TMI Tax Updates - e-Newsletter
September 8, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise CST, VAT & Sales Tax

Articles

1. ENTITLEMENT OF DIVORCED WIFE ON COMPENSATION UNDER WORKMEN COMPENSATION ACT, 1923

   By: DR.MARIAPPAN GOVINDARAJAN

2. New Tax Audit Report- Indirect Tax Impact

   By: Madhukar N Hiregange

News

1. Shri Justice Handyala Lakshminarayanaswamy Dattu to be Chief Justice of India

Circulars / Instructions / Orders

VAT - Delhi

1. 10/2014-15 - dated 3-9-2014

Commissioner through proviso empowered to direct pre-deposit in case of objection pertains to tax periods after the amendment.

Income Tax

2. Instruction No. 06/2014 - dated 2-9-2014

Compulsory manual selection of cases for scrutiny during the Financial Year 2014-15-regd.

Companies Law

3. F. No. 1/33/2013- CL.V - dated 4-9-2014

Companies (Removal of Difficulties) Seventh Order, 2014

Highlights / Catch Notes

Income Tax

• Section 153C Proceedings Invalid Due to Lack of Reference to Assessee in Seized Material.

  Case-Laws - AT : Validity of assessment proceedings initiated u/s 153C – since the seized material has no reference to the assessee, it cannot be considered to be belonging to the assessee for enabling the initiation of proceedings u/s 153C of the Act - AT
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• Income Tax Appeals: Depreciation Allowed on Windmill Foundation Costs on Pro-Rata Basis.

  Case-Laws - AT : Depreciation on the Wind Mill on pro-rata basis – CIT(A) has rightly allowed the depreciation on the pro rata basis on the cost of foundation to the extent of the civil work - AT
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• Court Clarifies: Reimbursement to Clearing Agents Exempt from TDS Deduction u/s 40(a)(ia) and 194C.

  Case-Laws - HC : Charges paid to clearing and forwarding agents disallowed u/s 40(a)(ia) – TDS not deducted u/s 194C - mere reimbursement of charges would not require deduction of taxes at source - HC
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• Depreciation and interest remain deductible expenses even when profits are calculated on a percentage basis.

  Case-Laws - HC : Deduction from estimated income - depreciation and interest, which are otherwise deductable in the ordinary course of assessment, remain the same legal character, even where the profit of assessee is determined on percentage basis - HC
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• Company Fails to Prove Business Purpose for Directors' Foreign Trips; Expenses Denied as Deductible.

  Case-Laws - AT : Foreign tour expenses - Expenses for business purpose or not – assessee failed to demonstrate that trips undertaken by the Directors of the assessee company was for the purpose of business - AT
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• Taxpayer Choice in Construction Contracts: Project Completion vs. Percentage Completion Method for Tax Year Determination.

  Case-Laws - AT : Year of taxability of amount - in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method - AT
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Customs

• High Court Confirms Reduction of Advance Authorization Value, DGFT Cannot Unilaterally Amend Entitlements for Petitioners.

  Case-Laws - HC : Reduction in the value of entitlement for Advance Authorization - DGFT could also not be expected to sou moto make any amendment in the Advance Authorization which had been issued to the petitioner - reduction in entitlement upheld - HC
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• Petitioner Entitled to Refund After Paying Excess Duty Provisionally During Goods Clearance.

  Case-Laws - HC : Refund of excess duty - at the time of clearance of the goods, petitioner had paid an excess amount of duty provisionally, and the petitioner was entitled to refund such excess amount. - HC
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Service Tax

• Court Rules No Penalty for Pre-Order Payment of Service Tax and Interest.

  Case-Laws - HC : Levy of penalty where service tax and interest was deposited before passing of the order in original - no case for the imposition of a penalty was made out. - HC
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• Court Remands Case for Revaluation of Works Contract Services u/r 2A; Data on Goods Value Key Issue.

  Case-Laws - AT : Works contract services - valuation - composition scheme - applicability of Rule 2A - data in respect of actual value of property in goods transferred in execution of the work is available and produced before the adjudicating authority - matter remanded back - AT
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• Penalty Imposed Under Finance Act Section 78 for Fact Suppression; No Relief Sought u/s 80.

  Case-Laws - AT : Levy of penalty u/s 78 - suppression of facts - the appellant has not sought the benefit of section 80 of the Finance Act, 1994 in this appeal. - payment of service tax prior to issue of show-cause notice is no ground to oppose the section 78 penalty - AT
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Central Excise

• Court Rules Retained Sales Tax Must Be Included in Excisable Goods Valuation for Accurate Tax Assessment.

  Case-Laws - SC : Valuation - inclusion of portion of 50% of sales tax retained by the assessee in the value of excisable goods - since the balance of 50% of sales is neither payable nor paid, additions confirmed - SC
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• Rebate Claim Denied for 100% EOU Due to No Duty Requirement on Exports u/r 18 of Central Excise Rules.

  Case-Laws - HC : Denial of rebate claim - 100% EOU - no duty was required to be paid on such exported goods. Rebate claimed is not admissible in terms of Rule 18 of the Central Excise Rules, 2002 read with notification No.19/2004 -CE(NT) dated 06/09/2004 - HC
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• Penalty u/s 11AC for Duty-Free Rough Castings Invalid Due to Lack of Factual Findings.

  Case-Laws - HC : Penalty u/s 11AC - Clearance of rough castings to Rice Mill Division without payment of duty - in the absence of any factual finding on the ingredients of section 11AC, imposition of penalty cannot be sustained - HC
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• High Court Allows Appeal Despite Delay in Filing Refund Claim Under Central Excise Due to Exceptional Circumstances.

  Case-Laws - HC : Condonation of delay in filing appeal before commissioner (Appeals) - good case on merit - Denial of refund claim - delay condoned as exceptional case - HC
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VAT

• High Court Rules Separate Orders Needed for Each Assessment Year Due to Transaction Variations in VAT and Sales Tax Case.

