TMI Tax Updates - e-Newsletter
September 3, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax Wealth tax Indian Laws

TMI SMS

• Binding nature of a Circular which is contrary to the provisions of Income Tax Act -the circular has a binding force -revenue cannot contend to the contrary -HC

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Articles

1. No TDS on Service Tax

   By: DEVKUMAR KOTHARI

2. WHETHER THE LOSS ON ACCOUNT OF DERIVATIVE BUSINESS CAN BE CARRIED FORWARD AND SET OFF AGAINST THE NORMAL BUSINESS INCOME?

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Government Approves Seventeen (17) Proposals of Foreign Direct Investment Amounting to about Rs. 992.61 Crore

2. 20th Half Yearly Report on Management of Foreign Exchange Reserves - October 2012-March 2013

3. Current Economic Situation has not Reduced Interest in India, Says Netherlands Minister India, Netherlands set up Joint Economic and Trade Committee

4. RBI discusses Challenges to Policy Making and Evolving Role of Statistical Analysis at its Seventh Statistics Day Conference

5. RBI Reference Rate for US $ and Euro

6. Auction for Sale (Re-Issue) of Government Stock

Notifications

Central Excise

1. 26/2013 - dated 30-8-2013 - CE

Amends Notification No. 64/95-CE

Customs

2. 42/2013 - dated 30-8-2013 - Cus

Regarding amendment of notification no 39/96-cus

VAT - Delhi

3. F.5(54)/P-II/VAT/2012-2013/719-731 - dated 2-9-2013 - DVAT

In partial modification of this department's Notification No.5(54)/Policy-II/VAT/2012-13/28-39 dated 03/04/2013, the Entry No. mentioned against 'Republic of Congo' may be read as (20B) instead of (20A).

Circulars / Instructions / Orders

Income Tax

1. DGBA.CDD. NO. 1448/13.01.299/2013-14 - dated 29-8-2013

PREMATURE ENCASHMENT - 8% SAVINGS (TAXABLE) BONDS, 2003.

Highlights / Catch Notes

Income Tax

• Land Sale as Capital Gains: Single Plot Sale Classified as Taxable Capital Gains, Not Business Income.

  Case-Laws - AT : Sale of land after converting it into plots - since sale of plot was a solitary transaction and was completed within a short period, therefore, surplus resulting from such transaction was held to be taxable as capital gains and not as business income - AT
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• No TDS Deduction Needed on 21% Markup for Seconded Employees; No Disallowance u/s 40(a)(ia) of IT Act.

  Case-Laws - AT : Non Deduction of TDS on Mark up of 21% over basic Salary - secondment of employees - Reimbursement salary and other expenses to company held in Singapore - disallowance u/s 40(a)(ia) - TDS not liable to be deducted - No addition - AT
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• Section 148 Notice Invalid Due to Lack of Sanction; AO Fails to Prove Benami Transactions, No Income Additions Made.

  Case-Laws - AT : Notice u/s 148 - Sanction of appropriate authority - Violation u/s 151(2) - Scope of Section 292BB - Benamidar - Benami Business in the name of other - AO failed to provide benami business - no addition - AT
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• Equity Share Sale in Private Company Deemed Business Income u/s 28(va) of Income Tax Act.

  Case-Laws - AT : Transfer of capital or transfer of business - Sale of equity shares of the private limited company - applicability of provisions of section 28(va) - transfer of management - non-compete agreement - held as Business income - AT
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• Assessee Challenges Taxability of Gifted Sum as Deemed Dividend; Cites Father's Instruction to Company.

  Case-Laws - AT : Deemed dividend - Before AO, the assessee claimed that Shri S.J. Marshall (SJM), the father of the assessee had instructed the company to gift a sum to his son (the assessee) - Not taxable in the hands of assessee - AT
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• Section 40(a)(i) Disallows Tax on Commission for Non-Resident Agents Without Permanent Establishment in India.

  Case-Laws - AT : Disallowance u/s 40(a)(i) - withholding tax - taxability of commission income in India - As the agent did not have any permanent establishment in India no part of the commission payable for procuring export orders is taxable in India - AT
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• No penalties or interest for Notified Parties under Special Court Act; Sections 234A, 234B, 234C not applicable.

  Case-Laws - AT : No penalty or interest can be imposed for non-fulfillment of an act which a Notified Party is prevented from doing by reason of the Special Court Act. - Assessee cannot therefore be foisted with interest liability under section 234A, 234B and 234C - AT
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• Income Diversion by Overriding Title: Funds Must Be Credited Back, Not Used at Personal Discretion.

  Case-Laws - AT : Diversion of income by overriding title - The assessee may be trustee of that fund but it cannot apply the fund as per his own will. The interest, if any, earned on this fund is also to be credited to that fund - It is therefore, clear that funds stand diverted at the source and therefore, this cannot be considered as an appropriation of income but it is an expenditure - AT
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• Land Stays Agricultural for Tax, Even Without Production; Reclassification Needs More Evidence.

  Case-Laws - AT : Agricultural land or capital asset - Even if we accept the contention of the Revenue that no agricultural production was done by the assessee on this land, this mere fact will not take out the land out of the nomenclature of ‘agricultural land’. - AT
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• Revenue Authorities Bound by Circulars Despite Statutory Conflicts, Differentiated from Supreme Court Ruling in Ratan Melting Case.

  Case-Laws - HC : Binding nature of the Circular which is contrary to the statutory provisions of the Act - the circular has a binding force upon the revenue and they cannot contend to the contrary - The decision of the Apex Court in the matter of Ratan Melting & Wire Industries (2008 (10) TMI 5 - SUPREME COURT OF INDIA) distinguished - HC
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Customs

• Assessee's Freight Bill Error Corrected: Section 149 Invoked to Amend Bill of Entry and Refund Excess Duty Paid.

  Case-Laws - AT : Amendment of bill of entry – refund of excess duty - There was a genuine error committed by the assessee in not filing the freight bill at the time of filing of the Bill of Entry - here was enough justification for the proper officer to exercise the power u/s 149 - AT
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• Reversal of Credit After Export Completion Doesn't Mean Non-Availment; Timing Crucial for Customs and Tax Credit Use.

  Case-Laws - AT : Whether reversal of credit would amount to non availment of credit - it is difficult to accept the contention that reversal of credit amounts to non-availment of credit, especially when the reversal was made long after the exports have been made - AT
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• Duty Demand Invalidated: Show Cause Notice Time-Barred After 14 Years u/s 28, Sections 28AA/28AB Confirmations Voided.

  Case-Laws - AT : Duty Demand u/s 28 raised after 14 years – the show cause notice demanding duty was hopelessly time-barred and consequently the confirmation of duty demand along with interest thereon under the proviso to Section 28(1) read with 28AA/28AB. - AT
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Corporate Law

• Company Pays Excise Duty Per Rehabilitation Scheme, Avoids Penalty and Interest Charges.

  Case-Laws - HC : Rehabilitation scheme - the liability towards payment of excise duty had been duly discharged as per the demand notice and the company was not liable for payment of penalty or interest in terms of the specific provisions of the Rehabilitation Scheme - HC
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Service Tax

• Bank's Data Processing Excluded from Business Auxiliary Services, No Basis for BAS Demand Confirmation.

  Case-Laws - AT : Data already collected by the bank in their various branches are electronically processed by the appellant - Computerized data processing is specifically excluded from the scope of BAS – no question of confirmation of demand under BAS would arise - AT
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• Court Reviews Inclusion of Reimbursements in Taxable Service Valuation; Initial Findings Favor Assessee's Exemption Claim.

  Case-Laws - AT : Valuation of taxable services - inclusion of reimbursement of expenses in the gross value - Reimbursements whether taxable or not – prima facie case is in favor of assessee - AT
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• Service Tax Exemption: Each Joint Property Owner Eligible for Up to 10 Lakhs Individually.

  Case-Laws - AT : Small service provider - exemption upto 10 lakhs - Renting out of immovable joint property – Exemption to each owner or jointly - prima facie each owner is eligible for exemption - AT
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Central Excise

• No Excise Duty on Insurance Claims for Damaged Goods Sold at Sale Value, Says Court.

  Case-Laws - AT : Duty on insurance claim - The appellants have already paid duty on the clearance of damaged goods at the value on which they were sold - as such there is no justification for addition of the same in the value of the goods damaged subsequently sold - No excise duty on insurance claim - AT
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• Exemption benefits upheld despite delayed declaration filing under Notifications 49/2003 and 50/2003 for Himachal Pradesh factory.

  Case-Laws - AT : Area based exemption - NTF no.49/2003 and 50/2003 - delay in filing of declaration - such procedural lapse would not result in denial of the benefit of notifications no.49/2003 and 50/2003, when the respondent fulfilled all the basics, essential and requisite conditions of the notifications as regards the location of the factory being in Himachal Pradesh - AT
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• Freight Charges in Valuation: Return Journey Expenses for Special Vehicles Allowed Under Central Excise Regulations.

