Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 4, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
Articles
News
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Expenditure on Royalty - Revenue or Capital? - the licensee shall have no right to exploit or in any way to use the know-how and shall forthwith discontinue all use of the know-how and shall not thereafter use the know-how - held as revenue in nature - HC
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Computation of deduction u/s 10A - the income eligible for exemption under section 10A would not enter into computation as the same has to be deducted at source level. - HC
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Revision u/s 263 - What could not have been done in the order u/s 263 as on the date when it was passed cannot be done by exercise of powers of rectification u/s 154 - AT
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TDS - when hiring of trucks and payment thereof was not in consequence upon any written or oral agreement, the natural outcome is that the provisions of section 194C, not applicable - AT
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Nature of income arising from early settlement of forward foreign exchange contract - treated as capital gain - AT
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Disallowance of weighted deduction u/s 35(2AB)(1)- expenditure incurred on clinical trials - The repairs, rent, etc., the expenditure incurred relating to R&D premises cannot form part of cost of land or building. - AT
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Capital gain arising from the transfer of depreciable asset u/s. 50 - the provisions of section 50C can be applied to adopt the value assessed for stamp duty payment as full value of consideration - AT
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There was an omission and failure on the part of the assessee to disclose fully and truly material facts for the above assessment years with regard to excess depreciation claimed. - proceeding u/s 147/148. upheld - AT
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Receipt on account of surrender of tenancy rights - till the amendment in 1995, the compensation received on surrendering the tenancy rights could not be assessed to capital gains - HC
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Letting out of the terrace erection of antenna and income derived from letting out has to be taxed as “income from house property” and not as “income from other sources’ - AT
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Estimation of profit - valuation of stock - book results cannot be accepted as the valuation of stock shown by the assessee is not based on any sound accounting principle and AO’s version cannot be accepted for want of any independent findings - AT
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Judicial discipline - Power of CIT(A) u/s 251 vis a vis CIT u/s 263 - If any part of the income has escaped assessment, it is the jurisdiction of the administrative CIT u/s 263 and not of CIT(A). - AT
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Rejection of exemption u/s 10(10C) - It appears that some officers have wrongly considered themselves bound by the circular to the extent of their being required to reject the application under Section 10(10C) merely on the basis thereof and without considering whether in law the assessees are entitled to exemption in view of their having opted for the scheme. - HC
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Partnership firm - in the case of dissolution of a firm, only the firm is taxable on capital gains on dissolution under Section 45(4) of the Income Tax Act, 1961 and not the partner - HC
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Valuation of Electron Guns and Electron Gun Heaters and calculation of Miscellaneous income - dismissed due to the insignificant tax effect involved in these appeals but subject to the result of the appeals before the Supreme Court - HC
Customs
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Detention of the Imported goods - As the liability of revenue arrears of other persons cannot be fastened on the petitioner , the order of not releasing the goods in violation of statutory provisions and thus, is hit by Article 14 of the Constitution of India - HC
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Digital Multifunction Print and Copying machines - restricted category - Such goods may be directed to be released, on payment of the appropriate customs duty and on the fulfillment of the conditions prescribed by law - HC
Service Tax
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Demand of service tax - Once it is recognised that there is sale of goods involved in such contracts and the sale can be treated as a separate component they were eligible for the exemption under Notification No. 12/2003-ST - AT
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Refund of service tax paid on specified services - Notification issued under Section 93 of the Finance Act, 1994, or a condition incorporated in such a notification cannot put a bar on credit allowed or refund of unutilized credit allowed under the Rules made under a different enactment that is, the Central Excise Act, 1944 - AT
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Input services must be availed before removal of the goods is not correct as there are a number of services required to be used in or in relation to the manufacture of finished goods, mentioned in the inclusive portion of the definition of “input service”, cannot be linked with the removal of the goods. - AT
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Activity of benefication/washing of raw coal - 6 no service tax was leviable on above activity prior to 01.06.07 - AT
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Clearing & Forwarding Service – giving of godown on hire to client for keeping of the goods for which they were acting as clearing and forwarding agent - Decided the issue in favour of assessee on the ground of period of limitation and other grounds - AT
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Trade fair and exhibitions service held outside India - Since, this service has not been performed in India - same cannot be treated as received in India by the appellants - AT
Central Excise
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Refund claim of duty paid on HV/LV coils used captively for repairing transformer - when excise duty was not leviable on the goods, the respondent cannot take the benefit of Notification No.56/02-CE on the plea that he has cleared non-excisable goods on payment of excise duty. - AT
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Plea for condonation of delay - reason provided for non filing the appeal in time being quit of employee looking after the excise work - Reason given are very sketchy and cannot be accepted as justifiable reason. - AT
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Application for recall of the order – Merely observing that the assessee failed to collect the relied upon documents was not sufficient to justify ex parte proceedings - AT
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Since assessee has discharged its obligation under Rule 6 of the Cenvat Credit Rules by reversing proportionate credit in respect of usage for manufacture of exempted goods, hence pre-deposit of same is waived subject to deposit of demand confirmed aforesaid - AT
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Denial of benefit of Rule 34 of Standards of Weight and Measures Rules, 1977 – it was necessary for the department to produce some evidence on record to show that the goods in question were either sold or meant for retail sale or for sale to the customers other than industrial units. - AT
