the mistake of the assessee’s counsel and accordingly the ex parte order for non-prosecution passed by the Tribunal is recalled - Decided in favor of assessee
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2012 (9) TMI 721
Dis-allowance of gift expenses, Chandla expenses, Diwali expenses, and business promotion expenses aggregating to ₹ 17,41,127 - partial relief provided by CIT(A) - assessee contending commercial expediency - Held that:- In the absence of any distinguishing features brought on record by the parties, respectfully following the order of the Tribunal in earlier year and keeping in view the rule of consistency, total disallowance sustained by the CIT(A) is reduced by 50% Dis-allowance of sundry expenses - Held that:- In absence of any distinguishing feature brought on record by the Revenue, we respectfully following the consistent view of the Tribunal, restrict the disallowance of expenses at 25% of the sundry expenses.
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2012 (9) TMI 720
Validity of reassessment proceedings u/s 263 - deduction u/s 80P - cooperative society, not having primary object to provide loan or credit facilities to its members for operating agricultural activities - Held that:- An amendment was brought in by insertion of sub-section (4) of section 80P by Finance Act, 2006 w.e.f. AY 2007-08 which has specifically excluded certain cooperative societies from the purview of section 80P. This amendment was not considered by the AO while framing the assessment for the AY 2007-08. As per verdict of the Supreme Court in the case of Malabar Industries (2000 (2) TMI 10 - SUPREME COURT), incorrect application of relevant provisions of law will render the order of the AO as erroneous in so far as prejudicial to the interest of the Revenue. However, in present case, CIT has directed in the impugned order that the claimed deduction is not admissible to the assessee and at the same time set aside the matter to the file of the AO meaning thereby that the powers of the AO to examine the issue have been curtailed. Therefore, this direction of non-admissibility is modified and AO is directed to examine the assessee’s claim for eligibility in accordance with the amended provisions sub-section (4) of section 80P of the Act - Decided partly in favor of assessee for statistical purposes
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2012 (9) TMI 719
Penalty u/s 271(1)(c) for concealment of income in relation to unexplained jewellery found at the time of search conducted on 10.11.2006 - assessee filed the return of income for the relevant year after search on 21.4.2008 in which the jewellery was declared as undisclosed income - penalty levied on ground that assessee had not declared undisclosed income on account of jewellery in the statement recorded under section 132(4) - benefit of clause 2 to Explanation 5 of section 271(1)(c) - Held that:- The present case is not a case in which the transactions relating to the undisclosed income have been recorded in the books of account on or before the date of search. It is an established fact that at the time of search unexplained jewellery had been found and had also been seized. Thus, the assessee at the time of search and at the time of making statement u/s 132(4) was aware that the jewellery was unexplained and despite this the assessee had not declared it as undisclosed income. Penalty u/s 271(1)(c) is leviable in relation to unexplained jewellery because the same had been declared by the assessee as undisclosed income after it was detected during search and the assessee was not entitled to the benefit of clause-2 of Explanation-5 of section 271(1)(c) - Decided against assessee
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2012 (9) TMI 718
Income from purchase and sale of shares - Business Income as contended by Revenue or Short Term Capital Gains - Held that:- It is seen that the AO has primarily relied upon the finding of the AO in the immediately preceding AY i.e. AY 2005-06. Such a finding of the AO has been reversed by the CIT(A), wherein, it has been categorically held that the sale of shares and securities in the case of the assessee, amounts to short term capital gain and not business income. Against this order, no second appeal has been filed by the Department, and, hence, it has attained finality. This aspect of the matter has also been accepted by the AO in the subsequent year as evident from the copy of computation of income and the assessment order dated 8-12-2009 passed u/s 143(3). Hence, no infirmity found in order of CIT(A) treating the same as short term capital gains on ground that intention of buying of shares was solely for the purpose of investment which is evident from the investment made in the shares during the year 2005-2006, most of the investments in securities was by way of mutual fund which cannot to be traded in the ordinary course, and assessee has earned a huge dividend income - Decided against Revenue.