  Case-Laws - AT : Valuation - inclusion of Freight charges - There is no reason to deny the expenses incurred for return journey of those vehicles which are specially designed and which cannot carry any other goods on its return - AT
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• SSI Exemption: Multiple Parties Can Own the Same Brand Name; Favorable Judgment Grants Stay for Assessee.

  Case-Laws - AT : SSI Exemption under Notification No.8/2003 - Brand Name - There can be more than one owner of the brand name - prima facie case is in favor of assessee - stay granted. - AT
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VAT

• Notification Clarifies No Trade Tax Rebate Required When Both Entry and Trade Tax Rates Are 5.

  Case-Laws - HC : Entry Tax - rebate to the extent of the amount of tax on the payment of Trade Tax - Notification dated 28.4.2005, cannot be interpreted in the manner that where the rate of entry tax and trade tax is at 5 %, and consequently rebate had to be given on the Trade Tax, in view of notification dated 7.3.2005 - HC
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Case Laws:

• Income Tax

• 2013 (9) TMI 53
  Cost of litigation - It is an admitted fact that since the last date of hearing all the jewellery has been returned to the petitioner at Ahmadabad. Now, nothing remains with the respondents. However, since the petitioners were driven to litigation to retrieve the jewellery even after the order was passed by the CIT (Appeals) - Respondent No.6 shall pay costs to petitioner within two weeks - Decided in favour of assessee.

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• 2013 (9) TMI 52
  Jurisdiction of Settlement commission - Scope of the term Case - No assessment proceedings were pending on the date of application - Time to issue notice u/s 143(2) to complete the assessment under Section 143(3) expired - Held that:- , though there may be some merit in the contention raised on behalf of the revenue viz. that where time limit to issue notice under Section 143(2) of the said Act has expired, then in such a case, it cannot be stated that assessment is pending before the Assessing Officer. This is particularly so as under Section 246A of the said Act, an appeal can be filed by the Assessee to the Commissioner of Income Tax (A) from an intimation received under Section 143(1) of the Act. Therefore, even if the notice of intimation for the relevant year is in appeal before an Appellate Authority, it would still be open to an assessee to file an application before the Settlement Commission so long as no order of assessment under Section 143(3) of the said Act has been passed within the period of time provided under Section 153 of the Act. Binding Nature of Circular - Held that:- as the Circulars issued by the CBDT are binding upon the authorities under the Act, we see no reason to interfere with the order of Settlement Commission as the Apex Court has taken a view in respect of Income Tax matters in Catholic Syrian Bank Ltd. v/s. CIT [2012 (2) TMI 262 - SUPREME COURT OF INDIA] that Circulars issued by the CBDT which are beneficial to the assessee must be applied Binding nature of the Circular which is contrary to the statutory provisions of the Act - Applicability of decision of Apex Court in the matter of Commissioner of Central Excise v/s. Ratan Melting & Wire Industries [2008 (10) TMI 5 - SUPREME COURT OF INDIA] - Held that:- In the aforesaid decision, the Constitutional Bench of the Apex Court was considering the binding nature of a circular issued under the Central Excise Act, 1944 which were contrary to decisions rendered by the Supreme Court. The above decisions are not applicable to the facts of the present case inasmuch as our attention has not been invited to any decision of the Apex Court or of any High Court which has taken a view contrary to the view expressed by the CBDT in a Circular dated 12 March 2008. Thus, there being no ruling of the Apex Court or any High Court taking a view contrary to the CBDT Circular dated 12 March 2008, the circular has a binding force upon the revenue and they cannot contend to the contrary. The decision of the Apex Court in the matter of Ratan Melting & Wire Industries (2008 (10) TMI 5 - SUPREME COURT OF INDIA) distinguished. - Decided in favor of assessee.

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• 2013 (9) TMI 51
  Rejection of books of accounts - Whether Tribunal was legally correct in upholding the rejection of accounts and in sustaining the addition for sums aggregating Rs. 49,13,859/- as had been made in the assessment, on the ground that the burning loss as claimed by the assessee was excessive - Held that:- there has to be some burning loss during the process of rolling. But then again, in our opinion, and in view of Smith's report cannot be to the extent of 4.2% or 4% - when the assessee has not computed his closing stock by way of actual weighment, the extent of burning loss on this account admissible to the assessee remained a question of estimate which, in our opinion, can vary from persons to person and stage to stage - so far as burning loss during the course of rolling of assessee's own produced ingots and billets is concerned, the burning loss @ 3% will met the ends of justice. Even though provisions of sub-section (1) of Section 145 of the Act has rightly been invoked, the estimate of income has to be based on some materials. The Commissioner of Income Tax (Appeals) had taken into consideration various factors while accepting the burning loss shown by the appellant which in our considered opinion the Tribunal had failed to advert into - Matter remitted back - Decided partly in favour of assessee.

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• 2013 (9) TMI 50
  Allowability of premium payable redemption of bond – Disallowance is made of Rs. 3,65,60,673/- - Held that :- Relying upon the Tribunal’s own decision in the earlier years in favor of assessee, it is held that proportionate premium payable is allowed as deduction – Decided in favor of Assessee. Depreciation - Disallowance of depreciation on assets acquired under scheme of arrangement to be allowed adopting IT WDV of the Transferor Company – Held that:- Ld.CIT(A) has correctly taken into account of the provisions of explanation 7 to section 43(1) on computation of depreciation allowance and the relevant definition of ‘amalgamation’ as provided in section 2 (1B) of the Act. Also, the findings of the Ld.CIT(A) on this ground is fortified by the decisions of the Hon’ble Supreme Court in the cases of Challappalli Sugars Ltd [1974 (10) TMI 3 - SUPREME Court].– Decided in favor of Assessee. Accrued interest as part of sale consideration for computing capital gains - During the year under consideration, the assessee had sold 1,50,000 (in numbers) NTPC Bonds and 1,50,000 (in numbers) IRFC Bonds. The AO added the interest accrued on such bonds of Rs.23,36,301/- to the sale price for computing capital gains – Held that:- Interest to be taxed, either on accrual basis or as part of sale consideration for computation capital gain. In the instant case accrued interest should be considered as part of sale consideration for computing capital gains since the accrued interest was not being taxed as interest – Decided against the Assessee. Taxability of interest received from the Income Tax Department of Rs.22,35,44,844/- for various assessment years – Held that:- Ground raised by the revenue is misconceived as the same is raised with the wrong perception as if the Ld.CIT(A) has directed the AO to exclude the interest where the said interest is taxable under the provisions of Income Tax Act - Hence dismissed this ground – Decided in favor of Assessee. Expenditure towards legal and professional fees allowability – Capital of revenue expenditure – Held that:- Perusal of the details of expenditure reveals that the assessee has not added any new assets - Said expenditure is not incurred for acquiring any enduring benefit or income-yielding asset - Expenditure is legally permissible as a deduction under section 37(1) of the Act being expenditure of revenue in nature – Depreciation is not allowed.

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• 2013 (9) TMI 49
  Sale of land after converting it into plots - Business income or capital gain - assessee HUF was having agricultural land which was converted into non-agricultural land and certain development expenditure was incurred and then plots were sold in few years. - Deduction u/s 54EC & 54F - Held that:- a clear cut distinction is that this appellant has not acquired the land but the land was inherited by the assessee, therefore, towards purchase of land no investment was made by this assessee. Hence, there was no question of examining the intention of the assessee at the time of acquisition of this asset - there was no commercial intention when the land came into the possession of the assessee. It was an automatic acquisition of land through inheritance - whereof assessee has converted ancestral land into stock in trade of his business and sold it, since sale of plot was a solitary transaction and was completed within a short period, therefore, surplus resulting from such transaction was held to be taxable as capital gains and not as business income - Following decision of Commissioner Of Income-Tax Versus V. A. Trivedi [1987 (1) TMI 12 - BOMBAY High Court] and Commissioner of Income-Tax (Central), Calcutta Versus Daulat Ram Rawatmall [1972 (9) TMI 9 - SUPREME Court] - Decided in favour of assessee.