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Period of Limitation for filing an appeal – department had three months time to file the appeal from communication date - AT
Case Laws:
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Income Tax
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2012 (9) TMI 50
Disallowance of claim of Agriculture income - Addition on account of undisclosed income - shortfall in the cash flow statement of Smt. Kadeeja, mother of one of the partners - Held that:- Considering the specification provided by the rubber Board the undisclosed income has to be computed in accordance with provisions of chapter XIVB. Therefore, the income has to be computed on the basis of the material found during the course of search operation whereas in thus case the undisclosed income was computed on the basis of the cash flow statement filed by the assessee in the course of the assessment proceedings. In fact, AO disbelieved the cash flow statement in respect of the agricultural income and the balance was added as undisclosed income. In the absence of any material found during the course of search operation the assessing officer cannot make any addition - in favour of assessee. Addition on unexplained cash credit - Held that:- As concerned persons in this case confirms that they has given the gold jewellery as capital investment in the firm, the addition if any has to be made only in their hands only and not in the hands of the firm. No material is found in the course of search proceedings that the entry found in the books of account with regard to the credit of gold jewellery is false, thus AO cannot make any addition with regard to the investment made in the partnership firm - in favour of assessee. Disallowance of depreciation - Held that:- As the profit of the assessee was estimated at 5% of the turnover u/s 44AF and once the profit is estimated, all expenditure and allowances including depreciation are deemed to have been allowed, thus CIT(A) has rightly rejected the claim of the assessee for depreciation - against assessee. Addition being the value of jewellery brought in by the partners of the assessee firm - Held that:- As the partners of the firm have disclosed incomes under VDIS 1997. Once the amount disclosed under VDIS, the same would be available for making further investment. It is not in dispute that the amount disclosed under VDIS was accepted by the competent authority. Therefore, the assessing officer cannot doubt the source of investment made at this stage - against revenue.
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2012 (9) TMI 49
Undisclosed agriculture income - Held that:- In the absence of any material to support the claim of the assessee towards agricultural income, the assessing officer has taken the same as undisclosed income - when the assessee claims that the agricultural income was earned it is for the assessee to support that the income was earned during the year under consideration. Moreover, what was said to be acquired additionally was 8 acres of rubber estate and 10.28 acres of coconut, areca nut, pepper, plantain, etc. Out of this, the assessee could not have earned so much agricultural income as disclosed in the block return. But the fact remains is that the assessee has invested the money in the partnership firm, therefore, the same has to be necessarily added as undisclosed income - against assessee. Addition on undisclosed income - Held that:- It is not in dispute that Pazheri Communication was a proprietory concern but the income from this proprietory concern was not disclosed to the department earlier which was admittedly unearthed during the course of search operation. During the course of search operation the profit and loss account and balance sheet for the period 01-04-2001 to 31-03-2002 was found relying on which AO computed the undisclosed income. It is not the case of the assessee that the balance-sheet and profit & loss account found during the course of search operation does not relate to the assessee - addition to income is thus confirmed - against assessee. Addition towards capital gain - Held that:- CIT(A) conclusion that the assessee has admitted Rs.32,03,000 in addition to his share of capital gain already disclosed in the return of income and thus the addition made by the AO to the extent of Rs.35,78,857 is not correct is without application of mind. In fact, there was no discussion in the order. The CIT(A) has to discuss the matter on merit and record his reasoning either for accepting or not accepting the claim of the assessee - the issue with regard to capital gain is remitted back to the file of the CIT(A). Deficiency found in the cash flow statement filed by Smt. P Khadeeja has to be treated as undisclosed income of the assessee - Held that:- The cash flow statement filed by Smt. P Khadeeja cannot be the basis for making addition in the hands of the present assessee. As rightly pointed out by the CIT(A) in the absence of any material found during the course of search operation, the deficiency found in the cash flow statement of Smt. P Khadeeja represents her own income - in favour of assessee.
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2012 (9) TMI 48
Expenditure on Royalty - Revenue or Capital ? - Held that:- According to various clauses of the know-how licence agreement read along with the supplement agreement royalty payable as net sales of taxes the know-how was provided by the contract manufacturer for the limited purpose of manufacture of Revlon products only. The responsibilities of the contract manufacturer were clearly defined in the agreement between the assessee-company and the contract manufacturer, according to which obligation relating to royalty payment was not passed on to the contract manufacturer. The entire benefit of the know-how was meant for manufacturing the products to be supplied to the company and there was no obligation of the contract manufacturer (i.e. the assessee’s sister concern) to pay royalty to the licensor - the fact that the assessee chose to manufacture through a contractor, i.e. its sister concern, in this Court’s opinion does not undermine its status as a licensee, responsible to pay the royalty - Clause 12.01 of the agreement stipulates that upon expiration or termination of this agreement, the licensee shall have no right to exploit or in any way to use the know-how and shall forthwith discontinue all use of the know-how and shall not thereafter use the know-how, thus the revenue’s arguments that the royalty amount to be in the nature of capital expenditure, is meritless - in favour of assessee. Disallowance of publicity expenses - Held that:- The reasoning for disallowance of 50% of expenses as the advertising expenses were to be borne by the sister concern dealer, and that the proportion was in respect of its territory, was not upheld as brand promotion enhances the visibility of given products or services, and are often perceived as conferring a competitive advantage on those who adopt those strategies or schemes. Expenditure towards that end is based on pure commercial expediency, which the revenue in this case, ought to have recognized, and allowed - in favour of assessee. Disallowance of consultancy charges u/s 40A (2) - Held that:- In order to determine whether the payment is not sustainable, the AO has to first return a finding that the payment made is excessive, under Section 40-A (2) and only if it is found to be so, then the AO has to determine what constitutes the fair market value of the services rendered and disallow the difference between what is claimed and what is such value determined (as fair market value). Apart from the fact that no such exercise was undertaken by the AO, the Court sees that the assessment order went off into a tangent, in following a method that was clearly inapplicable - in favour of the assessee.