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2012 (9) TMI 717
Dis-allowance u/s 40(a)(ia) - charter hire charges to sister concern SML - Revenue contended applicability of Section 194C and alternatively of Section 194I - period 01.04.2006 to 12.07.2006 - AY 07-08 - Held that:- Tribunal in assessment of AY 05-06 has held non-applicability of Section 194C on payment of charter hore charges. Same is followed in impugned AY and consequently no dis-allowance u/s 40(a)(ia) can be made on that account. As regards the applicability of section 194-I, it is observed provisions, was substituted by Taxation Laws (Amendment) Act, 2006 w.e.f. 13.07.2006 extending the scope of “rent” to any payment by whatever name called for the use inter alia of machinery or plant or equipment. Such amendment cannot be applied retrospectively from 01.04.2006. In that view of the matter the ground raised by the Revenue for extending the amount of dis-allowance u/s 40(a)(ia) to the amount paid during the period 01.04.2006 to 12.07.2006, is dismissed. Period 13.07.2006 to 02.11.2006 - assessee explained that no payment was made nor any amount was credited to the account of SML during the period 13.07.2006 to 02.11.2006 and certificate of tax exemption was granted u/s 197 by the competent tax authority permitting the deduction of tax at Nil rate in respect of charges credited after 03.11.2006 - Held that:- If there is neither the credit of income to the account of the payee nor payment thereof, the provisions of section 194-I cannot apply. Once the provisions of section 194-I are held to be not applicable, the question of disallowance u/s 40(a)(ia) is also ruled out. During the period 13.07.2006 to 02.11.2006, amount was neither credited to the account of SML nor were paid. Both the credit to the account as well as payment took place after 03.11.2006, being the date from which the assessee got certificate u/s 197 for deduction of tax at source at Nil rate. We, therefore, overturn the impugned order to the extent it sustained disallowance u/s 40(a)(ia) in respect of charter hire charges for the period 13.07.2006 to 02.11.2006 - Decided in favor of assessee
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2012 (9) TMI 716
Dis-allowance u/s 40(a)(ia) - royalty paid to the Court Receiver deemed to be covered u/s 194J - Held that:- It is impermissible for the parties to reargue the same matter time and again before the tribunal in an attempt to unsettle the settled position. The view taken by the tribunal in a preceding year (2011 (4) TMI 508 - ITAT, MUMBAI) deserves utmost respect in so far as the subsequent years involving the similar point before the tribunal are concerned, unless there is some change in the factual or legal position. - We, therefore, uphold the impugned order on this issue by holding that the amount in question is in the nature of royalty payment covered u/s 194J and resultantly disallowance u/s 40(a)(ia) is called for - Decided against assessee Loan to relatives without Interest - held that:- As no nexus between the interest bearing loans and its utilization for the purpose of profession was shown, the A.O. disallowed proportionate interest attributable to interest free deposit of loan as being not wholly and exclusively for profession. - Decided in favor of revenue.
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2012 (9) TMI 715
Relief u/s 90 & 91 – Assessee company paid income tax in Japan & New Zealand on income earned in respective countries - AO & CIT(A) not allowed relief u/s 90 be allowed in respect of taxes paid outside India – CIT (A) decide against the appeal of assessee on the basis of decision given by Tribunal in assessee’s own appeal for earlier year – Appeal decides without the considering DTAA with these countries – Held that:- While deciding the issue, DTAA should also be considered and hence, this matter should go back to the file of the CIT (A) for deciding afresh after considering the issue in the light of these two DTAA of India with New Zealand and Japan and hence order is set aside. Issue remand back to revenue. Disallowance of Income Tax paid outside India - Whether Tax paid outside India are deductible u/s 37(1) – Held that:- As the assessee’s appeal is squarely covered in favour of the revenue and against the assessee by the decision of the Tribunal in assessee’s own case for earlier AY. Therefore, taxes paid by the assessee outside India are not deductible u/s 37(1) r.w.s 40(a)(ii) and Sec. 2(43). Appeal decided in favour of revenue. Deduction u/s 80HHC – Whether turnover is to be compute on prorata basis despite of that assessee has maintain separate books of account in respect of that unit, while computing deduction u/s 80HHC - Assessee engage in export of electronic hardware from its unit in EHTP – Assessee compute deduction u/s 80HHC by taking only the total turnover of one unit – Whereas AO takes total turnover of the assessee company – Assessee maintain separate books of accounts in respect of this unit and were duly audited – Held that:- When separate books of account are maintained by the assessee in respect of the concerned unit and profit eligible for deduction u/s 80HHC can be worked out directly on the basis of such separate books of account, the same