Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 6, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Wealth tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Deduction u/s. 80P(2)(d) - appellant had not incurred any expenditure on the earning of the dividend and interest from other co-operative society as this investment was made long back. No new investment had been made - deduction u/s 80P(2)(d) allowed - AT
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Taxability of capital gain - Technically it can be said that the developer had purchased the membership of the Members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of Section 2(47) is applicable. - taxable in the hands of members on accrual basis - AT
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Adjournment of case - there is no valid reason for the adjournment on the ground that the Judicial Member has recused himself from hearing the cases of Shri S. K. Garg, Advocate and more so in the light of the facts that about 25% of the appeals pending before the Bench are being represented by Shri S. K. Garg, Advocate or Shri Pradeep Kumar Kapoor, C. A. - AT
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TDS u/s 194I - lease premium was paid to MMRDA in four installments - paid for acquiring land with right to construct a commercial building although with certain restrictions - it is a capital expenditure not falling within the ambit of section 194-I - AT
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Short term capital gain or business profit on sale of shares - Delivery based transaction should be treated as of the nature of investment transactions and profit therefrom should be treated as short term capital gain or long term capital gain depending upon the period of holding. - AT
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Disallowance u/s 14A - rule 8D(2)(ii) clearly is worded in the negative with the words “not directly attributable”. Thus for bringing any interest expenditure, claimed by the assessee, under the ambit of rule 8D(2)(ii) it will have to be shown by the AO that the said interest is not directly attributable to any particular income or receipt - AT
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Valuation u/s 50C - determined by the Stamp Valuation Authority is higher than the sale consideration declared by the assessee - There is no merits in assessee's claim of undue hardships being caused to the taxpayers unless a tolerance band is read into the provisions of the section 50C - AT
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Preliminary expenditure or not - Section 35D - As the assessee is already in the business of running hospitals, the expenditure related to setting up of new hospitals are ostensibly only for expansion of the existing business of the assessee - AT
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Business income or Capital gain - sale of shares - the mere fact that the assessee is not a broker in shares does not mean that he is also not a dealer/trader in shares - Held as business income - AT
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Depreciation on software - 25% or 60% - assessee has purchased specific software which was not supplied along with the computer - AO is correct in treating the computer software as a licence and allowing depreciation at 25 per cent. - AT
Customs
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Waiver of demurrrage charges - It does not contemplate the situation where after adjudication process the goods do not vests with the State, but vests with the importer - In such a situation, the importer would be liable to pay demurrage charges, as owner of the goods stored in the Warehouse - The guidelines do not provide for demurrage free storage even for the revenue. - HC
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The remedy of provisional release was independent of remedy of claiming unconditional release in the absence of issuance of any valid show cause notice during the period of limitation or extended limitation prescribed under Section 110(2) of the Act - HC
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Principles of natural justice - valuation - when we take the values of the contemporaneous imports, the lowest of such value has to be adopted as provided for in Rule 6 and not the highest - AT
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Manipulation of the Report - The beneficiary of the tampering of the lab report on sucrose content was clearly the assessee and the consequences were to be faced by them - notwithstanding the fact that the actual person/persons had not been identified. - AT
Service Tax
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Refund Claim on Input Services - NTF No.41/07-ST and 17/09-ST - some difficulties could have been there in the initial phase of implementation of such a scheme and if such nexus can be established through documents available otherwise, such evidence should be looked into and the substantial benefit cannot be denied when the requirements specified under the statute can be verified otherwise - AT
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CENVAT credit on invoices issued by Authorized Service Stations (ASS) - Department contended that appellant's name was stamped/handwritten by themselves on these invoices so as to claim undue CENVAT credit - prima case is against the assessee - AT
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Defreezing Bank Account - since the petitioner is issued with a show cause notice dated 12.03.2013 extending 30 days time to file its explanation and therefore in the interregnum, the respondent was not justified in issuing the letter dated 15.03.2013, three days after issue of show cause notice to freeze the bank account of the petitioner for recovery of tax dues. - HC
Central Excise
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100% EOU - CENVAT Credit - restrictions - The formulas prescribed in Rule 3 (7)(a) would be applicable only if the inputs received from a 100% EOU, had suffered duty in terms of S. No. 2 of the table to the notification No. 23/2003 - AT
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Exemption to cotton fabrics processed without the aid of power and steam, subject to certain conditions - user of steam for drying of the processed fabrics - The use of steam cannot be held to be as used in the dyeing process - AT
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Modification of Stay Order - The modification application was filed by the applicant and Commissioner (Appeals) was under a legal obligation to dispose of the said application - To reject the application and to dismiss the appeals simultaneously vide the same order does not meet the requirement of fair proceedings - AT
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Whether the recredit/restoration, in the AED(GSI) credit account, of an amount equal to the BED paid by the assessee in 36 instalments was legally sustainable - Whether the utilization of an amount from the AED(GSI) credit so restored for payment of AED(GSI) on DNTCF manufactured and captively consumed in the manufacture of tyres was legally sustainable - Held Yes - AT
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Classification of Calcium Gluconate I.P. - classifiable under CETH 2918 only - Rule 3 of Interpretative Rules would apply only when the goods prima facie classifiable under 2 or more headings - Once a specific headings for a product was found, the question of considering another classification or another heading does not arise and therefore Rule 3 of Interpretative Rules was not required to be applied at all - AT
VAT
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Doctrine of promissory estoppel - Grant of Concession upto 33% when Entertainment Tax paid in lump sum - The representation was only that the State Government had proposed the payment of entertainment tax in lump sum so as to grant concession upto 33% - No promissory estoppel can be raised against the State on the basis of such promise, when the levy of entertainment tax was statutory. - HC
Case Laws:
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Income Tax
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2013 (9) TMI 165
Asjustment of arm's length price - Payment of commission - Method of computation - Held that:- All 14 international transactions has not been separately considered in the TP report and basis has been adopted as TNMM - none of the international transactions match to each other. Therefore, it cannot be said that a common method will be sufficient to compute the ALP - most appropriate method to compute ALP in respect of commission paid by the assessee is CUP method. However, the way in which TPO has applied CUP method is not appropriate. The AO has relied upon the internal transactions for arriving at a conclusion that the commission paid by the assessee is on higher side. Such opinion has been formed by TPO without giving any finding that whether or not any outside comparison is available in similar type of transactions. Such course can be adopted only in the circumstances where it is found that outside comparison is not available - matter remanded back for fresh adjudication - Decided in favour of assessee. Additions u/s 41(1) - difference in the sales tax loan liability and the actual payment - Remission of deferred sales tax liability - Held that:- the issue in appeal is admittedly covered by Special Bench decision in the case of Suizer India Ltd (2010 (11) TMI 728 - ITAT, MUMBAI), wherein it was held that, difference between the payment of net present value against the future liability credited by the assessee under the capital reserve account in its books of account is a capital receipt and cannot be termed as remission/cessation of liability and consequently no benefit has arisen to the assessee in terms of section 41(1)(a) of the Income-tax Act, 1961 - Decided in favor of assessee. Deduction u/s 80HHC - DEPB benefits - Whether entire amount received on sale of the Duty Entitlement Pass Book (DEPB) represents profit on transfer of DEPB for the purpose of the computation of deduction u/s 80HHC – Held that:- DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB and while the face value of the DEPB will fall under clause (iiib) of Section 28, difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28 – Decided in favor of assessee. Capital or revenue expenditure - Software expenditure - Deduction u/s 80HHC - Held that: In the submissions made before Ld. DRP it has been made clear by the assessee that assessee did not purchase SAP programme. It’s existing structure of software was made compatible by the KSB Germany for which an agreement was entered into between the assessee and KSB Germany, copy of which was also filed before Ld. DRP. The nature of expenditure were also given which include Travellling cost of KSB AG Consultants and External consultants for migration and Technical architecture, Interface to subsystems and Consultation charges of KSB AG Consultants. None of these expenditure has been incurred for acquiring any asset - therefore, software expenditure was allowable as revenue expenditure - Following decision of CIT vs. Raychem [2011 (7) TMI 953 - Bombay High Court] - Decided in favor of the assessee.