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2012 (9) TMI 47
Computation of deduction u/s 10A - losses suffered in the Non-EPZ Unit need not be set off from the profit/income of the EPZ Unit as allowed by ITAT - Revenue appeal - Held that:- All the sections referred to in Section 10A (6) refer either to the eligible undertaking or business/ profits & gains of the undertaking. The provisions of section 10A refer only to the eligible undertaking and not to all the units operated by the assessee. Further, under section 10A the exemption has been prescribed to the computed separately with reference to the profits/ gains of the undertaking in question and does not contemplate computation of such exemption with reference to the aggregate profits of all the undertakings of the assessee. Section 10A is a provision exempting a particular kind of income even after being amended by the Finance Act, 2000 w. e. f. 01.04.2001 as decided in CIT Versus Yokogawa India Ltd. [2011 (8) TMI 845 - KARNATAKA HIGH COURT] the substituted section 10A continues to remain in Chapter III. It is titled as "Incomes which do not form part of total income" , thus it is clear that the income of the section 10A unit has to be excluded before arriving at the gross total income of the assessee - the income eligible for exemption under section 10A would not enter into computation as the same has to be deducted at source level. Though sub-section (1) provides for a deduction of the eligible profits, there is good reason to think that it is not to be considered as a deduction because the sub-section further says that the deduction “shall be allowed from the total income of the assessee” - The return of income in Form No.ITR-6 shows shows that after aggregating the income from salary, house property, profits and gains from business, capital gains and income from other sources, the total is arrived at and it is from this total that the losses of the current year and the brought forward losses from the past years are to be set off. The resultant figure gives the gross total income of the assessee from which deductions under Chapter VIA are to be made in order to arrive at the total income. The steps given in the income tax return form also are an indication that it is before the adjustment of the losses of the current year and the brought forward losses from the past year that the profits eligible for the relief under Section 10A have to be given the relief. The form of return is also an indication that the relief under Section 10A has to be given before adjustment of the current as well as the past losses. The sole object of the sub-section (4) of Section 80A is to ensure that double benefit does not result to an assessee in respect of the same income, once under Section 10A or Section 10B or under any of the provisions of Chapter VI-A and again under any other provision of the Act. This sub-section does not militate against the view that Section 10A or Section 10B is an exemption provision. As decided in Hindustan Unilever Limited Versus Deputy Commissioner of Income tax & Union of India [2010 (4) TMI 206 - BOMBAY HIGH COURT] such profits have to be eliminated at the first stage itself, that is, as soon as they are computed, suggesting that it is an exemption provision - the implication of an exemption provision is that the particular income which is exempt from tax does not enter the field of taxation and is not subject to any computation. The computation provisions of the Act do not get attracted at all to the exempted income - in favour of assessee.
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2012 (9) TMI 46
Revision u/s 263 / rectification u/s 154 - unascertained liability as shown in P/L A/C in view of the provisions of Explanation(c) to Sec 115JB - Held that:- As the order u/s 263 was passed the law was that provision for bad and doubtful debts cannot be added to the profit as per profit and loss account while computing book profit u/s 115JB . The retrospective amendment to the provisions of Sec.115JB cannot give power to the ACIT to rectify his order u/s 263 , which as on the date when the order u/s 263 was passed was in accordance with law - What could not have been done in the order u/s 263 as on the date when it was passed cannot be done by exercise of powers of rectification u/s 154, thus the impugned order of CIT rectifying his order u/s 263 by exercising powers u/s 154 cannot be sustained - in favour of assessee.
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2012 (9) TMI 45
Transfer pricing adjustment - addition to income as against Nil declared by assessee - Held that:- As Departmental Representative fairly submitted that information obtained u/s. 133(6) was used in the case of the assessee thus it is necessary that for such information is shared with the assessee and the assessee is granted sufficient opportunity to examine it and present the appropriate response. Thus any information obtained in the course of assessment proceedings has to be supplied to the assessee for its objection, if any. In the absence of doing so, it is a violation of fundamental principles of natural justice. Thus the matter is restored back to the file of the AO with the direction to supply whatsoever information used against the assessee and the assessee be granted a reasonable opportunity of being heard and thereafter pass a fresh assessment order, as per law - in favor of assessee for statistical purposes.
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2012 (9) TMI 44
Capital gain - nature of income arising from early settlement of forward foreign exchange contract - forward contract had been entered into by the assessee to safeguard the foreign exchange loan taken for purchase of debentures – Held that:- Debentures are capital assets - gains arising from early settlement of forward foreign exchange contract has to be treated as capital gain - appeals of the assessee are allowed.