needs to be preferred than the formula given in sub-section 3 which works out such profit only on prorata basis in absence of separate book of accounts following the decision in case of Rathore Brothers (2001 (10) TMI 72 - MADRAS HIGH COURT). Decision in favour of assessee Exemption u/s 10A – Whether exemption can be claimed when the relevant statute was not there i.e. on the first day of the Financial Year -Assessee claimed exemption u/s 10A for a period of five years from AY 1991-92 to 1995-96 - Sec.10A were amended by Finance Act, 1998 w.e.f. 1.4.1999 extending the benefit of exemption u/s 10A for a period of ten consecutive A.Y. - Assessee claimed exemption u/s 10A for the year under consideration i.e. 1998-99 on the basis that it was ninth year from the AY in which it’s eligible undertaking began manufacture or production – AO contented that since exemption was not claimed by the assessee in the preceding two years i.e. AY 1996-97 and 1997-98 and also extended period of exemption up to ten years was applicable only to those undertakings which were currently enjoying the benefit of Sec. 10A - Held that:- Following the decision in the case of M/s. DSL Software Ltd (2011 (10) TMI 423 - KARNATAKA HIGH COURT), the assessment year involved is AY 1998-99 and since the provisions of section 10A as amended w.e.f. 1.4.1999 were not there in the statute on the first day of AY 1998-99. Therefore, denying the claim of the assessee for exemption u/s 10A. Decision in favour of revenue Deduction u/s 80HHE – Assessee computed the deduction u/s 80HHE by taking the relevant financial data only of the concerned unit which is related to export of software out of India - The AO and CIT (A) however adopted the relevant financial data of all the businesses of the assessee together to work out the profit eligible for deduction us/ 80HHE on prorata basis – Held that:- Following the decision in case of Rathore Brothers (2001 (10) TMI 72 - MADRAS HIGH COURT), allow the deduction to the assessee u/s 80HHE on the basis of separate books of account maintained in respect of the concerned undertaking / unit of the assessee. Decision in favour of assessee Disallowance of Provision for pension – AO contended that same cannot be said that it is based on a reasonable certainty - Number of years for which a particular person is going to receive pension is not known with any certainty – Held that:- Deduction should be allowed if a business liability has definitely arisen in the accounting year, although the liability may have to be quantified and discharged at a future date. It was also held that it should also be capable of being estimated with a reasonable certainty, although the actual quantification may not be possible. Since the valuation was done on the basis of actuarial valuation, it cannot be said that the liability was not determined with a reasonable certainty. Decision in favour of assessee Interest income taxable under head PGBP or Income from other sources – Held that:- On the basis of decision of Tribunal in assessee’s own case holding that interest income in the facts and circumstances of the assessee’s case was chargeable to tax under the head income from other sources. The Tribunal however accepted that only net interest income should be assessed under the head income from other sources after deducting expenses incurred for earning the said income. Therefore issue partly allowed. Exclusion of Excise duty & Sales Tax from turnover for computing deduction u/s 80HHE – Held that:- Following the decision in case of Sudarshan Chemicals Industries Ltd (2000 (8) TMI 73 - BOMBAY HIGH COURT), to exclude excise duty and sales tax from the “total turnover” for the purpose of computing deduction u/s 80HHE. Decision in favour of assessee
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2012 (9) TMI 713
Addition on account of undisclosed purchase – Assessee engage in sandal wood business – During search u/s 132, AO found incriminating materials in respect of investment made in business – CIT(A) estimated profit @ 20% of business – Held that:- When the material found during the course of search operation, discloses the investment made by the assessee and the assessee has also accepted the statement found in the seized material then it must be used by CIT(A). CIT(A) made addition without referring the seized material. Therefore issue remand back to CIT(A) Undisclosed investment u/s 69B – During search AO founds that assessee made investment in shares which is more than amount shown in books – Held that:- Since both the parties have not filed the copies of the document before Tribunal. Therefore, Tribunal unable to verify the entries in the seized document. Therefore, orders of the lower authorities are set aide and the issue relating to investment is remitted back to the file of the AO Addition u/s 68 – AO made addition on account of unexplained creditors – Assessee submit the confirmation with CIT(A) – CIT(A) set aside the order of AO for reconsideration – Held that:- CIT(A) has no power to set aside the assessment for reconsideration. But the fact remains is that the assessee has filed the confirmation letters from the creditors which needs to be considered by the AO in accordance with law. Issue remand back to file of AO.