  Case-Laws - HC : Validity of order passed - single order passed for 4 assessment year - Type of transaction may vary between one assessment year and another assessment year. - the matter should be adjudicated and separate orders have to be passed - HC
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Case Laws:

• Income Tax

• 2014 (9) TMI 212
  Validity of assessment proceedings initiated u/s 153C – Proceedings initiated on seized material – Seized documents belonging to assessee or not - Held that:- The AO could not have initiated proceedings u/s 153C of the Act solely on the basis of the loose sheets - Reading of section 153C of the Act makes it clear that the primary condition for initiating proceedings u/s 153C, the AO must be satisfied that jewellery and other valuable articles or books of accounts or documents seized belongs to a person other than the person referred to in section 153A of the Act - the so called seized material on the basis of which the AO has initiated proceedings u/s 153C of the Act was admittedly not seized from the possession of the assessee but a third person Sri D. Nagarjuna Rao against whom the search and seizure operation was carried out u/s 132 of the Act - merely because D. Nagarjuna Rao has stated that he has received the amount from Tirumala Rao towards sale of the property it cannot be inferred on that basis alone, that the assessee has paid the amount towards purchase of the property - both the assessee and Tirumala Rao have denied of making the said payment to B. Nagarjuna Rao – thus, the seized document on the basis of which proceeding u/s 153C was initiated cannot be said to be belonging to the assessee - the assumption of jurisdiction u/s 153C has to be held as invalid and the assessment order passed must be declared as without jurisdiction - since the seized material has no reference to the assessee, it cannot be considered to be belonging to the assessee for enabling the initiation of proceedings u/s 153C of the Act – Decided in favour of assessee.

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• 2014 (9) TMI 211
  Depreciation on the Wind Mill on pro-rata basis – Nature of work and rate of depreciation - Whether the earth work and the foundation is nothing but civil work on which depreciation is allowable @ 10% whereas installation and commissioning work constitute block of plant and machinery on which depreciation is allowable @ 15% - Held that:- The cost of the new wind turbine will include cost of component & accessory, cost of component for generation of electricity supply of rotor blades, electrical items, cost of tubular tower, cost of work including foundation work and labour related cost – as decided in ITAT, Pune in the case of Poonawala Finwest & Agro (P) Ltd. Vs. ACIT [2008 (6) TMI 586 - ITAT PUNE] – The functional test of the foundation has been explained by the CIT(A). So far as the foundation is concerned, the functional test is fulfilled - There should not be quarrel that civil work is involved in the erection of the foundation, but every civil work cannot be treated as civil work as required for bringing construction - cost on the foundation of the wind mill is eligible for the depreciation at the rate 180% or the rate which is applicable to the wind mill as it is integral part of cost of wind mill erection - Same way, the cost for commission and erection cannot be said to be separate from the wind mill as it is directly related to the functioning of wind mill - CIT(A) has rightly allowed the depreciation on the pro rata basis on the cost of foundation to the extent of the civil work - also in Assistant Commissioner of Income Tax (OSD) Versus Parry Engineering & Electronics P. Ltd. [2012 (10) TMI 224 - ITAT, AHMEDABAD] it has been held that the foundation is a part of the turbine and is eligible for the rate of depreciation which is applicable to the wind mill – the order of the CIT(A) is upheld – Decided against Revenue.

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• 2014 (9) TMI 210
  Claim of benefit of deduction u/s 80HHC – Export of handicraft items – Held that:- The goods were not exported, before the cut of date, only invoices were prepared anti dated - the claim of the assesses is a colourable device to get the benefit u/s 80HHC of the Act - No benefit u/s 80HHC can be extended on the basis of invoice alone - To claim the benefit, export clearance certificate is must as per Customs Act, 1962 - any sale transaction will become part of turnover only after getting custom clearance and the whole transaction should get completed during the assessment year under consideration even the assessee is following the Mercantile System of Accounting – the action of the AO reducing the export turnover declared in the books of account filed by the assessee by the amount of bills for which bills lading were issued beyond the end of accounting year was found to be justified – the order of the Tribunal is upheld – Decided against Assessee.

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• 2014 (9) TMI 209
  Withdrawal of appeal – matter attained finality - Charge of interest u/s 234B already deleted in quantum appeal - Held that:- Revenue has produced copy of the communication No.CIT/PTA/Judl/2014-15/2240 dated 29.08.2014 which states that during the course of the preparation of reply to be filed in response to the above mentioned C.M. filed by the assessee, it has come to light that the quantum addition in respect of which interest u/s 234B was charged has already been deleted and the matter of quantum addition has attained finality - the issue of charging of interest u/s 234B is consequential to the quantum addition, and not required to be followed up – the withdrawal application accepted – Decided in favour of revenue.

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• 2014 (9) TMI 208
  Charges paid to clearing and forwarding agents disallowed u/s 40(a)(ia) – TDS not deducted u/s 194C - Held that:- Payment made to a travel agent or airline for purchase of the air ticket for travel was not required to be subjected to deduction of tax at source - in case of a chartered flight or bus etc., provisions of Section 194C would be attracted - Payment made to clearing and forwarding agents for carriage of goods would be subjected to tax at source u/s 194C of the Act - The Tribunal has held that the bills, subject matter of the dispute were for reimbursement of the air freight charges paid to airlines - Air freight charges would not include commission, handling or other charges, which were payable for the services rendered by the clearing and forwarding agents - For the services, separate bills were issued and tax at source was deducted u/s 194C - The payment towards air freight was required for exporting the goods as the respondent assessee was an exporter and the consignor – relying upon Commissioner of Income Tax Vs. Hardarshan Singh [2013 (1) TMI 314 - DELHI HIGH COURT] - on applying principle of privity of contract, mere reimbursement of charges would not require deduction of taxes at source - the parties had raised separate bills, which were reimbursed, as it was paid to the airlines for export of goods - the factual findings of the Tribunal are correct and the plea and stand taken by the Revenue is incorrect and wrong – the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (9) TMI 207
  Invocation of section 14A r.w Rule 8D – Expenses incurred on earning exempt income or not - Taxability of dividend income and LTCG – Held that:- The Tribunal has rightly held that the expenditure relatable to the earning of exempt income is equal to aggregate of the amount of expenditure directly relatable to the income which does not form part of the total income i.e. Rule 8D(2)(i) and the disallowance of interest as provided under Rule 8D(2)(ii) and further disallowance computed under Rule 8D(2)(iii) of the Income Tax Rules - the assessee had paid total interest out of which interest paid on term loan raised for specific purpose and balance interest paid by the assessee - after examining the balance-sheet of the assessee, a finding of fact has been recorded that the funds utilized by the assessee being mixed funds, therefore, the interest paid by the assessee is also an interest on the investments made – no substantial question of law arises for consideration – Decided against assessee.