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• 2013 (9) TMI 48
  Non Deduction of TDS on Mark up of 21% over basic Salary - secondment of employees - Reimbursement salary and other expenses to company held in Singapore - disallowance u/s 40(a)(ia) - Held that:- The concept of secondment employee is that an employee is temporarily transferred to another job to a different party, for a defined period of time or for specific purpose and may be to the mutual benefit of the parties. This concept is prevalent in most part of the world, where one company transfers its employees under the secondment agreement to the other company and in most of the cases under control and supervision of the other company. The salary can be paid either by the first company to whom the seconded employees belong or the other company which are availing the services of seconded employee. In the present case, the secondment agreement clearly provides that these two employees will work for the assessee company under their supervision and under the control of the Board of Directors of the Indian company. Their services can be terminated by the either party and the salary which is borne by the employer company i.e., Singapore company, the entire cost of salary would be reimbursed by the assessee company as per the advice raised from time to time - disallowance under section 40(a)(ia) on account of these expenses stands deleted - Decided in favour of assessee. Disallowance of professional fee - Held that:- Expenditures have been incurred for the purpose of Indian company for its operation in India and these payments were made by the Singapore company which has been reimbursed by the Indian company. We have already held that the payment of professional fee does attract with holding of tax under the provisions of the Act and that this issue has not been properly dealt with either by the Assessing Officer or by the learned Commissioner (Appeals) because both these authorities were dealing mostly with the reimbursement of salary issue, therefore, issue of reimbursement of expenditure towards the payment of professional fee is set aside and the matter is restored back to the file of the Assessing Officer to examine it afresh and in accordance with the provisions of law - Decided in favour of assessee. Payment of salary by the Singapore company to the seconded employees who were employed and working for the assessee company and the cost of salary and expenditure that have been reimbursed by the Indian company to the Singapore company, do not fall within the realm of fees for technical services either under Article-12(4) of the DTAA or under section 9(1)(vii) of the Act. The Article-12(4)(b) of the Indo-Singapore DTAA provides for make available clause whereby any payment in consideration of services of a managerial technical consultancy in the nature makes available any technical knowledge, experience skill, knowhow, or process which enables the person acquiring the services to apply the technology contained therein. Here the services are being rendered by the Indian company to the Singapore company and the seconded employees are working for the Indian company for its Indian operation. For all practical purposes, the assessee company is the economic employer of the seconded employees who are rendering services purely for the assessee company. There is no make available of any kind of technical knowledge, experience, skill or process by the Singapore company to the assessee company through these seconded employees, which is purely a case of payment of salary and reimbursement of salary. Transfer pricing adjustment - Rejection of comparables - Held that:- The assessee which is mainly engaged in rendering of investment advisory services to its parent company at Singapore has received mark-up of 21%. This margin of 21% has been benched marked by using TNMM as the most appropriate method with PLI as operating profit to operating cost. After detail process of selection in Prowess data and selection criteria, it had selected six comparables in its transfer pricing study report with average margin of 13.85%. Since this margin was lower than assessee s margin of 21% and, hence, it was declared that its margin on the transaction carried out with its parent company was at ALP. The TPO, however, out rightly rejected the assessee s comparables, firstly, on the ground that they are not in investment advisory services and secondly the assessee has not carried out search by using the key phrase investment advisory services . No proper reasoning has been given by the TPO as to why data from Prowess is not reliable and the capital line data should have been taken. He has also not established that by entering the key phrase investment advisory service , the selection of the functionally similar companies are available from the data - The companies selected as comparable by TPO are engaged in the asset management are basically responsible for mobilizing the funds from the investors by marketing the scheme. Their main functions are sales and marketing, investment and management of the funds mobilized under various schemes. They are responsible for providing management and administrative services mostly to the mutual funds and to deploy such funds. The risk is also assumed by such companies in the form of service liabilities, regulatory and reputational risk. Moreover, the asset management companies are also regulated entities which are required to be licensed by SEBI. Thus, these companies also fail the test of FAR analysis with the investment advisory companies - all the six companies shortlisted by the assessee are quite good comparables looking to the over all functions and also that the same have been found to be so by the Department in the preceding and succeeding years. Accordingly, the entire adjustment made by the TPO cannot be sustained as the margin of the assessee @ 21% is at arm s length looking to the average margin of the six comparables. Accordingly, the adjustments made by the TPO are deleted - Decided in favour of assessee.

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• 2013 (9) TMI 47
  Notice u/s 148 - Sanction of appropriate authority - Violation u/s 151(2) - Scope of Section 292BB - Benamidar - Benami Business in the name of other - Held that:- On perusal of the sanction taken u/s 151(2) of the Act before issuance of notice u/s 148, the ground has been taken by the assessee without consulting the assessment record, which in fact, should not have been taken. In any case, there is no violation as contemplated u/s 151(2) of the Act - Decided against Assessee. Scope of Section 292BB - Notice under Section 148 of the Act was issued to the assessee which was duly served. In pursuance to the said notice, the assessee appeared before the assessing authority and participated in the re-assessment proceedings on various dates and also cross-examined the witnesses who were summoned and their statements were recorded - According to this provision, where an assessee appears in any proceedings or cooperates in any enquiry relating to assessment or reassessment proceedings, it shall be presumed that the assessee has been validly served and it shall not be open to the assessee to object that the notice was not served upon him or was not served in time or was served upon him in an improper manner. However, an exception to the aforesaid presumption has been made in a case where such objection has been raised before completion of assessment or reassessment. The provision has been made effective from 1.4.2008 and therefore, shall apply to all pending proceedings - It is not disputed that the assessee had appeared before the AO on various dates and participated in the reassessment proceedings before the finalization and no objection regarding issuance and service of notice under Section 143(2) was raised before the AO - Following decision of CIT vs. Ram Narain Bansal [2011 (7) TMI 527 - Punjab and Haryana High Court] - Decided against assessee. Unexplained investment u/s 69 - Amount deposited to bank - Benami transaction - Held that:- assessee substantiating his bonafides had duly brought it to the notice of the various authorities before whom the proceedings had been going on, that the said misusing of the 'Bank account' in itself stood substantiated from the very fact that a perusal of the 'Withdrawals' effected from the said account, as a result stands gathered on a perusal of the 'Cheques' vide which withdrawals had been made from the said 'Bank account' of the assessee, in itself reveals that there was not even a 'Solitary situation', wherein any 'withdrawal' pertaining to the impugned amounts so credited to the bank a/c on the assessee was ever carried out by the assessee and the said factual matrix had been appreciated by the other such authorities before whom the proceedings as regards the aforesaid issue are going on. Facts therein itself establishes the bonafides of the assessees contention that the latter was not in any way connected but through out remained unaware of such misuse of his Bank a/c by certain third parties - approach of the A.O. in going by the impugned statement of the said Sh.Satbir Singh wherein the latter, merely in order to save his skin had falsely implicated the assessee, by saying that he had given signed Blank cheques to the assessee. The acceptance of the said statement of the said Sh. Satbir Singh by the A.O. wherein the said person in order to save himself had pleaded that he was poor person and could not carry out such a business, without there being any evidence which could go to substantiate the latters assertions and contentions and therein giving him a clean chit and drawing of adverse inferences in the hands of the assessee, primarily on the basis of the statement of Sh. Satbir Singh, is totally unfair and cannot be sustained in the eyes of law., specifically when the said Sh. Satbir Singh is a prime accused before the 'Custom Authorities'. Thus, framing of 'Substantive assessment' in the hands of the assessee, by presuming that it was the latter who was carrying on the business and the said Sh. Satbir Singh was only a benamidar is an assumption of the AO , which is devoid and bereft of any force, in the absence of any documentary evidence - Therefore, decided in favour of assessee.

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• 2013 (9) TMI 46
  Unexplained income - Discrepancy in stock - Held that:- in the peculiar facts and circumstances of the case, in the facts as it stand, the ground raised by the assessee deserves to be rejected. Even when the arguments advanced on behalf of the assessee are accepted for the moment, it is seen that the figures do not reconcile even then. Thus the assessee despite being given more than sufficient opportunity has not been able to explain the discrepancy in stock. No new document or evidence has been brought to the notice of the Bench, nor has the assessee been able to show how the document has been wrongly considered. As such neither on facts nor on law the assessee's explanation is acceptable, as the alleged practice on which reliance is being placed that larger stock shown to the bank for the purpose of getting higher loan or overdraft. The said practice cannot be given judicial notice - Following decision of Coimbatore Spinning & Weaving Co. Ltd. v. CIT [1973 (3) TMI 27 - MADRAS High Court], Ramanlal Kacharulal Tejmal v. CIT [1982 (7) TMI 24 - BOMBAY High Court] and Dhansiram Agarwalla v. CIT [1992 (11) TMI 55 - GAUHATI High Court] - Decided against assesee. Expenses in relation to income not forming part of total income – section 14A – Constitutional validity of section 14A - Held that: - no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1) - The company is chargeable to tax on its profits as a distinct taxable entity and it pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis - The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid - The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution - the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record - Decided in favour of assessee.