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Customs
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2012 (9) TMI 746
Writ petition - For restraining the respondent-authorities to auction the confiscated items under the provision of Customs Act - to destroy the aforementioned betel nut – alleged that smuggling of betel nuts in collusion with Patna Custom Authorities - petitioner further submitted that in these circumstances the Central Government through Chief Commissioner, Customs (Preventive), directed the Central Board of Excise & Customs not to sell such confiscated items in public auction as they were sensitive commodities prone to smuggling and to offer it to Kendriya Bhandar and NCCF only – Held that:- There is no Kendriya Bhandar in Patna and hence earlier such betel nuts were provided to NCCF for selling it in retail to Co-operative Societies under the authorities, but subsequently started selling it to big concerns like the Kanpur Manufacturers, which were preparing hazardous and harmful items like Paan Masala and Gutka etc. - petitioner has been unable to substantiate and validly show from the statements made in the writ petition that his interest had suffered or any right has been taken away or he had been affected in any manner whatsoever by the impugned action of the respondent-authorities. He has also failed to prove by any valid material that he had ever been purchaser of betel nuts from Kendriya Bhandar or NCCF - writ petition dismissed.
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2012 (9) TMI 745
Penalty - misdeclaration – alleged that misdeclaration of age of machinery so as to get import benefit in the Bills of entry – Held that:- Import of machinery after obtaining the requisite permission and observing the formalities - approval given by the Government of India, the certificate issued by the Chartered Engineer and what is mentioned in the bill of entry are all identical. At the time the machinery was removed from Mysore to Bangalore, the said Mr. Vinaya Chandra was not in office - Under these circumstances, holding him liable for misdescription on the statement of the co-noticee and the officials of the department, was not proper – penalty set aside
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2012 (9) TMI 712
Undervaluation of imported consignments - department seeking enhancement of penalty imposed u/s 114A equivalent to the duty demanded plus the corresponding interest accrued u/s 28AB - assessee contested against ADG DRI's power having no jurisdiction to issue the impugned show-cause notices - Held that:- The ADG DRI was competent to issue the impugned show-cause notices as ADG DRI has been appointed as Collector by Notification No. 19/90-Cus (NT) dated 26.4.90. We also note that the ADG DRI has been specifically empowered by the Board vide Circular No. 4/99-Cus dated 15.2.1999 to issue show-cause notices in respect of cases investigated by them. This circular has not been shown to have been rescinded. Further, subsequently, by Notification No 44/2011-Cus (NT) dated 6-7-2011 issued in exercise of powers conferred by Section 2(34), DRI officers including ADG DRI were appointed as proper officers for the purposes of Section 17 and Section 28. The appellants had entered into 3 contracts which all had bearing on the value of the goods imported by them. At the time of filing declaration for the purpose of claiming the benefit of project import regulation scheme, they had mentioned only about the supply Agreement and not about the other Agreements relating to Basic Engineering Design undertaken by the licensor and Extended Basic Engineering Design undertaken by FEC who were also the suppliers. It is not the case of the assessee that the department knew the fact of the appellant having made payments under the other two Agreements. There was no justification for the appellant to entertain a belief that the payments under the two Agreements with the Licensor and FEC were towards buyers assist. As already noted, the notice inviting tender was dated 25.6.97 and the specifications for procuring equipments must have been known before inviting tender. Even otherwise we have held that the amounts paid under these two agreements are too high to be considered as towards buyers assist. As all the Bills of Entry except three were provisionally assessed as required under Project Import Regulations and the same were finalized/directed to be finalized by the impugned order. In view of the above, it is to be held that the invocation of extended period of limitation and imposition of penalties on the assessee are justified. As the show-cause notices specifically indicated only amounts of duty proposed to be demanded but did not indicate the quantum of interest proposed to be demanded. Apparently, the duty demand itself was to be determined subject to the outer limit of amounts mentioned in the show-cause notices. The interest payable depends not only on the duty so determined but also the actual date of payment of the duty so determined. Only then, the actual interest payable will be ascertainable. Obviously, in the present cases, the Commissioner at the time of adjudication of the case could not have determined the actual amounts of interest to be included in penalties under Section 114A. Further Section 114A envisages penalty on the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section 8 of Section 28 . The Commissioner was not in a position to determine the interest amount at the time of passing the impugned order. Therefore, his imposing penalties equal to the duty determined is in order. Since misdeclaration of the value of the imported goods has been upheld, the goods are held liable for confiscation. However, in view of the clear finding of the Commissioner that the said goods are not available for confiscation, imposition of fine under Section 125 is not justified.