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2012 (9) TMI 43
Disallowance of weighted deduction u/s 35(2AB)(1)- expenditure incurred on clinical trials - Held that:- Considering the same very issue which was considered by the Tribunal in assessee's own case for assessment year 2006-07 that the expenditure on scientific research eligible for weighted deduction under section 35(2AB), should be the expenditure on scientific research on in-house research and development facilities and, therefore, the action of the Assessing Officer to disallow weighted deduction of 50% was confirmed - against assessee. Disallowance of weighted deduction on expenditure incurred on rent, rate and taxes - Held that:- As it is evident that section 35(2AB) excludes from weighted deduction only cost of land and building and not any charges and expenses related to land or building. The repairs, rent, etc., the expenditure incurred relating to R&D premises cannot form part of cost of land or building. In the absence of any fact that the said claim of the assessee is not the expenditure on rents, rates and taxes relating to R&D premises the said expenditure has to form part of weighted deduction as per section 35(2AB) - in favour of assessee. Denial of weighted deduction on the claim as not reported in DSIR certificate, thus in the absence of any details submitted no point to interfere with the order of the Commissioner for denial - against assessee. Disallowance of weighted deduction in respect of consulting charges and patent filing charges - Held that:- As the consultancy charges had been paid by the assessee in providing technical services regarding the patents, obtaining patent information from innovator companies and obtaining innovator samples for R&D purposes, thus the payments have been accepted towards research and not towards registering the patents. Therefore, these expenditures have been incurred towards research expenses and not towards any patent filing. Explanation to section 35(2AB) specifically provides that the expenditure on scientific research for the purpose of section 35(2AB) shall include filing of application for a patent under The Patent Act, 1970, in relation to drugs and pharmaceuticals. Any application for patent foreign country has to be filed in India as per section 7 of The Patent Act, 1970, according to patent cooperation treaty. Therefore the said expenditure incurred towards patent filing charges is eligible for weighted deduction under section 35(2AB) - in favour of assessee. The expenditure for registering trade mark in India is a revenue expenditure and not capital expenditure - in favour of assessee. Treatment of expenses paid to the Associated Enterprises - international transaction for registration of Anti National Drug Application (ANDA) in USA - Revenue OR Capital - Held that:- As the Department has not disputed the fact that by ANDA registration, the assessee has completed the statutory requirement to sell the product in USA market and in the absence of such registration, the assessee may not be able to sell its product without hindrance. Considering the above facts, it is to be agreed that such expenditure has been incurred by the assessee for the purpose of its business which is to be allowed as revenue expenditure- in favour of assessee.
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2012 (9) TMI 42
Addition on account of Transfer Pricing Adjustment - assessee contested that out of the 11 comparables 3 of the selected companies have 80 times, 24 times and 76 times of the turnover of the assessee company - Held that:- Following the decision in DCIT Versus Indo American Jewellery Ltd. [2010 (5) TMI 530 - ITAT, MUMBAI] wherein comparables selected by revenue authorities were rejected by the Tribunal on the ground that their turnover was more than 8 times and 11 times respectively of the turnover of the assessees. Respectfully following these decisions the three comparables taken by the revenue authorities namely BHEL, REL and L&T are rejected and direct the exclusion of the same for the purpose of 'comparability analysis' - in favour of assessee. Exclusion of commission income for the purpose of computing operating profit margin (OPM) - Held that:- As decided in assessee's own case that the commission income, which has been excluded from the profitability of the assessee, is not a passive income but an operational income as assessee is the local contact point for the ABs and is a virtual projection for the ABs in India giving them visibility and presence, is engaged in rendering warranty services for these direct sales on which commission is earned, and a part of its marketing efforts also contribute to this earning, thus consider it appropriate that commission income on direct sales should not be excluded from the profitability of the assessee - in favour of assessee. Exclusion of liquidated damages for the purpose of computing operating profit margin (OPM) - Held that:- There is nothing on record to show the basis on which provision was made by the assessee for liquidated damages and whether there is any policy consistently adopted by the assessee in making such provision. Having regard to this fact of the case, it is difficult to accept the contention of the assessee that the provision for the liquidated damages is a part of operating expenses and the same needs to be taken into account for the purpose of computing OPM - against assessee. Disallowance of working capital adjustment on the final list of comparable companies - Held that:- Considering decision by the Tribunal in assessee's own case for the AY 2006-07 wherein a direction was given by the Tribunal to allow working capital adjustment at 1.55% as against 0.66% made by the TPO. Keeping in view the said decision the AO is directed to verify the details of working capital adjustment and allow appropriate working capital adjustment - in favour of assessee for statistical purposes. The final adjustment on account of transfer pricing, if any, has to be made only in respect of transactions with AE and not in respect of entire turnover of the assessee as made by the revenue authorities - in favour of assessee. Addition on taking the enhanced value of consideration as per the stamp authorities - computation of short-term capital gain on sale of building - Held that:- As decided in Income-tax Officer Versus United Marine Academy [2011 (4) TMI 15 - ITAT MUMBAI] capital gain arising from the transfer of depreciable asset u/s. 50, the provisions of section 50C can be applied to adopt the value assessed for stamp duty payment as full value of consideration - against assessee. Addition made on account of provision for variable pay - Held that:- Respectfully following the decision of the co-ordinate Bench of this Tribunal in assessee's own case for the AY 2006-07 remitting the matter to the file of the AO for deciding the same afresh after giving the assessee an opportunity to substantiate its claim that the liability on account of provision for variable pay is ascertained liability in the light of additional evidence filed by the assessee as well as such other material as the assessee may wish to rely upon - in favour of assessee for statistical purposes. Grant of less credit of tax deducted at source - Held that:- Direction to the AO to grant credit for TDS as per the law after verifying the claim of the assessee from the relevant record including the TDS certificates - in favour of assessee for statistical purposes.