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2013 (9) TMI 164
Deduction u/s. 80P(2)(d) - nexus between the interest/dividend income earned from the Co-op. Societies and the interest expenditure incurred by the assessee on borrowed funds on the ground - Held that:- It is undisputed fact that the appellant had invested surplus fund right from 1951 with other co-operative society. On such investment the appellant had been receiving interest and dividend which had been claimed as deduction 80P(2)(d). It is not a case that appellant had either earned income or borrowed fund and invested in this investment and deposits. As claimed by the ld. Sr. D.R. that these details were submitted before ld. CIT(A) not before the A.O. is not acceptable. The appellant had given all the details before the A.O. on which ld. A.O. concluded otherwise. The balance sheet as well as p&l account were available in all the years that the A.O. gave these figures on which the ld. CIT(A) relied upon, had taken from either balance sheet or p&l account. Thus, there is no additional evidence submitted by the appellant before the CIT(A) in A.Y. 2006-07 - in the assessee’s case, interest expenses were incurred for acquiring debenture, deposit with member society, Fix Deposit of member society, employee saving accounts , interest on over draft facilitate from bank and bank commission, which was claimed by the appellant u/s. 80P(2)(d)(a)(i) - Therefore, it is held that appellant had not incurred any expenditure on the earning of the dividend and interest from other co-operative society as this investment was made long back. No new investment had been made by the appellant during the year under consideration - Decided against Revenue.
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2013 (9) TMI 163
Adjustment of arm's length price - Import of raw materials - Payment of technical know how fees - Held that:- applying CUP method to the services made to the assessee during the year is not justified. - the adjustment made by TPO is nothing but disallowance of expenses which cannot be upheld. - That there is nothing produced before us to controvert the claim of the services that in case the assessee had paid to the AE at man hour rate for the technical services provided during the year in relation to SAP implementation, the fees payable would have been significantly higher. - additions deleted - Decided in favour of assessee. Business profit u/s 28(v) or capital gains - sale of A&R Business - slump sale - the assessee as well as the purchaser of A&R Business viz MSPL, both are sister concern and there parent company is M/s Merck KGaA, Germany - Held that:- section 28(iv) is applicable where benefit/perquisites are received in kind and is not applicable where money is involved. Therefore, reliance placed by ld. AR on the decision of Hon’ble Bombay High Court in the case of Mahindra And Mahindra Ltd (2003 (1) TMI 71 - BOMBAY High Court) has substance. We also agree with the ld. AR that it is not for the revenue to rewrite the terms of agreement but at the same time, the AO is entitled to consider the nature of the receipt and the circumstances in which the amount has been received by the assessee under the agreement entered into. We are of the considered view that the reliance placed by the ld. AR on the decision of ITAT in the case of Sangeeta Wij (2012 (7) TMI 688 - ITAT DELHI) is not applicable to the facts of the present case as in that case. Considering the facts of the case, and the reasons stated hereinabove that the assessee has not been able to place any material on record on the basis of which the assessee has valued intangible assets and whether the amount of Rs.65,50,00,000/- may be considered as the amount received towards not compete fee or for other consideration, we are of the considered view that the said issue be restored to AO to consider nature of receipt in the light of evidence afresh. - Matter remanded back. Disallowance of Rs.2,96,71,013/- being 70% of cost of free samples distributed by the assessee - Held that:- Giving free samples is a normal business practice in pharmaceutical business and, therefore, disallowance of entire expenditure is prima facie unjustified. The matter requires fresh examination after verification of details about names and addresses of doctors before the AO. Disallowance u/s 14A - Held that:- It will be reasonable and fair to consider 1% of exempt income towards expenses for earning the dividend income by the assessee in the financial year under consideration. Therefore, the orders of the authorities below is modified by restricting the disallowance to Rs.10,15,400/- as against Rs.83,04,945/- disallowed by the AO. Valuation of closing stock - unutilized cenvat credit - appellant followed net method of accounting - Held that:- matter remanded back to the AO that if the adjustment is made to the value of closing stock, then the adjustment on account of tax, duty etc. is also required to be made to the purchases, sales and opening stock as well as the assessee has stated to be following exclusive method.
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2013 (9) TMI 161
Taxability of capital gain - Long Term Capital Gain u/s 45 - transfer u/s 2(47) - vacant land - Possession given by the society to the developer under joint development agreement - taxability in the year in which sales consideration Received or Actual Sales (accrual basis) – Taxability in the hands of individual members or society - Held that:- As per Section 45 of IT Act, income-tax was to be charged under the head "capital gain" on transfer of a capital asset and shall be deemed to be the income of the previous year in which transfer took place - The year of transfer was the crucial year and not the time of the receipt - 'Accrue' means 'to arise or spring as a natural growth or result', to come by way of increase' - 'Arising' means 'coming into existence or notice or presenting itself' – both the words were used in contradistinction to the word 'receive' and indicate a right to receive - They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income, which was more or less inchoate and which was something less than a receipt - An unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual - it was not only the money which has been received by the assessee which was required to be taxed but the consideration which had accrued to the assessee was also required to be taxed. Receipt of consideration and registration of property relevant or not - Difficulty in availing Exemption u/s 54 or 54EC - Agreement subject to approvals and permissions – Condition for transfer of land – conditions and encumbrances Past consideration recievable towards the proposed transfer - Computation of Capital Gain –Part performance of contract u/s 53A of TPA – registration of the terms of agreement - Held that:- It was not necessary to get the instrument of transfer registered for the purpose of Income-tax Act when a person had got a valid legally conveyed after complying with the requirements of the law - Technically it can be said that the developer had purchased the membership of the Members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of Section 2(47) is applicable. Reference has been made only to Section 54 and Section 54EC - Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house - the assessee had transferred the plot – thus it cannot be said that deduction u/s 54F and 54 was same - no ground had been raised for deduction u/s 54F - Following decision of Charanjit Singh Atwal Versus Income-tax Officer, Ward -VI (1), Ludhiana [2013 (8) TMI 364 - ITAT CHANDIGARH], Commissioner of Income-Tax Versus Podar Cement Pvt. Limited And Others [1997 (5) TMI 2 - SUPREME Court] and Mysore Minerals Ltd. v. CIT [1999 (9) TMI 1 - SUPREME Court] - Decided against assessee.
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2013 (9) TMI 160
Precendentiary value of previous year decision - Deduction u/s 80IB - Held that:- Unless and until there is a specific finding in relation to the satisfaction of all the conditions of section 80-IB(1), i.e., under which the deduction is being claimed, with no new fact coming to the surface for the current year, it cannot be held that the Revenue is bound by its decision for the earlier year/s; res judicata being not applicable to the proceedings under the Act - Decided in favour of Revenue. Deduction u/s 80IB - Whether assessee is manufacturer u/s 80IB - Held that:- manufacture is the end result of one or more process through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps different kinds of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but indeed is recognized as a new distinct article that a manufacture can be said to take place - a number of processes have been undertaken, as explained by the assessee . Procurment of goods on a contract basis from the contractors - Held that:- If the contractors were only labour contractors, the bills raised by them would only state the number of persons supplied on a per month or per day (i.e., per unit of time) basis. On the other hand, the bills make it clear that the charges raised are in respect of the specific work performed, and it is only on the basis of the completed work that the terms of the contract get fulfilled and the contractor entitled to his charges. The same is only, therefore, a work contract - work in also carried out at the customer’s site, which may be of commissioning, and charges in respect of which are on time basis. The details in respect of labour charges stand provided by the assessee - production being carried out in the assessee’s factory premises, as per the specifications provided by the assessee, and under its supervision, it would matter little whether the labour engaged for the production work is paid for on time basis or on per unit production basis, as in the instant case. Low power consumption - Held that:- as evident, the processes involved are cutting, drilling, welding, wiring and assembling. The same clearly entail power consumption. Further, as apparent, the machines employed for the purpose require low power, which explains the low power consumption, which stands in fact also partly explained in terms of the low power tariff. Low quantum of plant and machinery - Held that:- Mere low investment in machinery, which is only on account of the various processes carried out being elementary, requiring low power, besides being labour intensive, would be to no effect. In fact, the assessee in this regard has also clarified that per mistake one air compressor machine purchased during the year from M/s. Bimpex Machines Pvt. Ltd. for Rs.56,060/- had been inadvertently debited to the purchase account, so that the necessary adjustment may be made, i.e., increasing its profit to that extent, while allowing depreciation @ 25% on the said machinery. No such adjustment has been directed by the ld. CIT(A), which he ought to have in view to the assessee conceding to the said error in its accounts for the year - Decided against Revenue.