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2012 (9) TMI 711
Stay application - interest – seizure of sale proceeds of smuggled goods - Tribunal ordered release of the currency holding that the same is not liable for confiscation under Section 121 of the Customs Act - delay in payment of refund – Held that:- There is no provision in the Customs Act for payment of interest on return of the seized currency or return of the sale proceeds of any seized goods which are ordered to be released - there is absolutely no justification for more than 10 year’s delay in returning the seized currency and the conduct of the officers amounts to defying the Tribunal’s order, the Commissioner (Appeals)’s order sanctioning the interest on the seized currency for the delay in its return is not correct - It is only the High Court, which in exercise of their writ jurisdiction can order the payment of interest by the Department for period of delay in return of the currency - order ordering payment of interest is stayed and the Revenue’s stay application is allowed.
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2012 (9) TMI 710
Rebate claim - manufacture of electrical goods, cables & MCCB - They exported finished goods - department observed that the appellants had taken DFIA Licence – alleged that they availed/claimed the said rebate of duty by availing the double benefit i.e. availment of Cenvat credit of duty paid on inputs – Held that:- No restriction in the Notification No. 40/2006-Cus., on claiming rebate of duty paid on exported goods and availment of Cenvat credit. Since the applicant has complied with all the provisions and procedure as laid down in Rule 18 of Central Excise Rules, 2002 and Notification No. 19/2004-C.E. (N.T.), dated 6-9-2004 - no dispute about the export of duty paid goods, the rebate claim is admissible to the respondent
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Corporate Laws
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2012 (9) TMI 744
Winding Up Petition filed u/s 433(e) and (f) along with section 439 of the Companies Act, 1956 - share application money and unsecured loans provided by petitioner is pending - Held that:- It is not the case here that the share application was not refunded or shares were not allotted. The shares were allotted on 20.9.2010. The present petition has been filed on 29th September, 2010 much after the issuance of the shares. The case of the petitioner is that he demanded the return of the share application money with a request not to allot the shares and it therefore amounts to a debt. It is held that return has to be in terms of the procedure contemplated u/s 100 to 104 of the Companies Act and on an approval by this Court. Merely because a refund has been asked, neither is it a debt nor is the Company liable to pay the same. Unsecured loans - respondent has admitted debt and stated that the said amount is not due for payment immediately - Held that:- It is not a debt at present. It may be a debt in future. Therefore, even though the liability has been admitted, the petitioner cannot coerce the company to make the said payment especially in view of the fact that the payments are not immediately due. For the aforesaid reasons, the petitioner has failed to make out a case. The petition being devoid of merits is dismissed.