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• 2014 (9) TMI 206
  Reopening of assessment u/s 147 - Expenditure u/s 14A – Proper disclosure made by assessee in front of AO - Held that:- The Tribunal rightly was of the view that the full and true details of exempt income were clearly stated and mentioned in the return of income and this fact was in the knowledge of the AO - It was, thereafter, for the AO to disallow expenditure u/s 14A of the Act – the AO may have erred, but this was not the fault of the assessee or attributable to his failure to disclose full and true material facts - Explanation to Section 147 of the Act would not be applicable - Neither the explanation invoked as the details were per se available and apparent – the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (9) TMI 205
  Allowability of depreciation and interest payment from estimated profits @ 12% - Held that:- Revenue is not able to point out any provision of law in the Act or Rules made, which restricts the allowance of the depreciation and interest - the facility created under the Act is so firm and strong that if for any reason it becomes impermissible or unnecessary for an assessee to seek the allowance of depreciation for a particular AY, he is entitled to carry it forward, for the subsequent years - it assumes the character of unabsorbed depreciation - the AO permitted the allowance of unabsorbed depreciation - No reference is made to any provision of law to make such distinction - If an assessee is entitled to claim deduction of interest, be it u/s 36(1)(iii) of the Act or any other relevant provision and of depreciation u/s 37 of the Act, in the ordinary course of assessment, there is no reason why the same facilities be not extended to him, merely because the profit is determined on the basis of estimation - depreciation and interest, which are otherwise deductable in the ordinary course of assessment, remain the same legal character, even where the profit of assessee is determined on percentage basis - relying upon Circular dated 31.08.1965 issued by the Central Board of Direct Taxes –The order of the Tribunal is upheld – Decided against Revenue.

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• 2014 (9) TMI 204
  Payment made to Bruhat Bangalore Mahanagara Palike disallowed – Sub-lease of property to sister concern - The assessee pointed out that the rents that it had paid to BBMP had to be allowed as a deduction while computing income from lease of the property u/s. 37(1) of the Act. – Held that:- The conclusions of the AO are also not correct for the reason that the rent paid by the Assessee to BMP would be higher only for the initial 5 years when the arrears of rent towards arrears of rent for the period from Nov. 2005 to March, 2008 is added to the originally agreed rent between the Assessee and BMP - the claim of the Assessee that after the expiry of the period for which the assessee had to pay the arrears of rent from Nov. 2005 to Apr. 2008 in 20 equal quarterly instalments, the amounts payable by it to BMP will be less than what the assessee would receive from the sub-tenant KPPL is correct - as per the terms of sub-lease with KPPL, the Assessee was entitled on a year on year basis, increase of 5% on the lease rentals - there is nothing on record to suggest that sub-leasing the property to KPPL did not make business sense. Relying upon CIT Vs. Walfort Share & Stock Brokers (P) Ltd. [2010 (7) TMI 15 - SUPREME COURT] - there is no basis for the AO to come to a conclusion that it was KPPL which was interested in the BMP Contract, but could not participate in the tendering process initiated by the BMP because KPPL was managed and owned substantially by Sri. D.K. Shivakumar, who was the Hon’ble Minister for Urban Development in the Government of Karnataka between the years 2002 and 2004 - the conclusions of the AO that the assessee was brought in as an intermediary only to win the contract and transfer it back to KPPL immediately and therefore the transaction in the books of the assessee has to be ignored and the losses claimed against it disallowed, cannot be sustained - The loss as claimed by the Assessee is to be allowed – Decided in favour of assessee.

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• 2014 (9) TMI 203
  Compensation payable disallowed – Existence of compensation agreement – Nexus between expenses and project - Held that:- None of the documents between the parties, except a casual reference in the compensation agreement dated 14.7.2005, speak about the nexus between the property of Bhupathi and the NLI property - Even in the compensation agreement dated 14.7.2005, there is a reference to the property of Bhupathi having been considered for development of residential complex by ITC, but since the place was small, the same was given up - No evidence has been brought on record by the assessee to show that the property of Bhupathi was first identified by ITC for development of residential complex - There is nothing on record to show that SRLPL imposed a condition for sale of the property of SRLPL to the assessee that the assessee should arrange for sale of the property of Bhupathi to SRLPL - the property of Bhupathi was not sold to SRLPL or its nominee - The property was ultimately sold to a third party - There is no basis whatsoever for fixation of compensation of Rs. 8.5 crores - There is nothing on record to show as to how the same was quantified, who committed the breach and as to whether any claim was made by Bhupathi in this regard. Mr. Mahesh Bhupathi agreed that his property would be sold in favour of the nominees of the Second Party - the agreement cannot be said to be a compensation agreement entered into for breach of the agreement dated 25.9.2004 - in none of the registered documents by which the property of SRLPL was conveyed, is there a reference to the agreement between the assessee and Bhupathi - the conclusion of the revenue authorities that the payment of Rs. 8.5 crores has no nexus with NLI property is correct and therefore has to be upheld - the plea of commercial expediency in making the payment to Mr. Mahesh Bhupathi for NLI property cannot also be accepted – the order of the CIT(A) is upheld – Decided against Assessee.