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2013 (9) TMI 159
Adjournment of case - Request for repeated adornments - The learned Counsel for the assessee Shri Praeep Kumar Kapoor, Chartered Accountant has moved two sets of applications for adjournment in his individual capacity and not on behalf of the assessee – Held that:- If a particular Advocate or a Chartered Accountant is not comfortable or has reservation with a particular judicial forum, it is his sweet will for making a representation before the said judicial forum but for that reason the judicial forum cannot be forced to adjourn all the matters for an unlimited period where the stakes of the revenue are substantially involved. The I.T.A.T. is created to adjudicate the disputes amongst the Income-tax Department and the assessee. If a particular advocate has some reservation with a particular Bench, it is for him to take a decision in this regard. Similar is the position with regard to the assessee as he has to take a final decision with regard to the appointment of his advocate or representative to represent his case before the judicial authority. The judicial authority, be it may be the Tribunal are concerned about the material placed before them while adjudicating the issues involved irrespective of the personalities of the Advocates appearing before him representing the case of the parties. In the light of these facts, when the Judicial Member has already withdrawn his order of reclusal from hearing of the cases being represented by Shri S. K. Garg, Advocate or Shri Pradeep Kumar Kapoor, C. A., there is no valid reason for the adjournment on the ground that the Judicial Member has recused himself from hearing the cases of Shri S. K. Garg, Advocate and more so in the light of the facts that about 25% of the appeals pending before the Bench are being represented by Shri S. K. Garg, Advocate or Shri Pradeep Kumar Kapoor, C. A. If Counsel for the appellant have any reservation with the Bench comprising of Judicial Member, they may take independent decision with regard to their representation before the Bench. But for the reason that they do not want to represent the cases, the hearing cannot be adjourned and assessee would be at liberty to make some other arrangement to prosecute his case in effective manner - Appeals being represented by Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A.(Counsels for the appellant) can be heard by the Bench comprising of the Judicial Member and the assessee would be at liberty to make some alternate arrange if Shri S.K. Garg, Advocate or Shri Pradeep Kumar Kapoor, C. A. do not wish to appear before the said Bench. Non-disclosure of sales revenue – Held that:- Assessing Officer instead of making an independent enquiry in order to work out the unaccounted sales has solely relied upon the order of the Settlement Commission before whom the assessee has agreed to pay a sum of Rs. 98,51,490/- whereas the Assessing Officer was required to make independent enquiry with regard to the different set of invoices found after obtaining the comments of the assessee. Since the Assessing Officer has made the additions without making independent enquiry in this regard, issue requires fresh adjudication by the Assessing Officer. Though the Hon'ble High Court has remanded the matter to the Tribunal for adjudicating the appeal on merits, but in the absence of cogent material it has become practically impossible for the Tribunal to adjudicate the issue on merit as the enquiry on factual aspect is required to be conducted by the Assessing Officer - Since the matter is old, it is directed to the Assessing Officer to complete the assessment within a period of six months from the date of receipt of this order of the Tribunal.
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2013 (9) TMI 158
Bar of limitation - order passed u/s 201(1) / 201(1A) - Order passed to give effect to the order of High Court Mumbai - Held that:- High Court of Mumbai quashed the order of TDS Officer, Mumbai leaving the issue open for appropriate competent authority to initiate TDS proceedings. Revenue has not disputed the point that High Court of Mumbai left the issue open for the appropriate competent authority to initiate TDS proceedings, keeping in view the law of limitation, meaning thereby that the High Court of Mumbai simply quashed the order of TDS officer, Mumbai perhaps on the ground of jurisdiction and the issue was left to be decided by the competent authority but the period of limitation has to be taken from the relevant provisions of the Act which cannot be extended by judicial pronouncements - Decided against Revenue. Payment made to MMRDA - Held that:- payment of lease premium was not to be made on periodical basis but it was one time payment to acquire the land with right to construct a commercial complex thereon and the lease premium was paid to MMRDA in four installments - it is a lease premium for acquiring land with right to construct a commercial building although with certain restrictions, but it is a capital expenditure not falling within the ambit of section 194-I of the Act - Decided against Revenue. Payment made to MMRDA - Held that:- When the payment made to MMDC is capital in nature then there is no question of applying S.194(1) to it. Hence assessee is not liable to deduct TDS - Decided against Revenue.
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2013 (9) TMI 157
Short term capital gain or business profit on sale of shares - Assessee is dealing in large volume of shares, most of the shares are bought and sold within short period – Held that:- Relying upon the judgment of Hon’ble Tribunal in the case of Gopal Purohit vs. JCIT[2009 (2) TMI 233 - ITAT BOMBAY-G], it has been held that assessee has entered into two different types of transactions, where both activities are entirely different in nature i.e. one activity is of investment in nature on the basis of delivery and second activity is purely of jobbing (without delivery) - Delivery based transaction should be treated as of the nature of investment transactions and profit therefrom should be treated as short term capital gain or long term capital gain depending upon the period of holding. Further, relying upon the judgment in the case of Janak S. Rangwalla vs. ACIT [2006 (12) TMI 261 - ITAT MUMBAI], it has held that frequency and magnitude of transaction cannot be the criteria for determining the head of income - It is an established principle that income is to be computed with regard to the transaction. The transaction in whole has to be taken into consideration and the magnitude of the transaction does not alter the nature of transaction. Though the principle of res judicata does not apply to the Income-tax proceedings as each year is an independent year of the assessment but in order to maintain consistency, it is a judicially accepted principle that same view should be adopted for the subsequent years, unless there is a material change in the facts – Decided against the Revenue.
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2013 (9) TMI 156
Disallowance u/s 14A - CIT allowed partial relief - Held that:- A perusal of the provisions of section 14A, more specifically sub-section (2), shows that if the AO is not satisfied with the correctness of the claim of the assessee, then the AO shall determine the amount of expenditure incurred in relation to such income, which does not form part of total income under the Act. For this the method is prescribed in rule 8D. The provision of section 14A, sub-section (3) specifies the provision of 14A(2) would also apply where the assessee makes a claim that there is no expenditure incurred. This is because if the assessee does not make a disallowance under section 14A in its computation of total income, when filing the return, then if subsection (3) was not available, the AO might not be able to make a disallowance under section 14A. Thus, where the assessee makes a claim that only a particular amount is to be disallowed under section 14A or where the assessee does not make a disallowance under section 14A, if the AO proposes to invoke the section 14A, he is to record a satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It is to be done with regard to accounts of the assessee - Following decision of Balarampur Chini Mills Ltd. 2011 (7) TMI 1150 - ITAT KOLKATA - Decided in favour of assessee. If an assessee has invested in shares, which could get dividend or there is investment which generates dividend income or exempt income as also investment which does not generate exempt income, it is only such investments in respect of which the dividend income or exempted income has been earned which can be considered when computing the disallowance under section 14A read with rule 8D - if there is any interest expenditure, which is directly relatable to any particular income or receipt, such interest expenditure is not to be considered under rule 8D(2)(ii). In the assessee’s case here the interest has been paid by the assessee on the loans taken from the banks for its business purpose. There is no allegation from the banks nor the AO that the loan funds have been diverted for making the investment in shares or for non-business purposes. Further rule 8D(2)(ii) clearly is worded in the negative with the words “not directly attributable”. Thus for bringing any interest expenditure, claimed by the assessee, under the ambit of rule 8D(2)(ii) it will have to be shown by the AO that the said interest is not directly attributable to any particular income or receipt - Decided in favour of assessee.
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2013 (9) TMI 155
Rejecting the assessee's internal TNMM as there was a huge expenditure on advertisement and promotion of sales in both the segments - The assessee's key business activities comprised of manufacturing and marketing of various international brands of alcoholic beverages in India - The assessee has maintained segmental accounts with regard to international transactions with the A.E. and transactions with the non-A.E. - The A.E. transactions were mostly related to whisky segment whereas transactions with unrelated parties consist of other than whisky segment viz. Vodka, Rum, Gin, Brandy, etc. In the transfer pricing report, the assessee had submitted that it had carried out comparability analysis between the transactions involving the A.E. and the domestic transactions treating it to be the internal comparable under the TNMM - The assessee also submitted 15 external comparables wherein the average profit margin worked out to 0.96% as compared to assessee's operating profit upon total sales at (-) 20.71% - The TPO, after rejecting the internal TNMM adopted by the assessee in the transfer pricing report benched marked the operating profit margin with that of the 15 external comparables and made an upward adjustment of ₹ 1.56 crores. The main reason for rejecting the assessee's internal TNMM was that there was a huge expenditure on advertisement and promotion of sales in both the segments – Held that:- Reliance has been put on decision of the Tribunal in L.G. Electronics India P. Ltd. [2013 (6) TMI 217 - ITAT DELHI]. Further held that with regard to the issue that such a nature of transaction is an international transaction within the ambit of section 92B r/w section 92F, has been settled by the Special Bench deciding that it does fall within the realm of international transaction and, hence, transfer pricing mechanism is triggered. In the present case, the TPO has chosen 15 external comparables by applying TNMM for bench marking the percentage of cost of advertisement and brand promotion expenses with the net sales and by taking the average cost of 7.95% to be bright line and over and above this line, the expenditure is deemed to increase the value of brand intangible for the A.E. The DRP has also endorsed the observation and conclusion of the TPO except for the fact that the DRP has directed the TPO to apply CUP method by considering the value of advertisement and brand promotion expenses incurred by the independent enterprise as percentage of the sales - Applying the ratio of the decision in L.G. Electronics India P. Ltd. (supra), the computation of ALP in the present case to be done – Decided in favor of Assessee.