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• 2013 (9) TMI 45
  Transfer of capital or transfer of business - Sale of equity shares of the private limited company - applicability of provisions of section 28(va) - transfer of management - non-compete agreement - Held that:- It is apparent that the transaction in question was in the nature of purchase of business by the incoming company. The transaction entered into between the assessee before us as shareholder of M/s Excel Callnet Private Limited and the Managing Directors of M/s Pugmarks Interweb Pvt. Ltd. was not merely for the transfer of shares of the company but was in fact transfer of management of the company to the purchaser with a rider of non-interference by the sellers who were the Directors of the company. Because of the complexity of the handing over operation by the sellers i.e. the shareholders of the company to the Managing Director of the new company, the parties entered in to agreement on 26.3.2005 and had completed the process on 24.7.2005. If it was a mere sale of the investment by way of shareholding by the assessee then the said exercise was not required. Even the sale consideration agreed upon between the parties including the consideration on account of non-compete covenant was paid in installment over a period of time. Further the transfer of shares in effect translated into renunciation of management by the seller Directors in favour of the purchaser which is apparent from Article 5.1.1 of the agreement which enunciated the delivery of effective resignation in writing by the Directors as part of the activities of the completion. The next point under consideration is the non-compete covenants agreed upon between the parties as per Article 8, under which Article 8.4 clearly stated the seller agrees not to engaged in any call centre, business process outsourcing or IT enabled services business in the States of Chandigarh, Punjab, Haryana or Himachal Pradesh within a radius of 100 Kms from Chandigarh for a period of 2 years from the date of this agreement. Further non-compete covenants imposed a restriction upon the seller Directors to directly or indirectly solicit a business that the company has done since its inception without prior written permission of the company. Under Article 8.10 there was renunciation of brand equity of the company by the sellers in favour of the purchaser as the parties agreed that the sellers will not take advantage of the brand equity of the company by using any names, logos, trademarks, partnerships, affiliations, names etc. As per para 8.11 the sellers cannot use domains that contain the word Excel and would not use or claim the domain name www.Excel.net com. Article 9 of the agreement further refer to non-solicitation of employees covenant where by the seller will not directly or indirectly solicit, hire, employ, induce or attempt to induce any present or future employee of the company or the purchaser. The gain arising from the transfer of share is to be assessed as income from business. The provisions of section 28(va) of the Act are squarely applicable to the present facts of the case. - Decided against assessee.

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• 2013 (9) TMI 44
  Deduction u/s 80IC - Interest on the amounts due from dealers - Whether the income received by the assessee by way of interest on the amounts due from dealers was the income of first degree of the undertaking, making it eligible for the benefit of deduct ion u/s 80IC of the Act - Held that:- Section 80IC of the Act provides that where the gross total income of an assessee, includes, any profit and gain derived by an undertaking/enterprise from any business, then in accordance with the provisions of sub-sect ions, would be entitled to deduction from such profits and gains as computed under sub-sect ion (3) of the Act and the same shall be deducted while computing the total income of the assessee. The basis for grant of deduct ion u/s 80IC of the Act are the profits and gains ‘derived’ by an undertaking from the business carried on by it - The provisions of Sect ion 80IC of the Act are par imateria to Section 80IA/80IB of the Act. The words in section 80IC are also “profits derived from business of under taking”. Interest received on the overdue payment from its dealers constituted the price of the goods sold by the assessee and such interest income is derived from the manufacturing activities carried on by the assessee and are business income eligible for deduct ion u/s 80IC of the Act - Following decision of Commissioner of Income-tax versus Vidyut Corporation [2010 (4) TMI 229 - BOMBAY HIGH COURT] - Decided in favour of assessee. Other income shown by the assessee i.e. interest income received from bank and dividend income are not derived from the profits and gains of the business and not eligible for deduct ion u/s 80IC of the Act. Profit on sale of fixed asset reflected at Rs. 1.20 Lakhs is book entry under the head “other income” and the same is to be excluded as the said profit is to be considered in the computation of income while al lowing depreciation on assets. - Decided against the assessee. The income from processing fee of Rs. 4.45 lakhs and exchange gain of Rs. 0.11 lakhs are also not derived from the profits and business and consequently not eligible for deduct ion u/s 80IC of the Act. - Decided against the assessee. Depreciation - date of put to use - date of commencement of business - Held that:- The assessee has furnished on record the evidence by way of sanctions/approvals taken from the Pollution Control Board and Electricity Department, which are placed at pages 60 to 62 of the paper book under which the product ion of new unit has been shown from 14.10.2006. The assessee has also submit ted a copy of electricity Bill under which it claims that the power sanction for Furnace was put to use on 14.10.2006 - claim of depreciation allowed - Decided in favour of assessee.

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• 2013 (9) TMI 43
  Deemed dividend - it was found by the AO that two payments of Rs. 1.60 crores and Rs. 1.10 crores were made to the assessee (Director) - Before AO, the assessee claimed that Shri S.J. Marshall (SJM), the father of the assessee had instructed the company to gift a sum of Rs. 1.60 crores to his son (the assessee) - The AO also observed that even if it is assumed that adjustment entry is a gift then also the same can be said to have taken place only on 31/3/2007, on which date such adjustment entries were made and debit prior thereto of the sums of Rs.1.60 cores and Rs. 1.10 cores on 20/4/2006 and 30/8/2006 respectively are loans received by the assessee from aforementioned company. Held that:- The case of the assessee has been mainly rejected on the ground that the letter written by the father of the assessee to the company was after thought moved of the assessee. It is not the case of the revenue that the father of the assessee was not available for examination. The case of the A.O and CIT(A) is that the said letter is after- thought. The sale of the painting by the father of the assesse has not been denied. It has been the contention of the assessee that it was purchasing paintings in the regular course, as after purchasing the paintings from the father other purchases of painting are also made. No material whatsoever has not been brought on record by the revenue to suggest that the letter written by the father of the assessee to the company was an afterthought move. The AO could have examined the assessee as well as his father and also the company on this issue. This exercise has neither been done by A.O nor by CIT(A) to establish that the letter written by the father of the assessee to the company is after thought. If the genuineness of the purchase of painting by the company from the father of the assessee is not denied then in absence of any material it cannot straightaway be held that the letter written by the father of the assessee to the company was after-thought. The matter was required to be examined - Matter restored back - Decided in favour of assessee.

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• 2013 (9) TMI 42
  Unexplained income u/s 68 - Receipt of loan - Held that:- assessment orders did not indicate any substantial evidence which establish the fact that creditors of the present case were part of the scam which was unearthed during the course of search operation in the case of Manoj Aggarwal, Bishan Chand Aggarwal, Mukesh Kumar and others. Therefore, on the basis of admission made by Manoj Aggarwal in his case (in Manoj Aggarwal's own search case) cannot be used to borrow this view that the creditworthiness of the creditors of the present case who provided loan to the assessee of the present case, i.e., Shri Rajiv Kumar Aggarwal and Shri Bharat Bhushan Bansal could not be established by the assessee. Assessee has discharged the burden which lay upon him and further, the assessee could not do anything. Hence, the addition made by the Assessing Officer in both relevant years cannot be sustained as we have already noted that the identity and creditworthiness of both these loan creditors was established in the form of said documents, i.e., copies of permanent account number card, ration card, income-tax assessment orders of the relevant years and also wealth tax assessment orders - as the transactions of receiving and returning of loan have been routed through bank accounts, the genuineness of the transaction is also established - assessee established the genuineness of the transaction and the identity creditworthiness of the alleged creditors - addition made by the Assessing Officer in both assessment years is without any basis and it was merely based on surmises and conjectures, without bringing any adverse material on record - Decided in favour of assessee

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• 2013 (9) TMI 41
  Disallowance u/s 40(a)(i) - withholding tax - taxability of commission income in India - Held that:- In the case of foreign agents who procure orders for exports to Indian Assessees, services are rendered by the agents outside India and the remuneration for such services will constitute business profits of the foreign agents. They are not rendering technical services for procuring orders and hence remuneration for procuring orders cannot be considered as fees for technical services. As the agent did not have any permanent establishment in India no part of the commission payable for procuring export orders is taxable in India - Following decision of CIT Vs EON Technology [2011 (11) TMI 20 - DELHI HIGH COURT] - Decided against Revenue. Weighted deduction u/s 35(2AB) - expenditure on research and development facility (R&D) - AO disallowed the claim u/s 35(2AB) made by the assessee on the ground that the requisite certificate from the prescribed authority had not been filed - Held that:- In view of the ratios laid down in CIT Vs. Sandan Vikas (India) ltd., [2011 (2) TMI 66 - DELHI HIGH COURT] and CIT Vs. Claris Lifesciences Ltd., [2008 (8) TMI 579 - Gujarat High Court] and in the light of certificate issued by DSIR, Government of India dated 16.06.2009, we set aside the issue to the file of the AO to grant weighted deduction u/s 35(2AB). The balance expenditure if any not approved by the DSIR will have to be considered for deduction under section 35(1) or under normal provisions of the Act. The expenditure has been incurred by the R & D facility of the assessee approved by the Government of India. Merely because part of the expenditure incurred by the approved R & D facilities is not considered for weighted deduction under Section 35(2AB) would not render expenditure is not towards R & D or not for the purposes of the business. Allowability of such expenditure u/s 35(1) or under other appropriate provisions of the Act will have to be considered - Decided partly in favour of Revenue.