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• 2014 (9) TMI 202
  Foreign tour expenses - Expenses for business purpose or not – Held that:- The AO disallowed the expenses on the basis that the assessee could not furnish the supporting evidences in respect of the expenditure incurred - The finding of the AO was confirmed by the CIT(A) on the basis that neither during the assessment proceedings nor during the appellate proceedings the assessee could file any evidence and point out that the people traveled to China actually for the purpose of business - the assessee has placed on record a ledger account of foreign travelling expenses - no details of the foreign parties has been placed on record suggesting that the assessee had gone for business purpose – the assessee failed to demonstrate that trips undertaken by the Directors of the assessee company was for the purpose of business - the order of the CIT(A) is upheld – Decided against assessee. Payment of brokerage/commission – Failure to show services rendered to whom – Held that:- CIT(A) has given a finding that the appellant could not demonstrate as to how the family members or family concerns were competent to bring the business for the assessee which the assessee itself could not have done – CIT(A) was of the view that the assessee could not establish the nature of services rendered by the persons to whom the brokerage was paid – assessee relied upon Aluminium Corporation of India vs. CIT [1972 (8) TMI 2 - SUPREME Court] The contention of the assessee that all the details regarding nature of services rendered by the persons to whom the commission was paid were filed but not considered by the authorities below – the contentions of the assessee required verification at the end of the AO – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Interest subsidy received – Nature of receipt revenue or not – Held that:- The interest subsidy has been granted by Government of Gujarat, Industries & Mines Department, Resolution No.APN/102004/1161(2)/1, Sachivalaya, Gandhinagar, dated 10th June- 2004 - the interest subsidy is granted under the scheme of Government of India, following the decision in CIT vs. Ponni Sugars and Chemicals Ltd. [2008 (9) TMI 14 - SUPREME COURT] - The AO is directed to treat the interest subsidy received by the assessee as capital receipt and make necessary charges in the computation of income of the assessee – Decided in favour of assessee. Addition on account of fall in GP – Held that:- CIT(A) rightly appreciated that the assessee has explained the fall in G.P. rate by giving full details - assessee has stated that the disproportionate increase in the manufacturing expenses and personal expenses appears to be so because the AO has compared the turnover in terms of rupees and not in terms of quantity - There was some increase in the salary of employees also - This has accounted for marginal increase in the personal expenses as compared to last year if the same is compared with production in quantity - assessee has pointed out that the AO has brought no material on record to show that the books of account are not reliable or that they are incomplete and correct profit cannot be deducted from that - The AO has brought no material on record to show that the sales were unaccounted for or undervalued or the purchases or other expenses were either bogus or inflated – the order of the CIT(A) is upheld – Decided against Revenue. Interest disallowed u/s 40A(2)(b) – Held that:- CIT(A) rightly was of the view that the unsecured loans are available at various rates depending upon time to time - AO has compared the rate of unsecured loan of 15% with the rate of loan given by the Bank and not with rate of unsecured loans available in the market - For a disallowance u/s 40A(2)(b) the AO is required to compare the market rate - Even the benefit accruing to the assessee shall have to be evaluated - This may not be confined to the period of accounting year only and again it would not be essential that benefit must be in the revenue field - when the Banks are giving loan at 12.5% from 22.01.2007 and OD interest is 14% then the unsecured loan at 15% is not excessive – the order of the CIT(A) is upheld – Decided against Revenue.

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• 2014 (9) TMI 201
  Transfer pricing adjustment - ITES Segment - Selection of comparables - Cosmic Global Ltd. – Held that:- The assessee is engaged in providing the ‘Manual claim processing services’ to its foreign A.E. and also providing services relating to analyzing data on health insurance, launching lucrative insurance products - the United Health Corp. group is, inter alia, engaged in health related insurance business - So the services provided by the assessee under this segment are mainly in the nature of processing on manual basis, the insurance claims lodged by its policy-holders - from the Annual Report of the company it is found that the financial results in the Balance sheet and Profit and loss account are available only on entity level - the major part is the income from Translation charges at Rs. 5.59 crore out of total revenues of Rs. 5.86 crore, which is totally dissimilar to that of the assessee - The assessee is not into any Translation business - Merely because the assessee inadvertently included the company in the list of comparable, can be no reason to bar the assessee from claiming that it was wrongly included - Cosmic Global Ltd. is incomparable to the assessee – the TPO is directed to exclude the company from the comparables – Decided in favour of assessee. Eclerx Services Ltd. – Functionally different company – Held that:- The company is engaged in providing data analytics and customized process solutions to a host of global clients – from a look at the functional profile of the company from its Annual report, it can be seen that it is nowhere close to the assessee’s instant segment of ‘manual claim processing services’ - the TPO is directed to exclude the company from the comparables – Decided in favour of assessee. Genesys International Corpn. Ltd. – Different nature of work - Operated in single business unit - Held that:- The company is engaged in rendering geospatial services catering to the needs of consumer mapping, navigation and internet portals - It is providing mapping technologies managing the earth’s resources and surfaces at a time - Talent eco system with this company includes urban planners, cartographers, remote sensing scientists etc. and even rocket scientists, giving its skills in all kinds of land base work - the nature of work done by the assessee under its ITES segment, which is simply that of processing insurance claims manually is different from the unit being compared - the TPO is directed to exclude the company from the comparables – Decided in favour of assessee. Vishal Informatics – Held that:- From the Annual report of the company that it is mainly engaged in e-publishing business - the working capital adjustment is required with reference to stock, trade receivable and trade payables - Since, the authorities below have denied working capital adjustment to the assessee on flimsy ground, thus, the grant of working capital adjustment, if otherwise available, cannot be jeopardized - the AO/TPO is directed to vet the correctness of the amount of working capital adjustment claimed by the assessee – thus, the matter is remitted back to the AO/TPO for a fresh computation of the ALP of the international transactions – Decided in favour of assessee. Software development services - Working capital adjustment - 3K Technologies Ltd. – Held that:- From the Annual report of this company that apart from Personnel cost of Rs. 1.15 crore, there are ‘Onsite expenses’ to the tune of Rs. 26.74 crore and also ‘Administrative and other expenses’ amounting to Rs. 3.50 crore, which also include personnel cost - the Directors’ remuneration is part of it, which is nothing but personnel cost - In so far as ‘Onsite expenses’ are concerned, it can be seen that the nature of business of the company is that of development of computer system and other related activities - when the company is rendering services to its customer at their doorstep, it will incur onsite expenses, which would predominantly include the personnel cost - as the business of this company has not been shown to be functionally different from that of the assessee and further it is an admitted position that even if a part of ‘Onsite expenses’ is included in the personnel cost, it would pass the filter of employee cost more than 25% of the total cost, the view taken by the TPO is upheld – Decided against assessee. Infosys Technologies Ltd. – Held that:- Infosys Technologies Ltd., which is otherwise a giant company in terms of risk profile, scale, nature of services, revenue ownership of branded/proprietary products, onsite and offshore services, etc., cannot be compared with the assessee – relying upon CIT vs. Agnity India Technologies Pvt. Ltd. [2013 (7) TMI 696 - DELHI HIGH COURT] - The parameters on which Infosys Technologies Ltd., was held to be not comparable with that assessee, are fully applicable here also – the TPO is directed to exclude the company from the list of comparables – Decided in favour of assessee. KALS Information System Ltd. – Held that:- The TPO adopted ‘Software development’ segment of this company - From the Annual report of this company it can be noticed that this segment also includes revenues from software products - the assessee is not engaged in selling any software products, the financials of the company under this segment cannot be compared with the assessee - The contribution by the sale of software products to the overall revenue of this segment cannot be precisely ascertained for determining the question of its comparability – Decided in favour of assessee.