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2013 (9) TMI 154
Unaccounted cash credit u/s 68 - Bogus cash credit - Unaccounted commission - Principle of natural justice - Held that:- assessee consequent to the assessing officer’s queries furnished all the relevant documentary evidence before the assessing officer. From the perusal of record and order-sheets it clearly emerges that the requirement of physical production of the parties was communicated to the assessee as late as on 17-12-2008 as against the date of assessment being 26-12-2008. Similarly, from the entry dated 22-12- 2008 the assessing officer vaguely stated that some summons were issued on some parties, some came unserved and none appeared. The same is sketchy and non-specific - that it will not be easily possible to ask an assessee to accompany him to the proceedings before the assessing officer. In our view, adverse inference drawn on these issues is unjustified - No adverse material was confronted to the assessee by the assessing officer. Thus, the addition cannot be sustained on the ground of canon of natural justice i.e. audi altem partem. The assessing officer set back on his query and merely asking some non-specific sketchy questions at the fag end of the assessment order, it cannot be held that proper inquiries were instituted - Following decision of Commissioner of Income-tax Versus Gangeshwari Metal Pvt Ltd. [2013 (1) TMI 624 - DELHI HIGH COURT] - Decided against Revenue.
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2013 (9) TMI 153
Valuation u/s 50C - determined by the Stamp Valuation Authority is higher than the sale consideration declared by the assessee. - Held that:- There is no merits in assessee's claim of undue hardships being caused to the taxpayers unless a tolerance band is read into the provisions of the section 50C and unless suitable adjustments are required to be made for long time gap between the date of agreement and actual sales. When a provision for tolerance band is not prescribed in the statute, it cannot be open to us to read the same into the statutory provisions of section 50 C- no matter howsoever desirable such a provision be, even if that be so. - Decision in the case of Smt. Tarulata Shyam v. CIT [1977 (4) TMI 3 - SUPREME Court] followed. The safeguard built in section 50C does envisage a situation that whenever assessee claims that the fair market value of the property is less than the stamp duty valuation of the property, a reference can be made to the Departmental Valuation Officer and all these issues relating to valuation of the property - either on the issue of allowing a reasonable margin for market variations, or on the issue of making adjustments for agreements having been entered long ago, can be taken up, before the Departmental Valuation Officer and, therefore, subsequent appellate forums as well. The inherent flexibility in this course of action come to the rescue of the assessee particularly in the case of marginal differences but then instead of the assessee decided to question very application of Section 50C something which we find to be devoid' of legally sustainable merits - Decided against assessee.
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2013 (9) TMI 152
Preliminary expenditure or not - expenditure relating to acquisition of land - Capital or Revenue expenditure - Section 35D - Held that:- As per the scheme of deduction laid out under section 35D of the Act, the concerned expenditure to be eligible for deduction should qualify the alternate condition stipulated in section 35D(1) and should be one of the items of expenditure specified in section 35D(2). In the present case, evidently the expenses have been incurred after the commencement of business and therefore in order to qualify for deduction under section 35D of the Act, the expenses have to be incurred in connection with the extension of the undertaking or in connection with the setting up of a new unit. As can be seen from the detailed breakup of the expenditure in question at pages 4 to 7 of the order of assessment, these expenses are, essentially towards payment of professional fees related to acquisition of land for setting up of hospitals. As the assessee is already in the business of running hospitals, the expenditure related to setting up of new hospitals are ostensibly only for expansion of the existing business of the assessee - Decided against Revenue. Revenue Expenditure or Capital Expenditure - Expenditure on recruitment of manpower - through an agency - AO was of the view that no company would be interested in spending money on recruitment repeatedly and recruitment made through agencies is not easily terminated because a lot of screening is done at the stage of recruitment itself and as this expenditure is for a long time benefit, held it to be capital in nature. - Held that:- AO has not questioned the genuineness of the expenses or the fact of the expenditure having been incurred and appears to have disallowed the said expenses only on conjectures and suspicion, for which there is no basis, nor is his finding established by any evidence. We are therefore of the considered view that the learned CIT(Appeals) has rightly held that the expenses of Rs.23,57,487 incurred towards recruitment of manpower are attributable to the appellant's business and that recruitment is an ongoing exercise in the assessee's nature of business and therefore is allowable as a revenue expenditure. Loss on disposal of fixed assets - Without any discussion or assigning any reasons, the Assessing Officer observing that the assessee has charged an amount of Rs.39,41,007 to the profit and loss account on account of loss on disposal of fixed assets and proceeded to make the disallowance in a summary manner. The learned CIT(Appeals) has verified the issue and found that since the assessee has made no such claim for deduction in the period relevant to Assessment Year 2008-09 which is the subject-matter of this appeal, no disallowance was called for and therefore deleted the disallowance. Before us, revenue has not been able to bring on record any evidence to controvert the finding of the learned CIT(Appeals) that since no such claim for deduction of Rs.39,41,007 on account of loss on sale of fixed assets was made by the assessee in Assessment Year 2008-09, no disallowance was called for. Deduction u/s 36(1)(vii) - Held that:- Merely because this is the second year of the assessee's operations and the period between the revenue recognition and the decision to write off the debts is short, it does not automatically lead to the conclusion that the debt cannot be claimed as irrevocable, as has been wrongly presumed by the Assessing Officer. We also do not find that the Assessing Officer has disputed the transactions, constituting the debts written off, as not being genuine. The learned CIT(Appeals), on the other hand, has examined the details of these transactions and found them to be comprising of small amounts receivable from various patients who have been discharged and agreed with the claim of the assessee that the amounts totalling Rs.71,228 claimed as bad debts are to be allowed under section 36(1)(vii) of the Act, after recording the finding that the Assessing Officer has not brought on record any specific reason for making the disallowance - Amount claimed as bad debts by the assessee are allowable under section 36(1)(vii) of the Act - Decided against Revenue.
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2013 (9) TMI 151
Business income or Capital gain - Trader in shares - Held that:- Section 28 of the Income-tax Act brings the profits and gains of any business or profession carried on by the assessee at any time during the previous year to the charge of income tax. Sub-section (13) of section 2 defines "business" as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. It is therefore quite evident that the subject matter of charge u/s.28 is not only the profit from any trade, commerce or manufacture but also profit from any adventure or concern in the nature of trade, commerce or manufacture. The subject matter of charge u/s.45 of the Income-tax Act, on the other hand, is capital gains, i.e., any profit or gain arising from the transfer of capital receipt effected in the previous year. Capital asset is defined in sub-section (14) of section 2 as property of any kind held by assessee, whether or not connected with his business or profession, but does not include, inter-alia, any stock-in-trade - A broker in shares/securities in one who brokers a deal between purchaser and seller of shares/securities and in that process gets his brokerage. He does not himself purchase or sell the shares in his own right. A dealer/trader, on the other hand, purchases and sells the shares in his own right in order to quickly realize the profits for which purpose he frequently turns over the stock. Therefore, the mere fact that the assessee is not a broker in shares does not mean that he is also not a dealer/trader in shares - Held as business income - Decided in favour of Revenue.
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2013 (9) TMI 150
Deduction u/s 80IA in respect of windmill undertaking - determination of price - book adjustments u/s 115JB - Held that:- assessee can either captively consume the electricity generated or can sell the same to the Tamil Nadu Electricity Board at Rs. 2.70 per unit. The assessee is refrained from directly selling generated electricity to the consumers. The assessee has no other option but to sell the electricity generated to the Tamil Nadu Electricity Board at the predetermined rates. The assessee cannot charge higher rate from the Tamil Nadu Electricity Board. On the contrary, the Tamil Nadu Electricity Board sells the electricity procured from the assessee and similarly situated power generating units at Rs. 3.50 per unit to the industrial consumers. The market rate of electricity is not determined by the forces of demand and supply, rather the same is regulated by the Government. The Tamil Nadu Electricity Board which is a State Government undertaking is selling the electricity to the ultimate consumers, therefore, the rate at which the consumers get electricity is the market rate. Thus, it can be safely concluded that market rate of the electricity is Rs. 3.50 per unit. Assessee can either captively consume the electricity generated or can sell the same to the Tamil Nadu Electricity Board at Rs. 2.70 per unit. The assessee is refrained from directly selling generated electricity to the consumers. The assessee has no other option but to sell the electricity generated to the Tamil Nadu Electricity Board at the predetermined rates. The assessee cannot charge higher rate from the Tamil Nadu Electricity Board. On the contrary, the Tamil Nadu Electricity Board sells the electricity procured from the assessee and similarly situated power generating units at Rs. 3.50 per unit to the industrial consumers. The market rate of electricity is not determined by the forces of demand and supply, rather the same is regulated by the Government. The Tamil Nadu Electricity Board which is a State Government undertaking is selling the electricity to the ultimate consumers, therefore, the rate at which the consumers get electricity is the market rate. Thus, it can be safely concluded that market rate of the electricity is Rs. 3.50 per unit - Following decision of Sri Velayudhaswamy Spinning Mills P. Ltd. v. Deputy CIT [2011 (7) TMI 965 - ITAT CHENNAI] - Decided in favour of assessee.