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2012 (9) TMI 41
Addition on account of cash payments - survey u/s 133A - Held that:- As regards addition of Rs.5.00 lacs the assessee had explained the same as cash loans taken from Shri B.K. Sheena during April, 1998, which has also been confirmed by him giving his Permanent Account Number and addition only on the ground that cash was kept and payments were made much later is not justified in the absence of any material to show that cash loans had been utilized elsewhere - loans were reflected in the assessment records of Shri B.K. Sheena and source had been explained, addition could not have been made only on the ground that Shri B.K. Sheena had not been produced - thus the claim of loan of Rs.5.00 lacs requires fresh verification and accordingly restored back to the file of AO for fresh order - in favour of assessee for statistical purposes. Estimation of income - two sets of trading, P&L account showing different figures of net profit had been found in survey - income estimation made @8% by CIT(A)- Held that:- As the trading-cum-P&L Account found at the time of survey was only projected and the word “projected” was clearly inscribed on it assessment based on projected turnover need to be rejected - once turnover is available as per audited accounts, income has to be estimated on a reasonable basis based on turnover as labour charges and purchases are not verifiable in the absence of books of accounts which have not been produced - estimation can not be made @8% under section 44AD which is applicable only in case of turnover not exceeding Rs.40.00 lacs and in the present case, turnover is Rs.2.80 crores - As the books of account for this year are not available and, therefore labour charges and purchases can not be cross verified and no comparative case for the current period has been brought to notice it would be reasonable to estimate net profit @ 6% this year - partly in favour of assessee. Allowability of expenses against royalty income by CIT(A) - income from lease of hotel - revenue appeal - Held that:- The hotel building had been leased out along with furniture, fittings etc. for running the hotel. Therefore, income has been rightly assessed as income from other sources. No infirmity in the order of CIT(A) in allowing the claim of the assessee - against Revenue. Addition on account of House property - Held that:- The AO had assessed income from Mangalore property without giving details of the property. Assessee has denied any property at Mangalore other than agricultural property income from which has been assessed as agricultural income. Under these circumstances addition on account of house property is not justified - in favour of assessee.
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2012 (9) TMI 40
Deduction u/s 54 - LTCG arising from sale of a residential flat on 07.03.06 - dis-allowance on ground of not producing evidence of taking possession of flat within two years as applicable for investment in case of purchase of flat - Held that:- In the present case, the assessee had booked the new flat with the builder and as per agreement, the assessee was to make payment in installments and the builder was to handover the possession of the flat after construction. It has therefore to be considered as a case of construction of new residential house and not purchase of flat. Therefore, capital gain had to be invested within a period of three years from the date of transfer. Old flat had been sold on 7.3.2006 and therefore the assessee was required to construct a new residential house by 6.3.2009. Hence, assessee had invested the capital gains in construction of a new residential house within a period of three years, this should be treated as sufficient compliance of the provisions. It is not necessary that the possession of the flat should also be taken within the period of three years. Merely because the possession had not been taken within the period of three years, the exemption cannot be denied Dis-allowance on ground of non deposit of unutilized capital gain amount in the capital gain account scheme before the due date of the filing of the return of income for the relevant year - assessee had deposited Rs 1 lacs as booking amount before due date of filing of return - Held that:- In our view, this is only a technical default and on this ground the claim of exemption cannot be denied particularly when the amount had been actually utilized for the construction of residential house and not for any other purpose - Decided in favor of assessee
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2012 (9) TMI 39
Penalty u/s 271(1)(c ) – assessment framed u/s 153A – addition made in respect of long term capital gains and income from bank interest – AY 04-05 - Held that:- Although the assessee could not produce any documentary evidence to support and substantiate his claim of cost of acquisition of shares during the course of assessment proceedings u/s.143(3) r.w.s. 153A which were taken-up after a gap of nine years, we find that there is nothing found either during the course of search or brought on record even during the course of assessment proceedings by the A.O. to show that the cost of acquisition of shares claimed by the assessee was on the higher side and the same was actually lower than what was claimed. Therefore, it was not a case of concealment as envisaged u/s.271(1)(c). Similarly, addition made on account of income from bank interest was based on assumption and surmises and in the absence of anything brought on record to show that such interest income was actually received in A.Y. 2005-06, same cannot be treated as concealed income. Penalty u/s.271(1)(c) is not sustainable AY 07-08 – cash and jewelry found during search – Held that:- Circular No.1916 permits possession of 1450 grams of jewellery whereas the total jewellery found during the course of search was to the extent of 1,442.56 grams. Thus, the same should have been treated as ‘explained’ on the basis of the said Circular. Further, assessee had surrendered the undisclosed cash found during search. Therefore although both the additions made by the A.O. have been accepted by the assessee, the same could not be treated as ‘concealed income’ of the assessee as envisaged in sec.271(1)(c) – Decided in favor of assessee.