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• 2014 (9) TMI 200
  Addition of unaccounted money shown as booking deposit – Failure to produce details - Held that:- CIT(A) was of the view that assessee has received in Akshar Corporation and in Akshar Enterprise during the year - assessee has failed to provide proper and complete addresses of the customers from whom booking advances has been received during the year and thereby assessee has completely failed to discharge the onus cast upon it and has not established the identity, the genuineness of the transaction and the creditworthiness of the creditors - with respect to the balance amount which was received in earlier years and the assesee had not discharged the onus proving the identity, genuineness of the transaction and creditworthiness of the creditors held that the same can be taxed in the year of receipt - the amounts were stated to have been received in earlier years, the AO is directed to verify the booking advance received in the relevant year and if the assessee fails to furnish the requisite details/evidences and satisfactory explanation and thereby to prove the identity of creditors and creditworthiness of the transaction, the AO was directed to make addition in the year of receipt – the order of the CIT(A) is upheld – Decided against revenue. Bogus liability of sundry creditors disallowed – Held that:- CIT(A) has noted that the creditors namely, Mahalaxmi Pipe Suppliers, Dhaval Steel, were outstanding since 01-0-2004 and in case of Patel Hardware, assessee had made purchases in A.Y. 2006-07 and 2007-08 - the addition u/s. 41(1) can only made when the creditor confirms the waiving for all dues receivable and in the year in which the creditor waives of the debts - Revenue has not brought any material to demonstrate that the creditors waived off the amounts due to him nor have they brought any material to controvert the findings of CIT(A) – the order of the CIT(A) is upheld – Decided against revenue. Bogus liability of unsecured loan disallowed – Held that:- Assessee shown the liability of unsecured loans which has been stated to be from ex-partners - CIT(A) has given a finding that the Assessee has not been able to furnish the addresses or whereabouts of the persons claimed to be ex-partners nor has furnished any proof like partnership deed, audit report of earlier years to prove that the said persons were his ex-partners - assessee has failed to prove that the amounts credited in their accounts were share of profits for earlier years - no material has been placed on record by either parties to controvert the findings of CIT(A) – the order of the CIT(A) is upheld – Decided against revenue. Reopening of assessment for booking advances u/s 150(1) – Held that:- CIT(A) has directed the AO to reexamine addition in respect of booking advance, creditors for goods and in respect of balance outstanding in the name of ex-partner pertaining to the balances brought forward for earlier years and in the case the assessee is not able to discharge the onus then make the addition in the respective years of its receipts - no material has been placed to demonstrate that pursuant to the directions of CIT(A), the AO has initiated reassessment proceedings - the challenge of re-opening is pre-mature and the Assessee may take due legal recourse if so advised in appropriate proceedings – Decided against assessee.

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• 2014 (9) TMI 199
  Reopening of assessment u/s 147 r.w section 148 – Held that:- In Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited [2007 (5) TMI 197 - SUPREME Court] it has already been held that intimation u/s 143(1)(a) cannot be treated as assessment order - It is only when regular assessment is made, the AO gets an opportunity of applying his mind to various aspects concerning the assessment - such noticing as may be from the material already on record or some new material coming to his knowledge - ADIT noticed that Assessee was the real owner of various projects and the Managing Director of the Assessee had also admitted to undisclosed profit from Kalhar Bunglow Project, the main project being developed by Assessee and offered the same to tax - the material was sufficient to the AO to proceed with the proceedings of reopening of the assessment - the AO was fully justified in re-opening the assessment – Decided against assessee. Addition u/s 68 - Failure to discharge onus upon assessee – Held that:- AO has noted that Assessee had received unsecured loans but Assesse had not discharged the onus by proving the identity, capacity and genuineness of the transaction - CIT(A) has not given any finding with respect to the deposits received by the Assessee and further the depositers are different in both the AYs i.e. A.Y. 2000-01 and A.Y. 97-98 - one more opportunity be granted to Assessee to furnish all the required details called for by the AO so as to discharge the onus as required u/s. 68 of the Act – the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of revenue. Bogus and unexplained liability – Held that:- AO while disallowing the liability for expenses has noted that Assessee did not furnish the necessary evidence while CIT(A) deleted the addition has noted that AO has not disproved the claim of Assessee that each liability was supported by evidences and the reply was furnished before AO - CIT(A) has not called any remand report from AO - no details of the liability for expenses, except as shown in the Balance sheet was placed on record - the issue needs re-examination at the end of CIT(A) – thus, the matter is to be remitted back to the CIT(A) for adjudication – Decided in favour of revenue. Application of net profit rate – Held that:- CIT(A) while deleting the addition has noted that AO has not brought any material on record of any details/instances of unvouched expenses and not pointed any instance in which the expenses debited to Profit and Loss Account etc. was recovered from the project - on similar facts for A.Y. 97-98, the rejection of books of accounts was not upheld by ld. CIT(A) - Revenue was not brought any material to controvert the finding of CIT(A) – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (9) TMI 198
  Miscellaneous application – Rectification of mistake u/s 154 – Held that:- As such there is no apparent mistake in the Tribunal order as alleged by the assessee – relying upon Steel Containers Ltd. Vs Commissioner of Income-tax [1974 (11) TMI 10 - CALCUTTA High Court] - though the powers of the Tribunal may be said to be limited to the subject matter of the appeal before it but the Tribunal is competent to pass such orders on appeal as it thinks fit - there is nothing in the Act which restricts the Tribunal to the determination of the questions raised before the departmental authority - all questions whether of law or of facts, which related to the assessment of the assessee might be raised before the Tribunal - the Tribunal can uphold the disallowance under another section - the Tribunal has upheld the disallowance of depreciation on the basis that the AO has already allowed the depreciation in respect of total assets which the assessee has acquired as per the assets shown by the assessee in the balance sheet as on 04/11/2004 (post acquisition) and, no extra depreciation over and above these assets is allowable to the assessee - The basis of disallowance by the AO may be different but still such disallowance can be upheld by the Tribunal on the basis that since the AO has allowed depreciation on the total assets acquired by the assessee company post acquisition, no more depreciation is allowable to the assessee over and above the depreciation already allowed by the AO - there is no apparent mistake in the decision of the Tribunal – the order of the Tribunal is upheld – Decided against assessee.