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2013 (9) TMI 149
Disallowance u/s 14A - Held that:- In the assessment year 2001-02, the dividend income was only ₹ 4,91,884 and an amount of ₹ 24,594 was disallowed and was so confirmed by the Income-tax Appellate Tribunal. However, in the later years based on the fact that amount of dividend was earned from only one company to an extent of ₹ 3.30 crores, the coordinate Bench considered that it was reasonable to estimate disallowance at ₹ 2.00 lakhs as the assessee has not borrowed any funds, nor there is any finding that any interest is attributable to earning the dividend income. The facts are similar in this year and large amount of dividend was earned from one company alone. In view of this, respectfully following the decision of the co-ordinate Benches in the assessment years 2004-05 and 2005-06, the disallowance is restricted to an amount of ₹ 2.00 lakhs - Decided partly in favour of assessee. Bad debts – Section 36(1)(vii) - Assessment Year 1990-1991 and Assessment Year 1993-1994 - Prior to 1st April, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word “established”, which earlier existed in Section 36(1)(vii) of the Income Tax Act, 1961 – held that - in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer’s account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee – matter remanded for de novo consideration - Following decision of T. R. F. Ltd. v. CIT [2010 (2) TMI 211 - SUPREME COURT] - Decided in favour of assessee. Disallowance u/s 37 - Held that:- Considering the nature of the expenditure as seen from annexure-A to the submissions before the Commissioner of Income-tax (Appeals), even though the expenditure may give an enduring benefit, since no asset has been created by paying licence fees for utilisation of the software, we are of the opinion that the expenditure is allowable as revenue expenditure. The principles laid down in the above cases relied on by the assessee supports the above contentions. Accordingly the Assessing Officer is directed to allow the claim of licence fee on software expenditure claim of ₹ 21,51,151 as revenue expenditure and consequently withdraw the depreciation allowed on the said amount - Decided in favour of assessee. Disallowance of penalty u/s 37 of the Act - Business expenditure - Held that:- Penalty/payments made by the Assessee to the Stock Exchange for violation of their regulation, being risk management oriented, are not an account of an offence which is prohibited by law.Hence, the invocation of explanation to section 37 is not justified. See CIT v. The Stock and Bond Trading Company [2011 (10) TMI 172 - BOMBAY HIGH COURT] - Decided against the Revenue. Depreciation on software - 25% or 60% - Held that:- Assessee has purchased specific software which was not supplied along with the computer. Therefore, the purchase of specific software for use in the business cannot be included as part of computers and since there is no specific item of computer software in the depreciation schedule for the impugned assessment year 2002-03 - AO is correct in treating the computer software as a licence and allowing depreciation at 25 per cent. - The reliance by the assessee on the depreciation schedule in the later year cannot help its case as the said 60 per cent. on computer software has become part of the depreciation schedule from the assessment year 2003-04 onwards. - Decided against assessee.
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Customs
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2013 (9) TMI 180
Waiver of demurrrage charges - Confiscation u/s 11 - Penalty u/s 14 - Held that:- The petitioner could not refer to any provision under which the Customs Authorities can direct the Warehouse to waive off the demurrage charges. Admittedly, there was provisional release of goods on payment of redemption fine and penalty. The petitioner has not availed such option. Once the provisional release of goods ordered at the request of the petitioner itself has not been availed, therefore, the petitioner has taken a calculated risk of incurring demurrage charges as in the absence of release of goods, the Customs Authorities had to store the goods in safe custody. Decisions in Supreme Court in International Airports Authority of India etc. Vs. M/s Grand Slam International & Om etc. [1995 (2) TMI 70 - SUPREME COURT OF INDIA] and in Trustees of Port of Madras Vs. Nagavedu Lungi & Co. & others [1995 (4) TMI 70 - SUPREME COURT OF INDIA] followed. The guidelines framed vide Circular were in respect of allowing to open CFSs and ICDs in private sector, which were called as ‘Custodian’ - It was the Custodian, who was not to charge any rent or demurrage on the goods detained by the Customs Department - But the Customs Department was required to pay the rent to the Custodian after the ownership of the goods vested in the Revenue after confiscation - Such provision though was between the Custodian and the Revenue; still it does not absolve the petitioner to pay the demurrage charges - The payment of demurrage charges was not a pre-condition for storage of goods as per clause 15. But after the goods vests with the Revenue, the rent of the goods had to be paid by it - It does not contemplate the situation where after adjudication process the goods do not vests with the State, but vests with the importer - In such a situation, the importer would be liable to pay demurrage charges, as owner of the goods stored in the Warehouse - The guidelines do not provide for demurrage free storage even for the revenue. The scope of the Regulations is wider than the Circular, as it prohibit the Customs Cargo Service Provider to charge any amount on the goods seized or detained. But since the goods were seized in the year 2000, such Regulations will not come to the rescue of the petitioner. Even the said Regulations are to determine the relationship between the service provider and the Revenue and not in respect of services availed by the importer. - Decided against Petitioner.
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2013 (9) TMI 179
Return of one Container – Revenue seized the container - the petitioner sought provisional release of goods which was allowed but the petitioner had not sought the release of goods on account of the onerous conditions imposed for the provisional release of goods - Held that:- The petitioner cannot be denied the right to possess goods for the inefficiency or in action of the revenue for a period of more than one year - There was no merit in the arguments raised by the revenue - Mere fact that show cause notice had been issued after the filing of the present petition will not defeat the right of the petitioner to seek release of goods. A plain and combined reading of Sections 110(2), 124 and 110A spells out that any order for provisional release shall not take away the right of the assessee under Section 110(2) read with Section 124 of the Act - where no action was initiated by way of issuance of show cause notice under Section 124(a) of the Act within six months or extended period stipulated under Section 110(2) of the Act, the person from whose possession the goods were seized becomes entitled to their return - The remedy of provisional release was independent of remedy of claiming unconditional release in the absence of issuance of any valid show cause notice during the period of limitation or extended limitation prescribed under Section 110(2) of the Act - Keeping in view the judgement of Jayant Hansraj Shah Vs. Union of India [2008 (2) TMI 293 - HIGH COURT BOMBAY] examining the provisions of Section 110(2) of the Act the appeal was allowed.
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2013 (9) TMI 178
Waiver of pre deposit of penalty u/s 112(b) - the assessee had intimated the police by lodging an FIR regarding loss of advance licenses – all these issues needs to be gone into detail – the assessee was not serious in prosecuting the stay petition before the Bench and seeking adjournments on various grounds – the issue needs to be gone into detail which can be done only at the time of final disposal of the appeal - Held that:- court ordered the main assessee should be directed to deposit some amount for hearing and disposing the appeal – on such submission stay petition was allowed – decided partly in favour of assessee.
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2013 (9) TMI 177
Principles of natural justice - There had been denial of natural justice inasmuch as the contentions made by the importer in reply to the show cause notices had not been considered in many cases - there was an inherent contradiction in the show cause notice as well as the findings of the original authority - A sweeping statement had been made saying that the assesses did not reply to the show cause notices nor did they avail opportunities of personal hearing. Valuation under Rule 10A - Notice was issued as rejecting the value declared under Rule 10A of the Customs Valuation Rules, 1988 - Held that:- There was not any infirmity in the observation of the Commissioner (Appeals) that the DGOV Circular cannot override the provisions of Valuation Rules – relying upon CC, Calcutta v. South India Television [2007 (7) TMI 9 - SUPREME COURT OF INDIA] - Casting suspicion on invoice produced by the importer was not sufficient to reject it as evidence of value - The invoice price was not sacrosanct but before rejecting the invoice price, the department had to give cogent reasons for such rejection - The assessing authority had to examine each and every case on merits for deciding its validity and he cannot form a view to reject all transaction values on the basis of some general criteria based on DGOV Circular and on that basis load the value of imports uniformly across board. The proposition in the show cause notice was that the value of the contemporaneous imports indicated a higher price - If that be so, that should have been the starting point for determination of value of the imported goods and not some other basis - Further even when we take the values of the contemporaneous imports, the lowest of such value has to be adopted as provided for in Rule 6 and not the highest - no such thing had been done by the assessing officer – Decided against revenue.