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Service Tax
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2012 (9) TMI 773
Appeal u/s 35G with High Court – Assistant Commissioner disallow the Cenvat Credit of ₹ 5,01,561 – Commissioner Appeal upheld the same – CESTAT set aside the order of commissioner appeal – Now department file appeal with High court u/s 35G – Held that:- Since in the instant appeal the amount involved is ₹ 5,01,561/- only, In view of the circular dated 17.08.2011, the appeal could not have been preferred by the department before this Court. Therefore, authorizing the Department to file appeals where the amount is less than ₹ 10 lacs. It cannot be gainsaid that the Department is bound by its own circulars. Appeal decide against revenue
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2012 (9) TMI 772
Adjustments of excess payment of service tax - Rule 6(3) of the Service Tax Rules, 1994 - General Insurance business - demand raised on ground that there was absence of clear material evidence to prove the fact that the service tax has been paid on total premium received inclusive of amounts refunded and that the amounts refunded have actually been received by the clients of the appellants - Held that:- The whole rationale behind Rule 6 (3) is that where the service tax has been paid on amounts received for providing particular service and that service for some reason has not been provided by an assessee, he can make adjustment of the excess tax paid in the succeeding period. That rationale would be defeated if the condition of refund is insisted to be satisfied only in a particular manner. The Rule itself does not provide for particular manner of refund and if it is a common industry practice to give refund by way of credits for any particular industry, there would be no harm in allowing refund by adopting such widely accepted industry practice. What is required to be verified is that either by credit or by cheque the appellants have refunded the amounts, for which they should make available their books of account/computerized records or statements as may be required by the adjudicating Commissioner. There should be co-operation between the department and the assessee to come to a fair conclusion as to whether the provision of Rule 6(3) has been satisfied. Matter remanded to the adjudicating Commissioner for fresh decision.
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2012 (9) TMI 771
Speaking order – works contract service – Held that:- Authority has failed to examine incidence of tax in respect of each contract of the adjudication order - authority simply discussed law in the impugned order for arriving at this conclusion without testing the facts of the case of the appellant relating to each contract - law does not approve an abrupt conclusion simply stating the provisions of the law in the adjudication order. The law applicable should be clearly brought out to test the material facts governing the issue and the appellant should be exposed for rebuttal in the course of fresh adjudication - matter is remanded to Adjudicating Authority
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2012 (9) TMI 747
CENVAT credit - Custom House Agent services and terminal handling charges - Held that:- As in the case of F.O.B. exports, load port has to be considered as place of removal and therefore credit is admissible -the place of removal has to be considered as the port where the goods are put on board the ship or the aircraft as the case may be - in favour of assessee.
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2012 (9) TMI 737
Refund claim of service tax paid on terminal handling charges - rejection on ground that terminal handling charges was not one of the services mentioned in Notification No.41/2007-ST - also rejected on the ground that it was filed beyond six months prescribed under notification No.41/2007 - Held that:- Tribunal in assessee's own case for earlier year has held that refund of service tax paid on terminal handling charges in case of exports is admissible. As regards limitation, since the department itself has taken the view that claim submitted after 07.07.09 have to be considered under Notification No.17/2009-ST, the submission of the assessee that authorities erred in considering the refund claim under notification No.41/2007 and when the benefit was available under notification No. 17/2009, the same should have been extended especially when it was claimed in reply to the SCN and before the Commissioner (Appeals) in appeal, is accepted. Matter remanded to the original adjudicating authority - Decided in favor of assessee.
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2012 (9) TMI 736
Penalty - commissioner in review proceedings, penalty under Section 76 has been revised and confirmed @ Rs. 200/- per day or the default period or 2% of the service tax per month whichever is higher against the appellants. – Held that:- During the period April 2002 to September 2002, penalty under Section 76 of the Finance Act is leviable @ Rs.100 per day which may extend up to Rs. 200/- during that period - adjudicating authority has exercised his option and imposed the penalty @ Rs.100 per day - Commissioner cannot go beyond the provisions applicable at the time of occurrence of offence - appeal is allowed
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2012 (9) TMI 735
Denial of cenvat credit of service tax - services are utilised by the appellant post removal of the goods for export – Held that:- Place of removal shall be Port and any service utilised by the assessee at that moment can be considered as input service and cenvat credit can be availed of such service tax by the service providers - appeal is allowed
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Central Excise
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2012 (9) TMI 743
Wrong claim of Notification no. 4/2006-CE dated 01.03.2006 as amended by notification no. 4/2008 - goods manufactured by the applicant are craft paper board - Application for waiver of pre-deposit of duty, interest and penalty - Held that:- The contention of the applicant that the notification is a conditional notification and it is not absolute exemption, therefore, the demand is not sustainable is acceptable as that there exists conditions attached to the exemption provided at serial no. 90 of the Notification. As the notification is subject to the condition provided at serial 10, therefore, prima facie merit in the contention of the applicant that the notification is not absolute exemption. Hence pre-deposit of the dues and stay recovery is waiwed - stay granted - in favour of assessee.