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• 2013 (9) TMI 40
  Revision u/s 263 - erroneous order - prejudicial to revenue - payment of commission and discount - Held that:- A bare perusal of the assessment order reveals that the Assessing Officer has considered and applied his mind to the issue of discount, while framing the assessment order, as is evident from the relevant part of the said assessment order. The Assessing Officer made warranted enquiry in the matter and obtained confirmation from M/s. United Ink & Varnish Co. P. Ltd., Mumbai on September 18, 2007 and considered the same while adjudicating the issue, restored to his file by the Tribunal. In a nutshell, the Assessing Officer had made due enquiry, verification independently and objectively applied his mind to the issue in question and framed the assessment. The Commissioner of Income-tax invoked the provisions of section 263, merely on the ground of expression, i.e., "directly paid" used by the hon'ble Tribunal, while restoring the matter to the file of the Assessing Officer. In our considered opinion, the issue in question had led to invocation of provisions of section 263 by the Commissioner of Income-tax has been duly considered and adjudicated by the Assessing Officer. There is no assumption of incorrect application of law by the Assessing Officer in the matter. The Assessing Officer had made requisite enquiry and applied his mind, before recording the findings in the said assessment order in the matter in question. Therefore, having regard to the legislative intent, contained in the provisions of section 263 of the Act and plethora of judicial verdicts in the matter, we are of the considered opinion that this is not a fit case for invocation of the provisions of section 263 of the Act. Therefore, the Commissioner of Income-tax acted beyond his jurisdiction, as contemplated under section 263 of the Act - Decided in favour of assessee.

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• 2013 (9) TMI 39
  Re-opening of assessement – Notice issued u/s 148 of the Income Tax Act for income escaped assessment – Reasons to be recorded for re-opening of assessment – Held that:- Assessee is in possession of large quantity securities - From the assessment records, it can be seen that the assessee is the owner of several assets, on which income accrues every year - Two observations of the Assessing Officer are sufficient reasons to believe that, income escaped assessment. These two reasons have a live link with the escapement of income and it cannot be said that the reasons are not based on the relevant material. When the assessee has large quantity of securities and when she has other assets on which income accrues, it cannot be said that the belief drawn by the Assessing Officer is not a bonafide belief and that the reasons are vague or suspicious. It is true that before the issuance of notice under section 148, the Assessing Officer ought to have a reason to believe that the income has escaped assessment. In our opinion, it cannot be said that the reasons recorded by the Assessing Officer for re-opening the assessment are not in conformity with the principles laid down by the Courts. Merely because the assessee had some difficulties in filing of return of income, it cannot be said that the notice issued under section 148, is bad-in-law. The interest income itself is more than Rs. 60,00,000 and the assessee also had income from capital gains – Decided against the Assessee. Date of acquisition for nature of capital gain – Held that:- Date of acquisition should be as per the contract notes for the reasons that the Assessing Officer has taken the cost of acquisition of shares based on these very contract notes - One part of the contract note cannot be accepted and the other part rejected – Decided in favor of Assessee. Interest u/s 234A, 234B, 234C of the Income Tax Act - Assessee is a notified person under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992 – Held that:- All its assets including bank accounts were attached and vested in the hands of the Custodian appointed under the said Act. From the date of functioning of the Court i.e., 1.6.1992, the distribution of monies in case of notified person will be decided by the Special Court. The taxes do not have the priority in settlement. Even if a notified person had wanted to pay the advance tax it was not within his control to do so. He has to make an application to the custodian and only he can permit payment of advance tax after obtaining approval from the Special Court. No penalty or interest can be imposed for non-fulfillment of an act which a Notified Party is prevented from doing by reason of the Special Court Act. In such cases, even though the provisions of some other Act or contract lay down consequences for non-performance, the provisions of the Special Courts Act will prevail – In case of conflict between the provisions of the Special Courts Act and that other law and / or contract, the provisions of the Special Court Act must prevail - It was impossible for the assessee to have paid the advance tax even if he had wanted to. It is a well known legal dictum "LEX NON COGITAD IMOSSIBILIA" (law cannot compel you to do the impossible). Assessee cannot therefore be foisted with interest liability under section 234A, 234B and 234C – Decided in favor of Assessee.

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• 2013 (9) TMI 38
  Method of accounting - Routing of provisions through P & L A/c - Transfer of excess provision made earlier years directly to Statutory reserve - CIT deleted addition made by AO holding that as per Act, there is no restriction that the provisions should always be routed through P & L A/c - Held that:- The intention of the assessee is that the amounts which have now been transferred from provisions to reserve funds were added back in earlier year. However, the amount credited to reserve from the provisions has not been identified in respect of the provisions credited for a particular assessment year. The carried forward provision has been debited and reserve fund has been credited. In case the amounts which have now been transferred from provision to reserve has been added back in the year in which such provision was credited then the same cannot be taxed now in the assessment year when the same is being transferred from provision to reserve. There must be some correspondence to show as to why provisions is being transferred to reserve as it is not required for meeting the liability. We are not aware as to how the assessees is crediting amount under reserve and provisions by the assessee. Since the accounts are being audited and are being prepared as per Reserve Bank of India guidelines therefore, we feel that the reserve and surplus are made by the assessee as understood in commercial parlance - Following decision of CIT Vs. State Bank of Patiala [1996 (3) TMI 128 - SUPREME Court] - Sufficient details not available - matter remanded back to AO to re adjudicate the issue. PACS (Primary Agricultural Cooperative Society) Manager salary - contingent liability or statutory liability - diversion of income by overriding title - Held that:- The Hon'ble Apex Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. Vs. CIT, [1996 (10) TMI 2 - SUPREME Court] has stated that it is to be seen as to whether the payment is compulsory for the assessee to make or not but whether it was expended out of consideration of commercial expediency. Any contribution made by the assessee to a fund which directly connected or related to carrying on assessee’s business or which results in benefit to the assessee's business has to be regarded as deduction allowable u/s 37 of the Act. The decision of Hon'ble Apex Court in the case of Associated Power Co. Ltd. Vs. CIT, (1995 (11) TMI 5 - SUPREME Court) is not applicable. Application of the doctrine of diversion of income by reason of overriding title is not applicable in that case as the reserve is out of the revenues of the undertaking and reach the electricity company and is not diverted away from it. However, in the instant case, the amount is to be contributed to a fund and the fund is not being managed by the assessee. The assessee may be trustee of that fund but it cannot apply the fund as per his own will. The interest, if any, earned on this fund is also to be credited to that fund. It is therefore, clear that funds stand diverted at the source and therefore, this cannot be considered as an appropriation of income but it is an expenditure. - Decided against the revenue.

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• 2013 (9) TMI 37
  Disallowance of long term capital gain - Agricultural land or capital asset - Held that:- It is true that the definition of agricultural land is not given in the Income-tax Act, but various factors contribute to ascertain the correct nature of a particular piece of land. - as per revenue records, the land has been recorded as agricultural land. It is found to be a fact that the assessee has been showing agricultural income from this very land and the same has been accepted by the Revenue as such year after year. Even if we accept the contention of the Revenue that no agricultural production was done by the assessee on this land, this mere fact will not take out the land out of the nomenclature of ‘agricultural land’. The assessee grows coconut on this land and the same are sold in the market and these receipts are treated as agricultural receipts by the Revenue. The assessee has also paid agricultural land tax and copies of the same were made available to the authorities. The land in question is situated in the revenue estate of a Village named Iyyappanthangal Panchayat which is situated more than 8 kms away from the limits of Alandur Municipality. We have found that the land has been agricultural land for the past many years and has been classified as such in the records of the revenue Department. The assessee has paid kist of Rs. 400/- each in respect of land on 30.1.2007 regarding fasli years 1413, 1414, 1415 and 1416. It was brought on record that this land was being cultivated by one local person, namely Shri Murugan, but for assessment years 2005-06 and 2006-07, agricultural operations were carried out by him, he could not get food returns and that is why he did not admit any agricultural income in the returns filed. The report of the Tahsildar refers to noncultivation of the land because an agricultural operation in a large scale was not carried out on this land. - Decided against the revenue.

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• Customs

• 2013 (9) TMI 66
  Amendment of bill of entry – refund of excess duty - The assessee noticed the mistake as to not filing of the freight bill – they furnished the freight bill for the transaction and sought amendment of the Bill of Entry u/s 149 – they filed a refund claim for the excess duty paid - refund claim was rejected on the ground that the assessee did not challenge the assessment - Held that:- The revenue should allowed the amendment of the Bill of Entry u/s 149 - the only condition required to be satisfied for availing the provisions of Section 149 was that the documentary evidence on the basis of which the amendment was sought, should be in existence when the goods were cleared – Powers of discretion u/s 149 had been provided to the Customs Officers to allow amendments in genuine cases - it was evident that the assessee’s case was a genuine one. There was a genuine error committed by the assessee in not filing the freight bill at the time of filing of the Bill of Entry - When the error was noticed, immediately thereafter, the assessee took action to rectify the mistake by making an application u/s 149 along with documentary evidence in support of the claim for actual freight - there was enough justification for the proper officer to exercise the power u/s 149 - Powers are given to the officers to sub-serve justice and not to deny them – matter remanded back – decided in favour of assessee.