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2013 (9) TMI 176
Nature of activity - Whether the imported capital goods should be directly put to use to earn foreign exchange or even indirect use was sufficient – Held that:- Differing views had been expressed on the issue taking into account the facts and circumstances of each case - what should be correct interpretation of the customs notification in the facts of the instant case had to be decided which can be done only at the time of final disposal of the case - the Customs authorities issued notice on the ground that the assesse violated the conditions of Notification No. 55/2003-Cus. and the provisions of EXIM policy 2002-07 on the ground that the imported car was not used for tourism purposes and thereby earning foreign exchange directly from the use of the aforesaid car. Demand of differential duty – Confiscation of goods u/a 111(d) and 111(o) – Penalty u/s 114A – Waiver of pre deposit - Held that:- Assesse had already deposited the differential duty at the time of investigation – Assesse had made out a prima facie case for waiver of pre-deposit of balance amount of dues and interest on the duty and fine and penalty imposed on the main assesse and penalty imposed on the co-assesse – waiver of balance pre deposit allowed – decided in favor of assesse.
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2013 (9) TMI 175
Benefit of Notification No. 43/2002 - Whether the benefit of Notification No. 43/2002 - Cus. and 46/2002-Cus available - Held that:- Compliance of specification regarding sucrose content in SION was a must - Otherwise, the purpose of restriction imposed by Public Notice dated 29/12/2002 will be defeated - the imported materials require to be used for the manufacture of export product - The understanding of the Commissioner that the SION norms served the twin purposes of protecting domestic cane growers as well as preventing dumping of substandard raw sugar into the country had to be approved - Therefore, import of sugar below 98.5% of sucrose content being in violation of SION cannot be treated as fulfilling the condition of the exemption notification 46/2002 - Validity of Lab report - Whether the lab report was containing 98.1% sucrose content and the same was manipulated to read as 98.9% - Held that:- The manipulation of figures 98.1% to 98.3% was done with malafide intention and to benefit the assessee - The daily analysis reports maintained by the assesses indicated the purity of the imported raw cane sugar only as 98.1% to 98.32% as duly noted by the Commissioner - This also gives credence to the fact that the sucrose content as per the customs lab report was only 98.1% which was tampered to read as 98.9% - The internal reports maintained by the assessee-company indicated the sucrose content as 98.1% to 98.3% - All these taken together along with other circumstantial evidences, clearly prove that the entries in the lab report and the sample register were tampered with by overwriting to make them read as 98.9%. Liability for manipulation - Who was the person or persons who were responsible for the manipulation of the Report - Held that:- The beneficiary of the tampering of the lab report on sucrose content was clearly the assessee and the consequences were to be faced by them - notwithstanding the fact that the actual person/persons had not been identified. Whether a demand under Section 28 can be made without the department challenging the finalization of provisional assessment - Held that:- Tampering of documents with intent to evade duty was involved, show-cause notice could be issued invoking the extended period of limitation reckoning the relevant date from the date of finalization of the provisional assessment - The fact of provisional assessment and subsequent finalization of provisional assessment are relevant in the context of determining the relevant date for the purpose of issue of show-cause notice under Section 28 - The relevant date had to be reckoned from the date of finalization of the assessment - Decided against assesse.
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Corporate Laws
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2013 (9) TMI 174
Sale Deed OR Lease Deed - Whether the sale deed executed by Aditya Mills Ltd. in favour of respondent No.1 could be treated as lease deed for the purpose of stamp duty – Held that:- Neither party had placed on record copy of deed and without examining that document - it was not possible to record a firm finding about the nature and character of deed - the only appropriate course was to remit the case to the Collector for fresh determination of the issue relating to valuation of the building and the land purchased by respondent No.1 - The Collector could have decided whether deed was a lease deed simpliciter or sale deed for the purpose of stamp duty only after going through the contents of deed but he did not bother to undertake that exercise. The appeal was disposed of with a direction that the Collector shall call upon respondent No.1 to produce deed to which reference had been made in the deed executed in its favour by Aditya Mills Ltd. and then decide whether it was a lease deed simpliciter or a sale deed for the purpose of stamp duty.
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2013 (9) TMI 173
Maintainability of Petition - Ownership of Bungalow No.2 - Whether the immovable properties, namely, the Bungalow No.1 and the Administrative Block, have also vested in the Government - The Central Government, vide notification dated 13.04.1978, under Section 18AA of the Industrial Development Regulation Act, 1951, took over the management of six textile undertakings of the SCMCL including the Swadeshi Cotton Mills, Kanpur and the National Textile Corporation Limited, New Delhi (NTC), a Government undertaking, was appointed as the authorized representative under the said takeover. As a result of the takeover, the NTC took possession and custody of various properties belonging to the SCMCL including the Guest House and the Administrative Block. However, Bungalow No. 2 continued to be in the physical possession of Dr. Raja Ram Jaipuria, the then Director of the SCMCL Held that:- All the above details, various orders and decisions by different courts negatived the claim of the appellant and the same issue is now again sought to be raised by the appellant in the present proceedings. We are satisfied that in view of categorical decision of this Court in Doypack (1988 (2) TMI 61 - SUPREME COURT OF INDIA), rejection of subsequent application filed by the appellant for clarification/modification, direction to approach the Civil Court, initiation of proceedings under the PP Act which ended in dismissal, dismissal of complaint under Section 27 of the Swadeshi Act, were passed by various courts which undoubtedly go against the claim and stand of the appellant. It is also brought to our notice by the newly impleaded parties that they had purchased the said property in a bona fide manner with clean title of the property vested in the SCMCL, therefore, they are entitled for the same. It is made clear that we have not expressed any thing about the said issue. - Decided against the appellant / petitioner.
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Service Tax
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2013 (9) TMI 184
Refund Claim on Input Services - Export under Notification No.41/07-ST and Notification No.17/09-ST - Appellant filed refund claims in respect of input services utilized in connection with export of their goods in terms of Notification No.41/07-ST and Notification No.17/09-ST- refund was rejected by the department - Held that:- In respect of testing and analysis service it was proper that in respect of the period for which Notification No.17/09 was in force - their claim needed to be re-examined in the light of the invoices that the appellant had to submit - orders were set aside and the matter was remanded to the adjudicating authority to re-examine the documents that may be submitted by the appellant and give a finding whether the nexus between the goods exported and input services is established and thereafter decide the matter. There were two defects in respect of CHA services - One was that original copy of invoice raised by CHA was not produced which was a defect that can be very easily cured because the appellants were willing to produce it before the adjudicating authority - The second issue was in respect of the fact that shipping bill numbers had not been indicated in the invoices raised by CHA - This being a condition to be complied with by a third party - some difficulties could have been there in the initial phase of implementation of such a scheme and if such nexus can be established through documents available otherwise, such evidence should be looked into and the substantial benefit cannot be denied when the requirements specified under the statute can be verified otherwise - - the appeals were allowed by way of remand.
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2013 (9) TMI 183
Demand of service tax - Consulting Engineers Services rendered to SEZ- appellant was providing both taxable and exempted service and was not maintaining separate accounts for the CENVAT credit availed - appellant contended that they had rendered the exempted service to units in SEZ which was deemed as exports – Held that:- The adjudicating authority has completely failed to examine the claim of the appellant - service provided to SEZ have been excluded from the scope of the Rule 6 of the CENVAT Credit Rules, 2004 vide Notification NO. 3/2001-CE (NT) dated 01/03/2011 - notification was given retrospective effect vide Section 144 of the Finance Act, 2012 with effect from 10/02/2006 to 28/02/2011 - there was no need for the assessee to reverse any credit taken on the inputs/input services in respect of which credit was availed for rendering of output services to SEZ units/SEZ developer - adjudicating authority has completely failed to examine the claim of the appellant – as decided in Repro India Ltd., Vs. UOI,( 2007 (12) TMI 209 - BOMBAY HIGH COURT) – appeal decided in the favour of assessee.
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2013 (9) TMI 182
Supply of Tangible Goods section 65(105)(zzzj) - The appellant hired aircraft from a foreign company for the purpose of rendering cargo services in India – Held that:- The transaction in question did not match the definition of "taxable service" - the aircraft was operated for cargo aviation purposes in India - maintenance and repairs were undertaken - the appellant exercised control for operational purposes only and such control cannot be considered to be "effective control" - the possession of the aircraft was transferred to the appellant. Waiver for pre- deposit allowed and stay granted as the appellant proves prima – facie case in their favor.