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• 2014 (9) TMI 197
  Unexplained expenditure for renovation of flat – Held that:- The basis for addition is the seized material - a reference to the seized material a copy of which is assessee's paper book - the AO has treated the expenditure to have been incurred in AY 1996-97 - an expenditure incurred in FY 1995-96 will be noted in February 1998 - For this reason alone the addition made by the AO cannot be sustained - it is a fact on record that besides the seized material, there are no other evidence or material on record to show that the assessee has actually incurred the expenditures noted in the seized material - a reference to the seized material will show that though there are twenty seven items of expenditure, all of them are in round figures only - the seized material is only an estimate - If at all it is to be believed that assessee has actually incurred all these expenditures, it is not at all possible that the department did not come across any bill, voucher or any other material to show incurring of expenditure even in case of a single item mentioned in the seized material - addition is more on presumption than on evidence - addition made is not sustainable - decided in favour of assessee. Addition of undisclosed income – Held that:- Assessee had purchased three DDs totaling to Rs. 1 lakh in the name of his sister Smt. Suchitra Krishnamurthy on 03/11/1999 - assessee is not consistent with his explanation in respect of the source of DDs purchased - the purchase of DD has not been reflected in the books of account of the company either on the date of purchase or subsequent thereto - cash flow statement of the assessee, as found by the learned CIT(A), does not show out flow of cash towards purchase of DDs - assessee's explanation that it was out of cash available with him and the company is devoid of merit and cannot be accepted - assessee has not been able to explain the source of purchase of DDs with cogent evidence – the order of the CIT(A) is upheld - Decided against assessee. Implant receipts as undisclosed income – Held that:- The register was seized from the possession of the company M/s Andromeda Foundation (India) Pvt. Ltd. - assessment if any in reference to the seized material should have been made in case of the company and not the assessee - The department has not brought any material on record to controvert these facts - receipts from implant devices as found noted in the seized material cannot be considered as undisclosed income of the assessee - AO has treated the entire receipts as income of the assessee instead of considering the profit element - the implant receipts as found in the register seized from the possession of the company cannot be treated as undisclosed income of the assessee – the AO is directed to set aside the addition – Decided in favour of assessee. Undisclosed income – Held that:- In a reassessment proceeding on being remanded by the Tribunal the AO cannot consider a issue which was not a subject matter of appeal before the Tribunal – relying upon CIT Vs. Late Jawaharlal Nagpal [1987 (8) TMI 41 - MADHYA PRADESH High Court] - The powers of the Tribunal are confined to the subject-matter of appeal as constituted by the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal - when the Tribunal allows the appeal and sets aside the assessment and remands the case for making a fresh assessment, the power of the ITO is confined to such subject-matter only - He cannot take up the questions which were not the subject-matter of appeal before the Tribunal - This will be so even though no specific direction has been given by the Tribunal – Decided against revenue.

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• 2014 (9) TMI 196
  Proceedings u/s 263 – Deduction u/s 80IB(10) - Jurisdiction of CIT - Doctrine of merger – Held that:- Following the decision in Sobha Developers Ltd. Versus Commissioner of Income-tax (LTU) [2013 (9) TMI 638 - ITAT BANGALORE] - there was no merger of the order of the AO with that of any appellate authority when the CIT invoked and exercised jurisdiction u/s.263 of the Act in passing the impugned order and that two views did not exist on the question whether the Assessee was only a “Builder” and not a “Builder and developer” of housing project - what is the role of the sister concern of the assessee in so far as it relates to sale of land is concerned and as to how despite being not owner of the land pursuant to a registered sale deed was in fact entitled to all ownership rights as envisaged u/s.2(47)(v) of the Act. The question as to whether the Assessee was a developer and builder of housing project or merely a builder and was not entitled to deduction u/s.80IB of the Act was not examined by the AO in the order of Assessment - The order of the AO was erroneous to this extent - the exercise of jurisdiction by the CIT u/s.263 of the Act was proper - CIT has concluded that the Assessee is only a “Builder” and not a “Developer and Builder” of housing project - such a finding is without any basis and without bringing on record material and contrary to the claim made by the Assessee – it cannot be sustained and is hereby vacated - the CIT has concluded that the assessee is a “builder” without rebutting any of the submissions and contentions put forth by the assessee with regard to the various activities carried out by the assessee in the reply to the show cause notice issued under section 263 of the Act – the findings of the CIT is vacated in this regard and the directions issued u/s 263 of the Act modified – decided partly in favour of assessee. Shortfall in remittance of TDS – Deduction u/s 40(a)(ia) – Held that:- CIT ought not to have straightaway held that there was a shortfall in remittance of TDS of and disallowance relating to the shortfall needs to be disallowed u/s 40(a)(ia) - the assessee has requested the CIT to inform as to how the shortfall was arrived at - the assessee has filed a reconciliation of TDS payable before the AO which should be examined and verified before any disallowance can be contemplated or made u/s 40(a)(ia) of the Act - the direction of the CIT is modified as to the AO for making a disallowance u/s 40(a)(ia) of the Act to the extent that the AO is directed to examine the assessee's claim of reconciliation of TDS and the plea that the gross tax deducted in Form 3CD report is erroneous - If, however, the AO’s finding after verification is to the contrary, then requisite disallowance u/s 40(a)(ia) will have to be made – Decided partly in favour of assessee.