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• 2013 (9) TMI 65
  Mis-use of IE code – Confiscation of goods u/s 113(d) & (i) - Smuggling of sanders wood logs under the guise of machinery parts – Held that:- There was omission on the part as a result of which the container provided by them was misused for the smuggling of red sanders, which was a banned item for export - If somebody else misused their IEC code, the responsibility for the same cannot be passed on to the appellants – relied upon PRAKASH FREIGHT MOVERS LTD. Versus COMMISSIONER OF CUS., CHENNAI (2009 (10) TMI 741 - CESTAT CHENNAI) - in the absence of any knowledge about the mis-use of IE code and lack of involvement in facilitating such mis-use, penalty cannot be imposed under section 114 - penalty on the appellant was not sustainable. Penalty on CHA - Penalty u/s 114(i) - Held that:- There was no omission and commission on their part so as to attract the provisions of Section 114 (i) - the statute does not envisage monitoring of the import/export transactions on a daily basis and bringing any discrepancy to the notice of the Customs authorities - in the absence of any evidence establishing the involvement of the appellant in the smuggling of red sander wood logs – it can be invoked only when any person, who in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation u/s 113 or abets the doing or omission of such an act - There was no such allegation against the appellant either in the show cause notice or in the order. - There was only an omission on their part in ascertaining the genuineness of the transaction and obtaining proper authorization. - Penalty reduced from Rs. 130 lakhs to 1 lakh. Penalty on freigh forwards - Held that:- the negligence on their part is very evident. They undertook the transaction on the basis of e-mail received from Shri Manoj Vichare of M/s. Sara logistics. The did not verify whether M/s. Sara Logistics existed at all. Being a freight forwarder, they are expected to know the existence or otherwise of M/s. Sara Logistics, which is also in the same business. However, the fact is that M/s Sara Logistics did not exist at all. They were not vigilant about the probable misuse of the container and the seal provided by them by unscrupulous elements. - Penalty reduced from Rs. 130 lakhs to 1 lakh.

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• 2013 (9) TMI 64
  Burden to Prove - Conditional exemption notification that the importer shall not avail input stage duty credit of the additional duty leviable under Section 3 of the Customs Tariff Act (CVD in short) - The conduct of the assesse in not submitting satisfactory documentary evidence complete in all respects in respect of their claims coupled with the enormous delay in their submission for verification was highly unsatisfactory, to say the least - Since it was the appellant who had claimed the benefit of duty exemption, the onus of leading evidence to prove eligibility to exemption lies on the appellant and not on the Revenue – MYSORE METAL INDUSTRIES Versus COLLECTOR OF CUSTOMS, BOMBAY [1988 (5) TMI 42 - SUPREME COURT OF INDIA] - the burden was on the party who claimed exemption, to prove the facts that entitled to him to exemption - the assesse had miserably failed to discharge this onus – Decided against assesse. Whether reversal of credit would amount to non availment of credit - Held that:- under Notification No. 203/92-Cus., there was a condition that the importer shall not avail of input stage credit on the goods exported. Therefore, it is difficult to accept the contention that reversal of credit amounts to non-availment of credit, especially when the reversal was made long after the exports have been made and there is no satisfactory proof that the reversal was done correctly. Benefit of duty exemption under Notification No. 203/92-Cus - Duty Demand - Interest – Held that:- The confirmation of duty demand made in the order along with interest thereon was upheld - the assesse claimed to have reversed the input stage credit - However, they did not pay the interest and the interest liability was discharged only in June, 2000, that was, after a lapse of more than 3 years from the due date stipulated in the Amnesty Scheme –COMMISSIONER OF CUSTOMS, CHENNAI Versus SHASUN DRUGS & CHEMICALS [2004 (4) TMI 156 - CESTAT, CHENNAI] and COMMISSIONER OF CUSTOMS, CHENNAI Versus AKSA POLY BAGS LTD. [2003 (8) TMI 430 - CESTAT, CHENNAI] - the demand of duty was uphled by denying the benefit under Notification No. 203/92 – Decided against assesse. Imposition of Penalty u/s 112 – Held that:- No penalty can be imposed under Section 112 and accordingly the penalty imposed on the assesse was set aside - A penalty under Section 112 can be imposed on when goods were held liable to confiscation under Section 111 - There was no proposal in the show cause notice for confiscation of the goods under Section 111 nor was there any finding in the order to that effect – Decided in favor of assesse.

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• 2013 (9) TMI 63
  Duty Demand u/s 28 – Condonation of delay - The show cause notice had been issued for recovery of duty after a lapse of more than 14 years - Held that:- The notice was issued after the normal period of 6 months but also after the extended period of 5 years had lapsed - the demand was time-barred - The Revenue’s contention that the delay in show cause notice was attributable to the pendency of the matter and this period should be excluded while computing the time limit was not sustainable - VIDEOCON INTERNATIONAL LTD. Versus UNION OF INDIA [2010 (12) TMI 381 - SUPREME COURT OF INDIA] - there was no stay in adjudicating the case - the show cause notice demanding duty was hopelessly time-barred and consequently the confirmation of duty demand along with interest thereon under the proviso to Section 28(1) read with 28AA/28AB. Confiscation of goods u/s 111(d) – Confiscation being Time barred - Revenue was of the view that the Additional Licences issued to Export Houses/Trading Houses after 1-4-88 were non-transferable - the CPTs imported could not had been cleared for home consumption unless it was sold to Actual Users and sale of the same when the goods were under bond was in contravention of the Import (Control) Order, 1955 - it was very evident that they colluded and connived with each other to illegally import CPTs circumventing the provisions of the Exim policy and also exported the same in contravention of the said policy – The imported goods were liable to confiscation u/s 111(d) The show cause notice had been issued u/s 124 – issue of a show cause notice prior to passing of an order of confiscation or imposition of personal penalty was mandatory, but the language of Section 124 was clear and precise and no restriction of or limitation or even a fetter was imposed as regards the time when proceedings may be initiated by issue of a show cause notice - Mohanlal Devadhanbhai Choksey and Others v. M.P. Mondker and Others [1976 (3) TMI 54 - HIGH COURT OF JUDICATURE AT BOMBAY] - Confiscation of goods, imposition of fine in lieu thereof or imposition of penalty are not subject to any time-bar. Sale in Custom bond - Permissibility to Export - Whether the sale of CPTs while in customs bond and the subsequent export was permissible under the provisions of Exim policy or not - Held that:- The transfer of the CPTs when the goods were bonded in the warehouse was clearly a contravention of the import policy and the Import (Control) Order as they stood at the relevant time - Keeping the goods in a customs bonded warehouse was not clearance of the goods through customs – The additional licences issued to Export Houses were non-transferable – neither were the actual users of the imported CPTs - Clearance takes place only when goods are deboned. Export as such - Whether the CPTs could have been exported as such – Held that:- The exports undertaken were not in accordance with the Exim policy as they stood at the relevant time - assesse sought to export CPT from customs bonded premises no CTV assembly was exported as envisaged but individual pieces and components for the CTV assembly – there was violation of the provisions of the Export (Control) Order also. Redemption fine - Interest and Penalty u/s 112(i) - Held that:- Redemption fine imposed was excessive – Redemption fine was reduced in line with the value addition which was the profit margin on the transaction - As regards the penalty - the penalty imposed was on the higher side – penalty was also reduced u/s 112(a) & 112(b) - the goods had been allowed to be exported subject to execution of bond and bank guarantee - they were liable to redemption fine u/s 125 and liable to penalty u/s 112 – Decided against assesse.

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• Corporate Laws

• 2013 (9) TMI 62
  Rehabilitation scheme - Demand raised by Excise Department - Whether the petitioner was liable for payment of interest and penalty as demanded by the notice – Held that:- The notice of demand was absolutely illegal and was quashed - The Central Act does not impair or interfere with the rights of the States to legislate with respect to sales tax under entry 54 of List II of the Seventh Schedule - the provisions of clause of the rehabilitation scheme contains an express waiver from payment of interest, penalty and to accept payment of excise duty finally payable in pending cases over a period of 2 years, from the year in which such amount becomes payable - In the larger interest of the industrial health of the nation, section 22 of the Central Act requires all creditors seeking to recover their dues from the sick industrial companies in respect of whom an inquiry under section 16 is pending or a scheme is under preparation or consideration or has been sanctioned, to obtain the consent of the said Board to such recovery - If such consent was not secured and the recovery was deferred, the creditors’ remedy was protected for the period of deferment was, by reason of sub-section (5) of section 22, excluded in the computation of the period of limitation - The words ‘any other law’ in section 22 cannot, therefore, be read in the manner suggested by learned counsel for the respondents - The apex court specifically referred to the provisions of clause 13(b)(3) of the scheme and in paragraph 23 of the judgment, it was again reiterated that there being no express wavier of interest, the statutory provision must prevail. Tata Davy Ltd. v. State of Orissa [1997 (8) TMI 78 - SUPREME COURT OF INDIA ] - The rehabilitation scheme framed by the BIFR, the petitioner was not liable for payment of interest and penalty - Section 22 of the Act clearly provides that once proceedings have been initiated under the Act and an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation then, notwithstanding anything contained in any other law for the time being in force no proceeding for the winding up or execution or distress or the like against any of the properties of the industrial undertaking company and no proceedings for recovery of money or for enforcement of any security against the company, etc., shall be maintainable. The petitioner having already deposited part payment for 2004-05 and having given an undertaking for payment of remaining 50 per cent amount which also was paid - the liability towards payment of excise duty had been duly discharged as per the demand notice and the company was not liable for payment of penalty or interest in terms of the specific provisions of the Rehabilitation Scheme – Petition allowed.