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2013 (9) TMI 181
CENVAT credit on invoices issued by Authorized Service Stations (ASS) - Department contended that appellant's name was stamped/handwritten by themselves on these invoices so as to claim undue CENVAT credit – Held that:- The insurance company was not shown to have stamped or handwritten their own name in the invoices issued by ASS to the vehicle owners - an act which appears to be fraudulent has been noticed in the instant case - after pursuing the sample copies of invoices available on record we have found the distinct features of the invoices - appellant fails to furnish a list of the last category of invoices showing the corresponding CENVAT credit amounts. - appellant relied on the decision of Cholamandalam MS General Insurance Co. Ltd. Vs. CCE LTU,(2013 (2) TMI 132 - CESTAT CHENNAI). Prima facie caee is against the assessee - stay granted partly.
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2013 (9) TMI 162
Defreezing Bank Account - since the petitioner is issued with a show cause notice dated 12.03.2013 extending 30 days time to file its explanation and therefore in the interregnum, the respondent was not justified in issuing the letter dated 15.03.2013, three days after issue of show cause notice to freeze the bank account of the petitioner for recovery of tax dues. - The petition was allowed.
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Central Excise
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2013 (9) TMI 172
Removal of Finished Goods - Department has issued a demand for removal of finished goods clandestinely without payment of duty - Held that:- Only on the basis of difference in production figures between the ER-1 Returns and figures of production, arrived at on the basis of payments made to contractors, would not sufficient to arrive at the conclusion that the said goods were produced and cleared without payment of duty - The entire duty demand was based on the difference between the production shown in the ER-1 Returns and the quantity of production of finished goods, calculated by the department, on the basis of payments made to the Contractors, during the relevant period - There was no other corroborative evidences, like, transport documents, purchasers statements, incriminating records showing clandestine production and removals, etc. were brought to our notice by the Department, to establish the removal of finished goods over a period of five years, without payment of duty. - Stay granted.
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2013 (9) TMI 171
100% EOU - CENVAT Credit - Notification No. 23/2003 - The appellant availed Cenvat credit of excise duty paid on inputs and capital goods as per the provisions of Cenvat credit Rules, 2004 - The inputs received were the DTA clearances of a 100% EOU – The appellant had taken Cenvat credit of the Additional Customs duty component plus education cess of the total duty paid on the inputs received from 100% EOU - Whether the provisions of Rule 3(7)(a) restricting the availment of Cenvat credit as per formula prescribed would be applicable, in respect of inputs received from a 100% EOU when the inputs received from the 100% EOU have suffered duty under S. No. 1 of the table to the Notification No. 23/2003 - Held that:- Appellant plea was that the duty on the inputs has been paid under S. No. 1 of the table to the notification No. 23/2003 - they had correctly taken the Cenvat credit of Additional Customs duty component and education and S & H cess - However, if the inputs received from the 100% EOU have suffered duty in terms of S. No. 2 of the table to notification No. 23/2003 - the Cenvat Credit entitlement would be as per the formulas prescribed is Rule 3 (7)(a) - Since no finding had been given on the Appellant's plea that the inputs received from the 100% EOU had suffered duty in terms of S. No. 1 of the table to the notification No.23/03-CE. The Plea taken by assesse required to be examined for which the matter was remanded back - Order was set aside and the matter was remanded to the original adjudication authority for de-novo decision - If the claim of the Appellant was correct their Cenvat credit availment would be Correct and the formula prescribed is Rule 3(7)(a) would not be applicable - The formulas would be applicable only if the inputs received from a 100% EOU, had suffered duty in terms of S. No. 2 of the table to the notification No. 23/2003 – Decided in favour of assesse.
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2013 (9) TMI 170
Benefit of Notification No. 137/77-CE dated 18/6/77 as amended and Notification No. 130/82-CE dated 20/4/82 - Notifications grant exemption to cotton fabrics processed without the aid of power and steam, subject to certain conditions - The appellant s factory was found to be using steam for the purpose of drying of the processed fabrics – Held that:- The use of steam cannot be held to be as used in the dyeing process - Steam is not used for running of any machine for the purpose of dyeing but is admittedly used after the process of dyeing for the purpose of drying the wet fabrics, that too during rainy season only - The denial of notification, in question, is neither justified nor warranted – Decided in favor of Assessee. Limitation – Issue of Show-cause notice issued after 15 years from the date of visit of the Revenue officers - During the search operation, certain processed fabrics were also put to seizure by the officers, which action was challenged before the Hon’ble Allahabad High Court. The High Court only stayed the recovery of duty in respect of such seized fabrics – Held that:- Nothing in the order of the Hon’ble High Court restraining the Revenue from issuing a show cause notice for the past period. As such the Revenue’s stand that they were restrained by the Hon’ble High Court for issuance of the show cause notice during pendency of the writ-petition before the Hon’ble High Court is without any merits and cannot be pressed into services for excluding the intervening period of pendency of writ-petition before the Hon’ble High Court for the purpose of deciding the limitation – Demand is barred by limitation – Decided in favor of Assessee.
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2013 (9) TMI 169
Modification of stay order - Non-Compliance with the Stay Order - whether Commissioner (Appeals) had powers to modify the stay order passed by him - Non consideration of the said modification application results in failure of justice - Held that:- Keeping in the view the applicant had already deposited an amount of Rs. 15 lakhs - the condition of pre-deposit of balance amount of duty and penalties imposed was dispensed upon both the applicants – order set aside and matter remanded back to Commissioner (Appeals) for reconsideration of the modification application before him. Prem Nath Monga Foods & Beverages Pvt. Ltd. v. CCE [1992 (10) TMI 152 - CEGAT, NEW DELHI ] - The modification application was filed by the applicant and Commissioner (Appeals) was under a legal obligation to dispose of the said application - To reject the application and to dismiss the appeals simultaneously vide the same order does not meet the requirement of fair proceedings - Inasmuch as the applicant would come to know about the dismissal of the modification application vide the same impugned order along with the dismissal of its appeal - Even if the appellate authority deemed it fit to reject the modification application, interest of justice required him to extend the period to deposit the directed amount and to let the applicant also know about the same - In the absence of intimation about the decision on the modification of the application, the appellant cannot be expected to know about the same - As such, dismissal of the appeal for non-compliance along with rejection of the modification application violates the basic principle of natural justice. Dissenting Opinion – Member (Technical) was not in consonance of the Judgement of the Member (Judicial) therefore he delivered a Separate Judgement - Law being succinctly clear on the bar of exercise of power of review by an authority not expressly vested with such power by law and no Court can legislate on such power - In view of the majority opinion after waiving the requirement of pre-deposit for hearing the appeal filed with the Tribunal - the order-in-appeal was set aside with liberty to the appellant to comply with Stay Order issued by the Commissioner (Appeals) directing pre-deposit of Rs. 20 lakhs ordered by him within 30 days of receipt of this order for hearing of the appeal on merits by the Commissioner (Appeals) - If such pre-deposit is not made, the appeals before the Commissioner (Appeals) will stand dismissed and consequently the order-in-original will get restored.
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2013 (9) TMI 168
Amount Utilisation from GSI Credit Account - Recredit in the GSI Credit Account - Whether the recredit/restoration, in the AED(GSI) credit account, of an amount equal to the BED paid by the assessee in 36 instalments was legally sustainable - Whether the utilization of an amount from the AED(GSI) credit so restored for payment of AED(GSI) on DNTCF manufactured and captively consumed in the manufacture of tyres was legally sustainable - Held that:- The credit needed to be restored and was correctly ordered so by the Commissioner - The debits were held to be of no consequence when the assessee was required to pay duty initially discharged using AED (GSI) credit – Following the Judgement of MOTOROLA INDIA PVT. LTD. Versus COMMISSIONER OF C. EX., BANGALORE-III [2005 (9) TMI 152 - CESTAT, BANGALORE] - there were considerable merit in the finding of the Commissioner that but for the statutory changes introduced with effect from 1-3-03 following which the assessee had discharged the duty liability on tyres using AED (GSI) - All types of refund have to be filed under the Central Excise Act and Rules made thereunder and no suo motu credit of the duty paid in excess may be taken by the assessee - it would have continued to have the impugned credit in its account – the commissioner correctly held that the respondent had taken the impugned credit under valid duty paying documents under cover of which inputs had been received – Order set aside – Decided in favour of Assessee. The credit had been legitimately earned by the assessee on procurement of inputs on payment of duty and used for payment of duty following the amendment of Cenvat Credit Rules under Budget 2003 - Vide Circular No. 7/16/2003-C.X. the CBEC had also clarified that it was considered appropriate not to put any cap on the use of the AED (GSI) credit accruing prior to 1-3-2003 - In terms of the provisions enacted in Finance Act, 2004, the debits were held not amounting to payment of duty and the assessee was required to meet the same obligation by payment from PLA. The proper procedure to take re-credit of Cenvat credit wrongly used was to file refund claim under Section 11B of the Central Excise Act. Vide the impugned order, the Commissioner held that the appellants were entitled to restoration of the AED (GSI) equal to the amount it paid towards BED on tyres, which had been initially discharged using accumulated credit under AED (GSI) available as on 1-3-2003. Availment of Credit – Utilization for Payment - Whether the availment of credit of AED(GSI) paid on DNTCF in March 2008 was legally sustainable - Whether its utilization for payment of BED on tyres in May 2008 was legally correct - Held that:- CENVAT credit of this duty was available to the appellant for utilization in payment of BED on the final product – here what the assessee did was utilization of the AED(GSI) paid on DNTCF long after 01/04/2000 in payment of BED on their final product - relying upon GOODYEAR INDIA LTD. Versus COMMISSIONER OF C. EX., FARIDABAD [2005 (10) TMI 400 - CESTAT, NEW DELHI] - DNTCF processed from NTCF in the appellant’s factory was input vis--vis the final product - in the manufacture of which it was captively used - AED(GSI) was paid on this input by the appellant in March 2008 - both the issues were liable to be held in favour of the appellant - the penalties imposed on the appellant were also liable to be set aside – Order set aside – Decided in favour of assesse.