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2012 (9) TMI 742
Pre-deposit,penalty, interest under rule Pan Masala Packing Machine - Assessee is a manufacturer of Pan Masala containing tobacco – Paying duty u/s 3A CEA, 1944 and Rules thereunder on the basis packing machine - During some period, certain number of machines not been operated for the whole month – Certain had been operated only for part of the month, therefore assessee not pay duty for that period – AO issue SCN u/s 11 for demand of duty, interest and penalty - Whether in respect of such machines the duty would be payable only on pro-rata basis for the number of days in the month during which the machine had functioned or would be payable for the whole month without giving abatement for the period for which the machine was sealed – Assessee file stay application - Held that:- As the appellant have not been able to establish prima-facie case in their favour and hence this is not a case for total waiver from the provisions of u/s 35F. On deposit of the duty amount within the stipulated period, the requirement of pre-deposit of interest and penalty shall stand waived and recovery thereof stayed till the disposal of the appeal. Decision in favour of revenue.
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2012 (9) TMI 741
Demand and penalty - cenvat credit - whether credit cannot be taken on the basis of photocopy/true copy of the bill of entry – Held that:- Goods were received in factory in 2005 and the original bill of entry admittedly was available till 14-4-06 and thereafter only it got misplaced according to the respondents - bill of entry was available till the credit was taken i.e. for more than a year. How it disappeared thereafter is something for which no explanation whatsoever has been putforth by the respondents - credit cannot be allowed on the basis of photocopy of bill of entry – In favor of Revenue
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2012 (9) TMI 740
Cenvat credit – manufacture of both dutiable and exempted products - Sodium citrate was a common input used in the manufacture of both the dutiable and exempted products - only 25 kgs. of the chemical was received by them and credit of Rs. 252/- taken thereon - Out of the said quantity of sodium citrate, only 146 grams were used in the manufacture of exempted product, which involved MODVAT/CENVAT credit of Rs. 1.50 - entire credit of Rs. 252/- on sodium citrate was also reversed - original authority, in adjudication of the relevant show-cause notice, directed them to pay 8% of the value of the exempted product cleared from their factory during the said period, amounting to over Rs. 30.5 lakhs - action of the original authority amused the first appellate authority which, however, set aside - appeal dismissed
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2012 (9) TMI 739
Demand of duty and penalty – shortage of various grades of lubricating oils manufactured by assessee and packed in unit containers – Held that:- Argument that the conversion loss was noticed only at the time of annual stock taking is a fallacy and therefore it cannot be accepted. The applicants did not produce any scientific literature or authentic evidence from authorized agency to prove that vagaries of weather or viscosity can induce/cause loss or shortages on lubricating oil - assessable value which is based on the packing quantities of each grades varies for packing quantities of different grades and even varies for different packing quantities under the same grade and as such the shortages found in packed lubricating oil of different grades and packing quantities cannot be adjusted with the excess found in another set of different grades and packed quantities especially when all these were packed goods which were entered in the statutory daily stock register as manufactured excisable goods, on which duty is chargeable – demand of duty and penalty upheld
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2012 (9) TMI 738
Demand, interest and penalty - for appropriation of interest and penalty assessees paid Demand, interest and penalty out of the credit amount - Held that:- interest and penalty amounts cannot be so appropriated - it should be paid in cash – in favor of Revenue
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2012 (9) TMI 709
Disallownace of Cenvat credit - no storage tank included in the definition of capital goods - Held that:- Though in the definition of Rule 57-Q the storage tank was not included, it is clear from the afore-said definition that the tubes, pipes and fittings thereof used in the factory were included in the definition of capital goods. The storage tank has been held to be a component to the main machinery namely, boiler and the benefit is extended to the inputs used in the construction of the storage tank though it is also embedded to the land. On the same reasoning the assessing authority ought to have extended the benefit to the syrup and molasses storage tank also, as they are byproducts in the course of manufacturing activity which are also excisable at the time of selling the same to the assessee. As the assessing authority has himself extended the benefit to storage tank storing water as a component to main machinery namely, boiler, he ought to have extended the benefit to the storage tanks which are also part of the factory premises, in which the byproducts are stored and thereafter sold as a finished product. In that view of the matter,no justification to interfere with the orders passed by the appellate authority - No substantial question of law arises for consideration - in favour of assessee.