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• 2014 (9) TMI 195
  Jurisdiction of CIT u/s 263 – Lease amount received – Held that:- The AO failed to make any sort of enquiries in respect of taxability of the lease rent derived by the assessee from M/s. TRIL Infopark Ltd on the land alienated by the Government of Tamil Nadu to TIDCO which in turn was leased out to M/s. TRIL Infopark Ltd. – the AO has not gone into the transaction as rightly pointed out by the CIT and in the absence of any enquiry whatsoever by the AO and forming any opinion on the transaction except requiring the assessee to furnish details, the order passed by the AO is certainly erroneous and prejudicial to the interests of the Revenue - The AO should have examined the transaction in depth as to whether the lease transaction between the assessee and M/s. TRIL Infopark Ltd and lease rent reported by the assessee is in accordance with law and statue and since has completely failed to examine these transactions, the order passed by the AO is erroneous and prejudicial to the interest of the Revenue - relying upon M/s. Ashok Leyland Ltd. Vs. CIT [2002 (9) TMI 65 - MADRAS High Court] - since the AO failed to enquire into the matter thoroughly the assessment order passed u/s 143(3) of the Act is erroneous and prejudicial to the interest of the Revenue - the order of the CIT u/s 263 of the Act is upheld in directing the AO to complete the assessment afresh – Decided against assessee.

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• 2014 (9) TMI 194
  Year of taxability of amount - Amount spent on projects reworked for sub-project in various locations – Held that:- CIT(A) was right in holding that AS-7 is not applicable to Real Estate also Bench mark for recognizing revenues adopted by the assessee are reasonable and the rule of consistency applies in this case, in order to invoke sec. 145(3), the AO must necessarily express dissatisfaction about the correctness and completeness of the accounts and also note that such system of accounting is not regularly followed by the assessee, and the correctness of the overall profit from the project is not disputed by the AO only year of taxability is disputed – relying upon Commissioner of Income Tax and Another vs. Hyundai Heavy Industries Co. Ltd. [2007 (5) TMI 196 - SUPREME Court] - the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act – AS-7 issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method - the order of the CIT(A) is upheld – Decided against revenue. Deduction u/s 40(a)(ia) - Payment made for purchase of technical know-how – Tax withholding obligations u/s 194A of the Act not discharged – Held that:- Following the decision in Rajeev Kumar Agarwal Versus Additional Commissioner of Income Tax [2014 (6) TMI 79 - ITAT AGRA] - The net effect of the amendments is that the disallowance u/s 40(a)(ia) shall not be attracted in the situations in which even if the assessee has not deducted tax at source from the related payments for expenditure but the recipient of the monies has taken into account the receipts in computation of income, paid due taxes, if any, on the income so computed and has filed his income tax return u/s 139(1) - it is beyond doubt that the underlying objective of section 40(a)(ia) was to disallow deduction in respect of expenditure in a situation in which the income embedded in related payments remains untaxed due to non-deduction of tax at source by the assessee - section 40(a)(ia) cannot be seen as intended to be a penal provision to punish the lapses of non-deduction of tax at source from payments for expenditure- particularly when the recipients have taken into account income embedded in these payments, paid due taxes thereon and filed income tax returns in accordance with the law. A curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced - it cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non-deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax - That will be going much beyond the obvious intention of the section - the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004 – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee.

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• 2014 (9) TMI 193
  Payments made to non-residents – Income accrue or arises - Accrual of income - Royalty" u/s.9(1)(vi) - Whether income to the non-resident can be said to have accrued or arisen in India and whether the income under the head "Income from Business" or "Fees for Technical services" u/s.9(1)(vii) of the Act as held by the CIT(A) or could it be classified under the head "Royalty" u/s.9(1)(vi) of the Act – Held that:- The payments made by the Assessee to the nonresident is not "Fees for Technical Services", the Assessee cannot avoid its obligation to deduct tax at source u/s.195 of the Act - payment made for use of shrink wrapped software or off the shelf software and access to database - the payment for purchase of shrink wrapped soft-ware was in the nature of royalty - payment is in the nature of "Royalty" - Decided against Revenue. Payments made to the non-resident on or before the last date of the previous year and nothing remained "Payable" the provisions of Sec.40(a)(i) of the Act applicable or not – Held that:- Since the assessee had not deducted tax at source on payments, the AO invoking the provisions of section 40(a)(ia) of the Act disallowed the claim of the assessee for deduction of the sum while computing income - as on the last date of the previous year relevant to AY 2005-06, the amounts due and payable to the sub-contractors had been paid and nothing remained payable and that provisions of Sec.40(a)(ia) of the Act cannot be invoked to make disallowance where the amounts do not remain payable but had been actually paid - There was no clear finding of the AO/CIT(A) nor material to show that the Assessee had in fact made payments on or before the last date of the previous year to the non-residents – thus, the matter is remitted back to the AO for consideration – Decided in favour of Assessee. Fee paid to specialists who maintain records of online consumers – Held that:- Following the decision in The Commissioner of Income Tax Versus M/s. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] - the consequence of disallowance u/s 36(1)(va) r.w.s. 2 (24)(x) of the Act, would be the business profit of the assessee would increase and exemption u/s 10A has to be allowed with reference to enhanced profits – Decided against Revenue. Deduction u/s 10A – Reduction of leased line expenses from turnover – Held that:- Following the decision in Commissioner of Income-tax Versus Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - whatever is excluded from export turnover should also be excluded from the total turnover - The fact that the revenue has not accepted the decision of the Hon'ble Karnataka High Court and has filed an SLP before the Hon'ble Supreme Court cannot be the basis not to follow the decision of the Hon'ble Karnataka High Court – Decided against Revenue. Employees contribution to provident fund not paid before the due date – Held that:- CIT(A) rightly was of the view that the amounts received by an assessee from employees towards PF contributions etc. shall be "income" and S. 36(1)(va) which provides that if such sums are contributed to the employees account in the relevant fund on or before the due date specified in the PF etc. legislation, the assessee shall be entitled to a deduction - the second Proviso to s. 43B (b) provided that any sum paid by the assessee as an employer by way of contribution to any provident fund etc. shall be allowed as a deduction only if paid on or before the due date specified in 36(1)(va) - after the omission of the second Proviso w.e.f 1.4.2004, the deduction is allowable under the first Proviso if the payment is made on or before the due date for furnishing the return of income – relying upon Commissioner of Income Tax Versus M/s. Alom Extrusions Limited [2009 (11) TMI 27 - SUPREME COURT] - the deletion of the second Proviso has been held to be with retrospective effect – Decided against Revenue.