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2013 (9) TMI 167
Recovery of CENVAT Credit - removal as such - rollers/cylinders were used for printing and when they became worn out, the same were again cleared to their vendors for new engraving/dechroming - Held that:- The demands confirmed against the appellants were sustainable - The expression “as such” used in the Rules had to be interpreted as commonly understood which was in the “original form” and “without any addition, alteration and modification” – The Commissioner (Appeals)’ order was concerned was not sustainable - after the issue of the show cause notice covered in the appeals, which goes to show that there had been dispute on the interpretation of the expression “as such” - MODERNOVA PLASTYLES PVT. LTD. Versus COMMISSIONER OF C. EX., RAIGAD [2008 (10) TMI 51 - CESTAT, MUMBAI] - expression “as such” not having any connection with capital goods being new, unused or used and covered both capital goods cleared without being put to use and after use. - Decided in favor of assessee.
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2013 (9) TMI 166
Classification of Calcium Gluconate I.P. - The appellants claimed classification of the product under Chapter sub-heading 3003.30 (medicament) of schedule to the Central Excise Tariff Act, 1985 whereas the Department proposed to classify the same under CETH 2918.00 (organic chemical) - The product Calcium Gluconate IP manufactured by the appellants was classifiable under CETH 291800 only - Held that:- The chapter note of 29 clearly provided that separate chemically defined organic chemicals were to be classified under CETH 29 - the tariff heading 2918 when read with HSN and also the subsequent elaboration when introducing 8 digit tariff clearly shows that Calcium Gluconate comes under CETH 2918 only - In terms of the heading and the relevant chapter note of Chapter 29, Calcium Gluconate was classifiable under CETH 2918 only - Since we are not talking of Calcium Gluconate in unfinished or semi-finished form or we are not considering mixture or combination of Calcium Gluconate with something else Rule 2 would not be relevant - Rule 3 of Interpretative Rules would apply only when the goods prima facie classifiable under 2 or more headings - Once a specific headings for a product was found, the question of considering another classification or another heading does not arise and therefore Rule 3 of Interpretative Rules was not required to be applied at all. - Decided against the assessee. Invocation of Extended Period - Imposition of penalty - The Commissioner had gone beyond the remand order and appellants could not have been visited with the demand for extended period and penalty when the Department had not even appealed against the Order-in-Original limiting the demand to the period of limitation and not imposing any penalty – Therefore the penalty imposed on the appellants was set aside and also the demand for extended period. The demand as confirmed by the Commissioner in the earlier Order-in-Original dated 16-10-1998 for the period as applicable u/s 11A of Central Excise Act, 1944 was confirmed - The appellants shall also be liable to pay interest as applicable under Section 11AB of Central Excise Act, 1944 - penalties imposed on all the appellants were set aside.
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CST, VAT & Sales Tax
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2013 (9) TMI 186
Doctrine of promissory estoppel - Demand of Entertainment Tax - Grant of Concession upto 33% when paid in lump sum - whether budget proposal would invoke the principle of promissory estoppel - The writ petitioners were the firms engaged in the business of cinema and had been granted licence under the provisions of Punjab Cinemas (Regulation) Act, 1952 - Held that:- The petitioners were not entitled to raise the plea of promissory estoppel - One of the essential ingredients so as to invoke doctrine of promissory estoppel was altering of position by a person - the averments do not show that the petitioners had altered their position on the basis of representation of the functionaries of the State. The petitioners were running cinemas and continued to run cinema even after the speech of the Chief Minister / Finance Minister - If the petitioners have provided better facilities and infrastructure though in the absence of any material, such fact cannot be taken into consideration, still such better facilities do not lead to alteration of positions by the petitioners on the strength of promise made - It was the convenience of the visitors, which was taken care of by the cinema owners, when they provided better facilities and infrastructures or when they screen big budget films, which will obviously gave better revenue to the petitioners as well - Therefore, it cannot be said that the petitioners have altered their position to their detriment on the basis of speech of the Finance Minister proposing the reduction of the entertainment tax. Mere payment of entertainment tax in lump sum by the petitioners will not create any equity in favour of the petitioners nor can the respondents be said to be bound by the principle of promissory estoppel on the basis of such representation - Such proposal cannot acquired the status of law, so as to be treated as a deemed abolition of entertainment tax imposed under the Punjab Entertainment Tax (Cinematograph Shows) Rules, 1954 - The proposal in the Budget Speech had not travelled to the stage of law nor the representation was categorical that entertainment tax, if paid in lump sum, would be at reduced rate - The representation was only of “proposal” and not the decision. State of Punjab Vs. Nestle India Ltd. & another [2004 (5) TMI 65 - SUPREME Court ]- The doctrine of promissory estoppel was an equitable remedy and had to be moulded depending on the facts of each case and not straitjacketed into pigeonholes - there cannot be any hard-and-fast rule for applying the doctrine of promissory estoppel but the doctrine had to evolve and expand itself so as to do justice between the parties and ensure equity between the parties. Whether entertainment tax can be permitted to be paid in lump sum or not - Neither the budget proposal nor the earlier statement of Chief Minister was to the effect that it had been decided to permit the payment of entertainment tax in lump sum - The representation was only that the State Government had proposed the payment of entertainment tax in lump sum so as to grant concession upto 33% - No promissory estoppel can be raised against the State on the basis of such promise, when the levy of entertainment tax was statutory.
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Wealth tax
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2013 (9) TMI 185
Valuation of Property – Nature of Wealth Tax Payable - Whether the Tribunal was right in directing the AO to value the properties for the A.Y. 1995-96 to 1998-99 and in holding that wealth tax payable by the assessee was to be treated as debt and the same had to be excluded from the wealth for the purpose of wealth tax assessment - Held that:- The rules on valuation of the immovable property were framed as a matter of State policy and when there were rules they had to be followed - Thus, the assessee cannot disregard Schedule III to the Wealth Tax Act, which was mandatory and as such, the question of adopting the value as by way of enhancing at certain particular percentage cannot be upheld by the Court - When it was purely a question of law as to the method of valuation to be adopted, not valuation as such for consideration – Relying upon CWT Vs. Sharvan Kumar Swarup and Sons [1994 (9) TMI 2 - SUPREME Court ] - there was no hesitation in rejecting the assessee's plea for a remand – Revenue’s plea was accepted and the matter was restored to the files of the AO to adopt Schedule III to Wealth Tax Act in valuing the property - To that extent the order of the ITAT was set aside. Commissioner of Wealth-Tax, Gujarat Vs. Vimlaben Vadilal Mehta [1983 (10) TMI 3 - SUPREME Court] - The tax liability under the Income Tax Act, Gift Tax Act and the Wealth Tax Act were debt owed by the assessee on a valuation date - even though such determination might be subsequent after the valuation date - Where there was no tax liability there was no debt owed by the assessee on the valuation date. The ITAT allowed the assessee's appeal based on the valuation determined in the assessee's own case for the assessment years 1984-85 and 1985-86 - Thus, the Tribunal directed the Assessing Officer to adopt the rate for all the assessment years under consideration - While considering the valuation of the property the ITAT held that the immovable property had to be valued as per Schedule III to Wealth Tax Act - CWT Vs. Sharvan Kumar Swarup and Sons [1994 (9) TMI 2 - SUPREME Court ] - the property at Kodaikanal was to be valued as per Schedule III to Wealth Tax Act, the same yardstick ought to have been extended while considering the valuation of the Kochadai property. - Decided in favor of revenue.
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