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• Service Tax

• 2013 (9) TMI 70
  Demand of service tax – export of service - back-office operations - processing of the transactions of their client electronically - stay - Held that:- Computerized data processing is specifically excluded from the scope of BAS – no question of confirmation of demand under BAS would arise - the activity is processing of the transactions of their client electronically - they were undertaking computerized data processing for their client using the computer systems of the client - the clients are located not only in India but all over the world - appellant is not interacting with the bank's customers for collection of any data - data already collected by the bank in their various branches are electronically processed by the appellant - the appellant is undertaking back-office operations - bulk of data processing is done for the bank's branches situated abroad – activity undertaken by the appellant would amount to export of service and on that account also no service tax would be payable by the appellant. - stay granted.

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• 2013 (9) TMI 69
  Valuation of taxable services - inclusion of reimbursement of expenses in the gross value - Reimbursements whether taxable or not – Held that:- In INTERCONTINENTAL CONSULTANTS AND TECHNORATS PVT. LTD. V/s U. O. I. & ANR. (2012 (12) TMI 150 - DELHI HIGH COURT), it was held that Rule 5 (1) which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Section 66 and 67 and travels much beyond the scope of those sections. - prima facie case is in favor of assessee - stay granted.

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• 2013 (9) TMI 68
  Small service provider - exemption upto 10 lakhs - Renting out of immovable joint property – Exemption to each owner or jointly - applicant contended that they are co-owner of a particular building and have rented out the premises to a person who issues different cheques to all the individuals as they are co-owners - Held that:- benefit of SSI exemption Notification No 6/2005 grants the benefit of exemption of service tax per year, provided that the assessee has not crossed the threshold limit - if the cheques for rent are received individually by all the appellants, it was indicated in the agreement between the individuals for the purpose of renting out of premises to another person so as to make it specific that individually they are renting out the property to a person - Stay granted.

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• 2013 (9) TMI 67
  Condonation of delay Application – Delay of 11 months – Held that:- Present misc. application filed by the Applicant is vague and does not contain the explanation/reasons for delay in filing the appeal before this Tribunal - Appeal filed before the Ld. Commissioner (Appeal) is more than the condonable limit of three months in addition to the statutory limit of three months prescribed under Section 85 of Finance Act,1994 – COD application is dismissed relying upon the decision in the case of Singh Enterprises Vs. CCE, JSR-[2007 (12) TMI 11 - SUPREME COURT OF INDIA] – Decided against the Assessee.

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• Central Excise

• 2013 (9) TMI 61
  Addition to assessable value - Duty on insurance claim - Held that:- lower authorities have simplicitor raised the demand on the quantum of insurance claim received by the appellant. There is no doubt about the damage of the goods and subsequent reduction of value of such damaged goods. The appellants have already paid duty on the clearance of damaged goods at the value on which they were sold. The authorities have not referred to any provision of law requiring payment of duty on the insurance claim. Such insurance amount was given to the appellants in respect of goods which were damaged and not on any other account. And as such there is no justification for addition of the same in the value of the goods damaged subsequently sold - Decided in favour of assessee.

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• 2013 (9) TMI 60
  Area based exemption - Benefit of notifications no.49/2003 and 50/2003 - Condition of filing of declaration - Held that:- The whole idea of filing a declaration and choosing an option under intimation to the department is that the Revenue is put to notice. This intention having been fulfilled by the appellant in the months of July and August, 2003 would not result in denial of the benefit of notifications no.49/2003 and 50/2003, when the respondent fulfilled all the basics, essential and requisite conditions of the notifications as regards the location of the factory being in Himachal Pradesh. Such procedural contravention, if any, cannot result in denial of the substantive benefit of the notifications, if the same is otherwise available - Decided against Revenue.

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• 2013 (9) TMI 59
  Refund of duty - Whether mixing of reddish pan masala with fresh pan masala will amount to remade, refined or recondition in the context of Rule 173-L of Central Excise Rules, 1944, and whether it will amount to manufacture under Chapter Note 7 of Chapter 21 of Central Excise Tariff Act, 1985 - Asstt. Commissioner granted refund - Held that:- Following decision of COMMISSIONER OF CENTRAL EXCISE, KANPUR Versus KOTHARI PRODUCTS (P) LTD.[2007 (8) TMI 279 - HIGH COURT ALLAHABAD], it does not amount to manufacture - there is no reason to seek reference on the questions of law - Decided against Revenue.

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• 2013 (9) TMI 58
  Valuation - inclusion of Freight charges - whether the freight charges collected by the respondents for return journey of the vehicles used for transportation of explosives is required to be added in the assessable value of the same or not - Held that:- Two-wheelers manufactured by the appellants are transported in specialized vehicles. Expenses incurred for the onward journey are to be allowed. There is no reason to deny the expenses incurred for return journey of those vehicles which are specially designed and which cannot carry any other goods on its return - Decided against Revenue.

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• 2013 (9) TMI 57
  Return of Cenvat credit - Commissioner confirmed such repayment of credit along with interest - Held that:- appellant had already re-debited the Cenvat credit in the year 2004. As such, subsequent procedure prescribed in the Finance Act, 2005 cannot be held to be applicable to the assessee’s case. The Revenue, having already issued show cause notice could not have issued a fresh notice for the same cause again - Decided against assessee.

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• 2013 (9) TMI 56
  Onus to Prove the Demand - unaccounted fabrics and yarn - Whether duty demand can be sustained on the ground that the goods were found in a 100% EOU - Held that:- Without discharging the responsibility and without bringing any evidence on record the demand of duty on the yarn or the fabrics seized could not be sustained treating the same as the ones obtained or manufactured by a 100% EOU - No evidence had been putforth to contradict the submission of the owner of M/s. Sunrise Silk Mills that he had ceased to function in 2001 itself and handed over the building back to the owner - To demand duty on the ground that the yarn was manufactured/obtained by a 100% EOU and the fabrics were manufactured by a 100% EOU, some evidence was required. It was the department who had permitted M/s. Sunrise Silk Mills to function as a 100% EOU and therefore even if the unit had not been debonded - there had to be some return or intimation filed by the 100% EOU - It was quite possible that unit would have ceased to function earlier but there had to be some return or intimation filed by them to either Customs or to Development Commissioner or even to the banks - Since the duty demand was being raised by the Revenue on the ground that goods were manufactured/obtained by 100% EOU the responsibility to show that it was a 100% EOU who had manufactured/obtained these goods was on the Revenue which had not been discharged at all - If the Revenue could show the last return or intimation by the 100% EOU and if the quantities under seizure were the closing stock of the 100% EOU, the burden to show that it was not so would have shifted to the appellant. Duty Liability - Whether the appellant was liable to duty on the yarn which had been seized as a purchaser – Held that:- This aspect had not been examined at all by the lower authority - for this purpose it had to be go back - it was the responsibility of the appellant to show that the goods were manufactured and supplied by the M/s. CTX Textiles since it was their claim and by showing the fact that there was no octroi stamp - a prima facie case had been made out by the Revenue even though it would have been better if they were to investigate at the suppliers’ end – the appellant could have easily rebutted the observation of the Revenue that yarn could not have come to the appellant by producing an affidavit or a letter from the supplier and the issue was under litigation for the past six years - it was surprising that this had not been done till date. Goods cannot be said to have been manufactured by a 100% EOU in the case and since grey fabrics manufactured by an indigenous unit do not attract duty if no Cenvat credit has been availed - the question of duty demand does not arise - When there was no duty demand, naturally there cannot be seizure and confiscation and penalty - Therefore, as regards grey fabrics, the appeal succeeds. As regards duty on yarn, the matter was remanded to the original Adjudicating Authority for fresh decision after giving reasonable opportunity to the appellants to present their case – Decided Partly in Favour of Assessee.

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• 2013 (9) TMI 55
  Non - Accountal of Goods - Allegation of non-accountal of 49.960 kgs. of branded chewing tobacco under the provisions of Section 9(2) & 173Q of the Central Excise Rules was concerned - there was no dispute that this much quantity of finished chewing tobacco had not been accounted for in the RG-12 Register and even at the time of personal hearing - the allegation had not been refuted, the Commissioner (Appeals)’s order with regard to confiscation of 49.960 kgs. of branded chewing tobacco was upheld. Clandestine Removal - Duty Demand - Interest u/s 11AB - Penalty u/s 11AC - Held that:- The findings of the lower appellate authority were uphled that entries in the bill book, Register titled “rent receipt register” and loose sheets pertained to the removal of finished goods without payment of duty and hence the duty demand based on the same has been correctly upheld - Since this was a case of clandestine removal, penalty under Section 11AC and interest on duty under Section 11AB would be attracted. Standard of Proof - Held that:- The evidence on record in the case was sufficient to establish the preponderance of probabilities - Keeping in view the principles regarding the standard of evidence required for proving the allegation of duty evasion in the departmental adjudication proceedings - The standard of proof required in the Departmental proceedings under the provisions of the Customs Act, 1962 or Central Excise Act, 1944 or of the Rules made thereunder, for confiscation of goods, confirmation of demand for duty evaded, and imposition of penalty was the preponderance of probability - For establishing to be preponderance of probability, the adjudicating authority or the Tribunal had to evaluate the evidence of both the sides and decide what was most probable - Decided against assessee.