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2012 (9) TMI 38
Validity of reassessment proceedings of AY 02-03 – excess depreciation on intangible assets namely trade and marketing network rights - inadmissible depreciation on goodwill – AO in view of the amendment made in the relevant provisions of the Act allowed depreciation on asset namely trade and marketing network rights for AY 01-02 u/s 143(3), which had been withdrawn by assessee in its revised return – in assessment u/s 143(3) for A.Y. 2002-03 depreciation allowed as claimed by the assessee without reducing the depreciation already allowed in trade and marketing network rights in the A.Y. 2001-02 – same followed in assessment for AY 04-05 i.e. depreciation claimed without deducting the amount of depreciation already allowed in A.Y. 2001-02 Held that:- It is seen that in both the above AYs the assessee has claimed excess depreciation on trade and marketing network rights. Also, even in response to notice issued u/s 148, the assessee has filed the returns on the same loss as determined by the A.O. in the AY 2002-03 and 2004-05 without reducing the excess claim of depreciation claimed by the assessee in the original returns filed by him. Thus, there was an omission and failure on the part of the assessee to disclose fully and truly material facts for the above assessment years with regard to excess depreciation claimed. A.O. was justified in initiating/completing the proceeding u/s 147/148. Depreciation in respect of intangible assets such as brands, formulations, patents and marketing distribution network – dis-allowance – Held that:- Since the same has been allowed by Tribunal in earlier year, hence A.O. is directed to allow the same after reducing the depreciation already allowed in A.Y. 2001-02 from the WDV shown by the assessee for the year under consideration – Decided partly in favor of assessee.
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2012 (9) TMI 37
Receipt on account of surrender of tenancy rights - Tribunal held that the receipt is a capital receipt but refusing to look at the question of taxing the same as capital gains - Held that:- On reading of the Commissioner's order shows the admitted fact that as per the memorandum of understanding executed on 25.02.1994 the assessee's status as a tenant was not disputed and the genuineness of the document remained unassailed by the Revenue. Hence, the admitted fact position is that the assessee was a tenant. The only ground on which the order of the Assessing Officer was sought to be revised was the character of the receipt alone and the CIT (A) held that it was to be assessed as income under Section 10(3) - whatever might have been the terms of understanding under the lease deeds dated 28.08.1978, as far as the present case is concerned, the right to receive compensation is traceable to the document dated 25.02.1994. Consequently, it is not open to the Revenue to contend that the order of the Commissioner could be sustained on a different fact situation, a position which is not open to the Revenue to contend so. Having regard to the unworkability of the provisions of section 45 and that Section 55 itself was introduced relevant only to the subsequent assessment year, namely, 1995-96, the Apex Court held that till the amendment in 1995, the compensation received on surrendering the tenancy rights could not be assessed to capital gains. Thus, on the fact position as found by the Tribunal and which form the very basis of the order under Section 263 that the assessee was treated as tenants as per the document dated 25.02.1994, the genuineness of which was never questioned by the Revenue no hesitation in confirming the order of the Tribunal.
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2012 (9) TMI 36
Reduction of profit eligible for deduction u/s 80HHC while computing book profits u/s 115 JB – dis-allowance of deduction on ground that profit eligible for deduction u/s 80HHC are nil after adjusting brought forward business loss and depreciation under normal provisions of the Act - Held that:- Supreme Court in the case of M/s Bhari Information Tech Systems Pvt. Ltd.(2011 (10) TMI 19 - SUPREME COURT OF INDIA), held that profit eligible for deduction u/s 80HHC for the purpose of reduction u/s 115JB is required to be computed on the basis of book profit and, therefore, brought forward loss/unabsorbed depreciation are not required to be adjusted. The said judgment of Supreme Court had been delivered prior to the impugned order of the Tribunal and even if the judgment had been referred subsequent to the order of the Tribunal, an issue covered by the judgment of the Jurisdictional High Court or the Apex Court whether rendered prior or subsequent to the order will be valid ground for an apparent mistake in the order from record as held in the case of ACIT vs. Saurashtra Kutch Stock Exchange Ltd.(2008 (9) TMI 11 - SUPREME COURT). AO directed to compute the book profit accordingly. Since order is already amended and aforesaid claim of assessee is allowed on merit. Therefore, there is no apparent mistake in the order of the Tribunal in which the ground relating to legal validity of assessment / re-opening has been dismissed as having become infructuous – Decided in favor of assessee.
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2012 (9) TMI 35
Co-operative Housing society - rental income from allowing the use of terrace area for placing the communication towers by telecommunication companies - Income from house property vs Income from other sources - Held that:- Letting out of the terrace erection of antenna and income derived from letting out has to be taxed as “income from house property” and not as “income from other sources’ and accordingly deduction to be provided u/s 24 - Decided in favor of assessee Taxability of Transfer Charges and Repair Fund received from members - assessee contended that as per bye laws, there was an agreement by which the charges was paid by the transferee and it was in the nature of admission fee which could be appropriated, only on the transferee being admitted - contribution to common amenity fund/repairs and welfare fund being the first contribution made by the existing/new member was not taxable - reliance placed on Mittal Court Premises Chs. Ltd (2009 (7) TMI 689 - BOMBAY HIGH COURT) - Held that:- Applicability of principle enumerated in aforesaid judgment to the facts of the case depends upon the comparison of bye-laws of both the societies. As this aspect has not been looked into, we want to remit back the matter to the file of the A.O. Taxability of income from sale of scrap, garage rent and car parking - assessee contended non-taxability on ground of Principles of mutuality - Held that:- Amount in question is covered by principles of mutuality. If amount is used for the benefit of the members of the Society, it is entitled to have benefit of principle of ‘mutuality’ - Decided in favor of assessee
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2012 (9) TMI 34
Addition made during assessment u/s 143(3) of amount surrendered by assessee in respect of unexplained stock and cash during the survey - Revenue contended that assessee must honour his surrender - Held that:- It is assessee’s contention that closing stock mentioned in Trading A/c includes the stock surrendered at the time of survey. It is AO’s contention that the surrender is over and above this closing stock. It is observed that there is a big variance in the valuation of stock by both sides and both sides have failed to substantiate their respective claims, hence there is need to estimate profit. We find that the net profit shown by the assessee is 548570.47 after depreciation and interest which is about 2.54 % of gross sales. As discussed above the book results cannot be accepted as the valuation of stock shown by the assessee is not based on any sound accounting principle and AO’s version cannot be accepted for want of any independent findings, considering the facts in totality and in the interest of justice and fair play, we direct the AO to take net profit rate at 5 % When profit is estimated than all the related expenses are deemed to be allowed and further independent additions of expenses is not called for. W.r.t deduction u/s 80G, it is observed that receipt is given by organisation, registered and eligible for grant of 80G deduction, hence AO is directed to allow deduction u/s 80G.