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2012 (9) TMI 708
Job work - person liable to pay duty of excise - manufacturer - the imported gambier is not processed by M/s. IWPCL but is sent by them to their job worker, M/s. BCPL for processing on job work basis and while processing the imported gambier on job work basis for M/s. IWPCL, M/s. BCPL are not functioning under Notification no.214/86-CE - held that:- It is settled law that when a principal manufacturer gets his goods manufactured from a job worker on job work basis and the transaction between them are on principal to principal basis, it is the job worker who would be liable to pay duty not the principal manufacturer. - stay granted. Even if the duty is held as chargeable, if the cenvat credit is allowed, the net duty demand would be negligible and that too after assuming that the entire duty demand for the period from May, 03 to December, 07 is within time, which also appears to be doubtful. Thus, looking at from this angle also, there does not appear to be any duty liability against assessee - in favour of assessee.
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2012 (9) TMI 707
Refund of education cess - export - rebate of duty - amendment is prospective or retrospective – notification no. 40/2001, 90/2004 and 28/2004 - Held that:- The custom authorities are not right in rejecting the claim of refund of education cess, by treating the explanatory notification to be prospective. - The explanatory notification being part of original notification therefore has to apply from the date of original notification and does not operate with prospective effect, as it does not give any substantive right independently. The Notification dated 6-9-2004 had included the definition of Excise Duty only in consonance with the meaning of Excise Duty as was existing on the date Notification was issued, even if Explanation would not have been there the term Duty of Excise in ordinary circumstance would have included the surcharge levied as Education Cess in terms of Section 93 of the Act of 2004. - writ petition allowed - refund of education to be allowed with retrospective effect.
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2012 (9) TMI 706
Invocation of the provisions of Section 11AC of the Act and Rule 25 of the Rules – Held that:- Requirements of Section 11AC of the Act are required to be satisfied, namely that the default should be occasioned by reason of fraud, collusion or any wilful misstatement or suppression of facts, or the contravention of any of the provisions of the Act or Rules should be with the intent to evade payment of duty. Unless, the said basic ingredients are satisfied, the question of invoking either Section 11AC of the Act or Rule 25 of the Rules would not arise - in the absence of any such finding having been recorded by the adjudicating authority, the question of imposing penalty under Section 11AC of the Act and Rule 25 of the Rules would not arise
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2012 (9) TMI 705
Condonation of delay - delay of 42 days - Tribunal refused to condone the delay - Held that:- Appellate Tribunal has taken a narrow view of the matter. An Appeal is a substantive right. The assessee should have a full opportunity to put forth his case and should be able to get relief, if any, in accordance with. - following the decision in Anantnag and Anr. v. Mst. Katiji and Ors. [1987 (2) TMI 61 - SUPREME COURT] delay condoned with cost of Rs. 5000/-
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Indian Laws
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2012 (9) TMI 770
Suit for recovery of possession from a tenant - Held that:- In a suit for recovery of possession from a tenant whose tenancy is not protected under the provisions of the Rent Control Act, all that is required to be established by the plaintiff-landlord is the existence of the jural relationship of landlord and tenant between the parties and the termination of the tenancy either by lapse of time or by notice served by the landlord under Section 106 of the Transfer of Property Act. So long as these two aspects are not in dispute the Court can pass a decree in terms of Order XII Rule 6 of the CPC Considering the averments made in the plaint and the written statement clearly spell out an admission by the defendant that lease agreement dated 10th October 2001 was indeed executed between the parties. It is also evident that the monthly rent was settled at Rs.50,000/- which fact too is clearly admitted by the defendant although according to the defendant, the said amount represented rent for commercial use of the premises and not residential purposes as alleged by the plaintiff. Suffice it to say that the averments made in the written statement clearly accept the existence of the jural relationship of landlord and tenant between the parties no matter the lease agreement was not duly registered. Whether the tenancy was for residential or commercial use of the property is wholly immaterial for the grant of a decree for possession - Thus as the premises in question is being used by the tenant for commercial purposes, thus the defendant is granted time till 31st December, 2012 to vacate the same on furnishing an undertaking in usual terms before this Court within four weeks from date of this Order.
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