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• 2013 (9) TMI 54
  SSI Exemption under Notification No.8/2003 - Brand Name - More than one owner - Revenue was of the view that the appellants were using the brand name of another person and the factory was not located in a rural area and the exemption under Provision 4 of Notification 8/2003 was not available to them - Held that:- They were the owners of brand name “Vivek” and the brand name belongs to the family - It was argued by the appellants that the Hon’ble Civil Court have accepted and declared the ownership of the brand name to the family or to each of the applicant, therefore the benefit ought to have been extended - There can be more than one owner of the brand name - The appellants also pointed out that the original adjudicating authority ignored the clarification issued by C.B.E. & C. bearing No. 52/52/94 wherein it was clarified that unless the brand is proved to have been owned by some other person, the benefit cannot be denied. They also contended that the demand is barred by limitation and imposition of penalties and redemption fine on the seized goods are not sustainable. Extended Time-Limit - In terms of rule 173B of the Central Excise Rules, 1944 no responsibility was cast on the appellants to declare the trade name or brand name affixed by them on their goods - the extended period of limitation was not invocable in the case - The order confirming the demand for the period beyond six months under the proviso to Section 11A of Central Excise and Salt Act, 1944 was not sustainable and the differential duty if any was to be recovered only in respect of clearances during the normal period of limitation i.e. 6 months from the date of show cause notice. Stay Application - Financial Hardship - Prima facie strong case both factually and legally in favour of the appellants - Their financial condition was very bad primarily due to the recession in the market and produced copy of the balance sheet and profit and loss account for the year ended 31-3-2011 - Assessee had very strong legal case stay may be granted waiving any pre-deposit - stay granted.

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• CST, VAT & Sales Tax

• 2013 (9) TMI 71
  Entry Tax - rebate to the extent of the amount of tax on the payment of Trade Tax - Interpretation of Notification - Notification dated 28.4.2005, cannot be interpreted in the manner that where the rate of entry tax and trade tax is at 5 %, and consequently rebate had to be given on the Trade Tax, in view of notification dated 7.3.2005, the exemption will be applicable for State Development Tax. Novopan India Ltd., Hyderabad v. Collector of Central Excise and Customs, Hyderabad, [1994 (9) TMI 67 - SUPREME COURT OF INDIA ] - The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee - assuming that the said principle was good and sound does not apply to the construction of an exception or an exempting provision; they have to be construed strictly - A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. Under clause (iii) of the notification dated 28.4.2005, exemption from the State Development Tax was granted on the goods on which trade tax rebate was allowed to the full extent - The notification dated March 7, 2005, provided for rebate to the extent of the amount of tax paid by dealer on paper meant for writing, printing or packing purpose, excluding news print, under the Uttar Pradesh Tax on Entry of Goods Act, 2000, from the tax levied under the Uttar Pradesh Trade Tax Act 1948, on the sale of such paper subject to the conditions that:- (i) the amount of rebate shall not exceed the amount of trade tax paid; (ii) rebate shall be allowed only in relation to such paper on which Central Excise Duty has been paid. - Decided against the assessee.

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• Wealth tax

• 2013 (9) TMI 72
  Self Occupied Property or commercial property – Valuation u/s 7(4) of the Wealth Tax Act - AO came to the conclusion that the petitioner assesee had ceased to be in self occupation after entering into collaboration agreement with Ansal Properties & Industries Private Limited - Ownership Transferred or Not - Whether the Tribunal did not err in law in not accepting the claim of the assessee that 1/3rd share in the property continuing to be in self occupation of the assessee as returned on the valuation date in accordance with the provisions of sec. 7(4) of the W.T. Act, 1957 - Whether the Tribunal did not err in law in holding that the ownership in the property was not transferred after the execution of the collaboration agreement and the assessee was liable to the W.T. Act, 1957 - Held that:- The petitioner has not placed on record or stated when, how and in what manner, the transfer was affected and when and how they had shown the capital gains on the purported transfer. Thus, the petitioner and other co-owners were the legal owners on the valuation dates. Section 7(4) of the Act was not applicable and it was also held that the petitioner had transferred possession of the property, but had not transferred the title in the property by execution of the collaboration agreement dated 2nd May, 1984 with Ansal Properties and Industries Ltd. - There was no error or mistake in the finding recorded by the tribunal that there was no transfer of title and the petitioner continued to be the 1/3rd co-owner of the property during the period in question - The petitioner had not placed on record or stated when, how and in what manner, the transfer was affected and when and how they had shown the capital gains on the purported transfer - Thus, the petitioner and other co-owners were the legal owners on the valuation dates. Reliance place on Section 7(4) of the Act had to fail as the section stipulated that the residential house should be exclusively used by the assessee for residential purpose throughout the period of 12 months immediately preceding the valuation date - The assessee himself had stated that he had surrendered and transferred actual physical possession of the property to the promoter builder - Thus, the petitioner assessee was not using the property, i.e. the asset exclusively for residential purpose - The tribunal had recorded that the construction existing on the property except for the two rooms was demolished in the year 1985 i.e. before the valuation date in the present cases, which relate to the assessment years 1987-88 to 1992-93 - Possession of substantial portion of the property had been handed over to the promoter builder, who was constructing the same during the period in question. Value as on Valuation Date - Whether the Tribunal did not err in not accepting the legal claim that the only asset left in the hands of the assessee was the interest in future in the flats when they were constructed and not the land transferred which had practically nil value as on the valuation date – Held that:-There was no document or paper to show and establish that he had transferred interest in the land to the promoter builder during the period when construction was in progress - No such transfer of rights had taken place - For transfer of rights in land, transfer deeds had to be executed either with the promoter builder or by the petitioner and co-owners with third parties, who after construction would have purchased the flats - Decided against the assessee.

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• Indian Laws

• 2013 (9) TMI 73
  Scope of the Expression “Son” - Whether the expression “son” as contained in the category of dependants in Clause 9.3.3 of Chapter X of NCWA [e National Coal Wage Agreement] would include an illegitimate son born out of second marriage of a deceased employee - Held that:- The general expression “son” was occurring in conjunction to the qualified expression “legally adopted son” - the former would take a restricted meaning of legitimacy and not a wider meaning - the expression “son” in the category of “dependants” in the aforesaid scheme would not include illegitimate son born out of the second wedlock of a deceased employee. Section 16 (1) of the aforesaid Act creates a legal fiction whereby a child born out of void marriage shall be held to be legitimate. Section 16 (3) of the said act restricts such legal presumption to the rights of such a child only to the property of his parents and none else - Section 16 of Hindu Marriage Act, 1955 presumes a child born out of a void marriage as legitimate only for the purpose of entitling him to claim rights in or to the property of his parents but not to any other thing - Public post was not a heritable property - In fact it was an exception to the rule of regular appointment by open competition - Such exception to the rule of regular appointment was therefore a privilege extended by the employer in terms of the scheme for compassionate appointment itself - It was not a property of the deceased nor was it a heritable right. Ramesh Chand Vs. Executive Engineer, Electricity Distribution Division – II, U.P. Power Corporation Ltd., Allahabad and others [2003 (10) TMI 609 - ALLAHABAD HIGH COURT] had rightly interpreted the restricted import of the legal presumption in Section 16 of the Act and rejected its applicability to matters relating to compassionate appointment - Right to compassionate appointment was an exception to the general rule of recruitment by public competition - Such privilege therefore was to be strictly construed according to the terms and conditions of the scheme and the same cannot be rewritten by the Courts. Wherever the legislature wanted to extend any right or privilege to illegitimate children, it expressly provided for the same - The scheme for compassionate appointment had not expressly provided such privilege to illegitimate children born out of a void marriage - When the employer in its wisdom had not extended such privilege to an illegitimate son born out of a void marriage, such privilege cannot be imported by resorting to other statutory instruments which have no manner of application to the matter of compassionate appointment of a deceased employee. A bare reading of clause 9.3.3 which defines dependants would show that the word “son” was accompanied by the words “legally adopted son” - It was settled law that the meaning of a word was to be judged by the company it keeps - When two or more words which were susceptible of analogous meaning were coupled together, they were understood to be used in their cognate sense - They take as it were their colour from each other that was the more general was restricted to a sense analogous to a less general - Appeal Allowed.

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