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2012 (9) TMI 33
Bad debts - dis-allowance on ground of inability of assessee to justify claim of bad debt - AY 04-05 - assessee company being registered as a sick industrial company in the year 2004 - Held that:- Though after the amendment in S36(1)(vii) w.e.f. 01-04-1989, it is not obligatory on the part of the assessee to prove that the debt written off is indeed a bad debt for purposes of allowance u/s. 36(1)(vii). However, it is also a fact that the assessee has to establish that it fulfils the conditions laid down u/s. 36(2). Since assessee stated that the requisite documents could not be filed as the assessee company at the relevant time was a BIFR company and its proposal to revive was pending before BIFR. In the interest of justice, we restore this matter to the file of AO to decided same afresh Rebate and claims - dis-allowance on ground that same was allowed to one party - business expediency - Held that:- There is no document placed on record to justify that rebate of the substantial amount was granted to M/s. SMT on account of defect/damage in the goods. Also, no details are filed in respect of - when the supply was made to the above party and how much amount was due from it, why shares pledged by SMT were not invoked in event of non-payment. Hence, CIT(A) was justified in holding that assessee has failed to discharge the onus that the said rebate was due to business expediency - Decided against assessee Dis-allowance u/s 43B of Rs 8.71 crores - interest to financial institution - assessee contending mistake in clubbing and contending dis-allowance of Rs 6.11 crores - Held that:- During course of hearing, assessee was unable to file any document to substantiate that interest due to financial institution was Rs.6.11 crores. dis-aloowance confirmed - Decided against assessee Dis-allowance u/s 14A - computed in accordance with Rule 8D - AY 05-06 - Held that:- CIT(A) was not justified in computing dis-allowance by applying Rule 8D as the said Rule is not applicable to the AY 2005-06. See Godrej & Boyce (2010 (8) TMI 77 - BOMBAY HIGH COURT). Matter restored to file of AO
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2012 (9) TMI 32
Judicial discipline - Power of CIT(A) u/s 251 vis a vis administrative Commissioner u/s 263 - enhancement of income adding new sources of income, not subject matter of original assessment - assessee contended that CIT(A) wants to add to the income of various assessees whose assessment orders have traveled upto CIT(A) and the Tribunal - Held that:- In present case, what CIT(A) is attempting to do is that under the guise of provisions of section 250(4), he is trying to act as if he is the administrative CIT and as such has got revisionary powers. In the guise or order passed u/s 250(4), CIT(A) is trying to even reopen the completed assessments of other assessees which have reached finality to the level of the Tribunal which is not permissible under law. We may observe that even administrative CIT by exercising powers u/s 263, is not permitted to direct the AO to revise the assessment by adding the income of other assesses whose assessments are either quashed or additions have not only been deleted by his predecessor but which were confirmed by the Tribunal also. CIT(A) has no power to find out new source of income which was not the subject matter of original assessment. If any part of the income has escaped assessment, it is the jurisdiction of the administrative CIT u/s 263 and not of CIT(A). In the impugned order, CIT(A) exceeded his jurisdiction and it appears that the orders have been framed by assuming the revisionary jurisdiction of Administrative Commissioner u/s 263 which is not permissible under the Act. Order of the CIT(A) passed u/s 250(4) is set aside and first appellate authority is directed to decide the appeals on merits.
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Customs
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2012 (9) TMI 31
Detention of the Imported goods - the goods were withheld for recovery of revenue dues from M/s. Geetha Timbers, a partnership firm - Held that:- The petitioner has entered into a High Sea Sales Contract with M/s. Geetha Timbers Pvt. Ltd., against whom there is no demand. Further more, even demand against M/s. Geetha Timbers, a partnership firm has also been stayed. Therefore, legally there is no demand, which could give jurisdiction to second respondent to detain the goods imported by the petitioner under the High Sea Sales Contract. The impugned order in refusing to release the goods is also contemptuous, as demand is contrary to the stay granted by the learned Tribunal, and therefore cannot be sustained in law. As the liability of revenue arrears of other persons cannot be fastened on the petitioner , the order of not releasing the goods in violation of statutory provisions and thus, is hit by Article 14 of the Constitution of India, therefore can not be sustained in law - direction to the respondents to release the goods of the petitioner, subject to his payment of custom duty and other charges - in favour of assessee.
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Service Tax
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2012 (9) TMI 54
Demand of service tax - appellants are engaged in the business of manufacture/ import and sale of photocopiers, printers, scanners, fax machines etc. - appellants also undertake maintenance of such machines sold to their customers - Revenue was of the view that since the essential character of these contracts are for providing service of maintenance and business support and since such services could not have been provided without supply of the materials involved the contract could not be split into service component and component of supply of materials – Held that:- Once it is recognised that there is sale of goods involved in such contracts and the sale can be treated as a separate component they were eligible for the exemption under Notification No. 12/2003-ST providing exemption from goods sold in the course of providing service - value of material sold is actually more than the value for which exemption is claimed - no further service tax is due from the appellants - waiver of pre-deposit granted
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2012 (9) TMI 53
Rent-a-cab scheme operator in relation to the renting of a cab - appellants were engaged in the business of renting out low-floor buses to Rajasthan State Road Transport Corporation (RSTRC) on contract basis - Revenue was of the view that the appellants should have paid tax on the consideration received from RSRTC under the head for rent-a-cab scheme operator as as covered by defininton in entry at section 65 (20) of Finance Act - Held that:- Abatement under Notification 1/2006-ST and abatement of cum-duty price can be extended to the appellant - applicants directed to deposit
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2012 (9) TMI 52
Refund of service tax paid on specified services - appellants in this case had not claimed refund under the Notification No. 41/2007 in the first instance and only at the instance of the Department they have subsequently filed the refund claims under the said notification which has been disallowed on the ground of time bar and non-fulfilment of conditions under the said Notification – Held that:- Notification issued under Section 93 of the Finance Act, 1994, or a condition incorporated in such a notification cannot put a bar on credit allowed or refund of unutilized credit allowed under the Rules made under a different enactment that is, the Central Excise Act, 1944, and a different provision namely Section 94 of the Finance Act, 1994 - there is no restriction placed under the said Rules, the appellant cannot be prevented from claiming refund of unutilized CENVAT credit in respect of any input or input services, if such refund is otherwise due - appeals are allowed by way of remand to the original authority
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2012 (9) TMI 51
Input services credit - services of the Commission Agent – Held that:- Input services must be availed before removal of the goods is not correct as there are a number of services required to be used in or in relation to the manufacture of finished goods, mentioned in the inclusive portion of the definition of “input service”, cannot be linked with the removal of the goods.
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Central Excise
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2012 (9) TMI 30
Refund claim of duty paid on HV/LV coils used captively for repairing transformer - Notification No.56/02-CE - denial - Revenue contended that fabrication of HV/LV coils do not bring about marketable goods as such, hence HV/LV coils captively consumed cannot be termed as excisable goods - Held that:- Decision of Tribunal in the matter of PSEB vs. C.C.E., Chandigarh (1994 (12) TMI 181 - CEGAT, NEW DELHI) has been confirmed by Supreme Court wherein it has been held that fabrication of HV/LV coils does not bring about marketable goods, as such, those coils are not subject to levy of excise duty. That being the case when excise duty was not leviable on the goods, the respondent cannot take the benefit of Notification No.56/02-CE on the plea that he has cleared non-excisable goods on payment of excise duty. Otherwise also we cannot ignore the fact that excise duty paid by the assessee gets passed on to the consumer and the assessee does not suffer financial loss as he gets excise duty back from the buyer - Decided against assessee
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2012 (9) TMI 29
Plea for condonation of delay - reason provided for non filing the appeal in time being quit of employee looking after the excise work in July 2011 and new employee taking over in September 2011 - Held that:- Details as regards who was the person, when he left, nothing is given. Reason given are very sketchy and cannot be accepted as justifiable reason. Appeal dismissed
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2012 (9) TMI 28
Clearance of the Cement on payment of duty at the concessional rate - brand name of other person – Held that:- Question is excluded from the purview of this Court under Section 35G of the Central Excise Act and the same has to be decided by the Apex Court under Section 35L of the Act - Appeal is rejected
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2012 (9) TMI 27
Application for recall of the order – Held that:- Once the adjudicating authority was fully aware that even assuming on account of fault of assessee, the documents were not available to the assessee before commencement of the adjudication proceedings, nothing prevented the adjudicating authority to issue a notice to the assessee to appear before such officer and thereupon require the department to furnish the copies of relied upon documents - Merely observing that the assessee failed to collect the relied upon documents was not sufficient to justify ex parte proceedings - ROA application is dismissed
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2012 (9) TMI 26
Whether the facility of deemed modvat would be available to the re-rollers even after crossing the monetary limit of Rs. 75 Lakhs in respect of value of clearances, in terms of Notification No. 1/93 dated 28-2-1993 – Held that:- Benefit extended to a small scale unit whose total clearances to not extend Rs. 2 Crores - assessee can claim benefit under this notification, the first condition to be fulfilled is that his clearances should be less than Rs. 2 Crores. Once that condition is fulfilled, on the first Rs. 75 Lakhs clearances he can avail the benefit of concessional payment of rate of duty as prescribed under the notification, i.e. first Rs. 30 Lakhs, then Rs. 20 Lakhs and then Rs. 25 Lakhs - in favour of the assessee
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2012 (9) TMI 25
Denial of benefit of Notification No. 67/95-CE in respect of naphtha manufactured in the factory and used in generation of electricity which is further used in the manufacture of exempted goods and used for certain allied facilities such as refinery road lighting, canteen and administrative building etc - assessee contended reversal of proportionate credit in respect of usage for manufacture of exempted goods - retrospective amendment to Rule 6 of the Cenvat Credit Rules by Finance Act, 2010 - Held that:- Benefit of the notification is not available in respect of naphtha used for generation of electricity therefore demand confirmed in respect of naphtha used for generation of electricity, used for the said allied facilities. Since assessee has discharged its obligation under Rule 6 of the Cenvat Credit Rules by reversing proportionate credit in respect of usage for manufacture of exempted goods, hence pre-deposit of same is waived subject to deposit of demand confirmed aforesaid
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