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• 2014 (9) TMI 192
  Transfer pricing adjustment - Understatement of ALP of international transaction - Selection of comparables - Functionally different unit – Different business model – Held that:- The TPO observed that the functions performed by Vishal are similar to the assessee; that wages to cost ratio cannot be adopted to accept/reject the comparables; that the assessee has itself chosen Vishal in its TP study - The assessee objected before the DRP that execution of contracts was outsourced by the assessee to external vendors - the company does not perform comparable functions; that work in progress is significant part of operating cost clearly demonstrating that the company is following a very different model of business - The DRP's findings are that the company is rendering ITES services using its own assets and human resources (may not be on the roll of the company) and is functionally similar to the taxpayer; and that RPT more than 25% as corporate guarantee is not acceptable, as this transaction does not have effect on profit & loss - M/s Vishal Information Technologies Limited has a different business model than that of the assessee, as it outsources execution of contracts to external vendors to save cost on employees which is also evident from the fact that employee cost for Vishal is 3% to the total cost, whereas in case of assessee, it is 60% to the total cost - the assessee was involved in the business of Information Technology Enabled Services, and revenue sought to include M/s Vishal Information Technologies as comparable to compute the mean margin of the comparables, it was held by the ITAT that such comparable is functionally not comparable. Relying upon First Advantage Offshore Services (P.) Ltd. Versus Deputy Commissioner of Income-tax, Circle - 11(3), Bangalore [2012 (6) TMI 572 - ITAT BANGALORE] - in the case of an ITES company, employee cost should definitely be more than 25% of the total expenses as in the ITES segment, the entire work is to be done by the employees and companies whose employee cost is less than 25% must be excluded - since the employee cost/operating sales of M/s Vishal Information Technologies Ltd. is a mere 3%, whereas the threshold limit for acceptance as a comparable on the basis of employee cost to sales should be at least 25%, the same is liable to be excluded. Over 20% of operating costs of M/s Vishal Information Technologies Ltd. consist of 'Work in Progress' and such a significant part of operating costs being 'work in progress' clearly signifies that the company is following a very different operating model from that of the assessee – also in Dy. CIT v. Quark Systems (P.) Ltd. [2009 (10) TMI 591 - ITAT, CHANDIGARH] - while preparing the TP report by an oversight the business model of M/s Vishal was not properly taken into account and hence, merely because it is chosen by the assessee in its TP study, the same cannot be held to be comparable and the taxpayer is entitled to point out that the said enterprise has wrongly been taken as a comparable. Merely because M/s Vishal Information Technologies Ltd. has been selected as comparable in the transfer pricing study, this does not ipso facto establish that the same is an inappropriate comparable - even if the taxpayer or its counsel had taken Datamatics as comparable in its TP audit, the taxpayer is entitled to point out to the Tribunal that the above enterprise has wrongly been taken as a comparable, and as such, the assessee is entitled to contend that the aforesaid comparable is not comparable, as being functionally dissimilar. Revenue has not been able to refute the above position - finding the same to be perfectly reasonable, the exclusion of M/s Vishal Information Technologies Ltd. is directed as a comparable - the exclusion of M/s Vishal Information Technologies Ltd. from the set of comparables, brings the assessee within the prescribed range of +/- 5%, the merits of the comparability of the other comparables need not be gone into – Decided in favour of Assessee.

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• Customs

• 2014 (9) TMI 219
  Reduction in the value of entitlement for Advance Authorization - the petitioner, as contended, holding there status of a two star export house, was exempt from furnishing Bank Guarantees in respect of any scheme under the Foreign Trade Policy - It was further submitted that the petitioner was entitled to an Advance Authorization equivalent to 500% of the FOB and/or FOR value of the preceding year’s export. - Held that:- in terms of paragraph 4.7.1 of the Handbook of Procedures the correct value of Advance Authorization would be five times the export declared by the petitioner i.e. Rs. 38,83,52,050. Therefore, in so far as the impugned communication reflects the petitioner’s entitlement to be Rs. 38,83,52,050/-, the same cannot be faulted. - Decided against the assessee. The reference made by the learned counsel for the petitioner to Rule 8 of the Foreign Trade (Regulation) Rules, 1993 which provides for amendment of any licence to rectify any error or omission therein is misplaced. Admittedly, no such application for amendment of the Advance Authorization was made by the petitioner. The DGFT could also not be expected to sou moto make any amendment in the Advance Authorization which had been issued to the petitioner; the necessary figures of exports for making such amendment had also not been furnished by the petitioner along with its application. Given the scheme of the FT(D&R) Act, the Foreign Trade Policy and the role of DGFT, the Handbook of Procedures as notified by the DGFT is to specify the procedure for the purpose of carrying out the policy as formulated by the Central Government. Since the Foreign Trade Policy expressly provides that a status holder will have the privilege of exemption from providing a Bank Guarantee in respect of any scheme, the Handbook of Procedures - which is for providing the procedure in aid of the Foreign Trade Policy - cannot impose a condition which militates against the said Policy. - no need to furnish any bank guarantee - decided in favor of assessee.

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• 2014 (9) TMI 217
  Refund of excess duty - Petitioner exported iron ore 44,988 Dry Metric Tonnes, vide Shipping Bill No. 76/2008-09, dated 25-9-2008, and paid an amount of Rs. 2,91,18,483/- as export duty, provisionally as against Rs. 2,39,75,336/- actually payable. - Held that:- merely because an SLP has been filed before the Supreme Court against the order of the Tribunal, the respondents cannot withhold the money, which is otherwise determined as the entitlement of the petitioner. As observed by the Appellate Authority in Order-in-Appeal No. 07/2009(G) Cus., dated 12-8-2009, primarily it is the duty of the authorities to levy, charge and collect the appropriate duty as applicable. In this case it is a finding of the authorities to the effect that at the time of clearance of the goods, petitioner had paid an excess amount of duty provisionally, and the petitioner was entitled to refund such excess amount. Petitioner is entitled to the refund as claimed by him - Decided in favor of assessee.

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• Service Tax

• 2014 (9) TMI 218
  Levy of penalty where service tax and interest was deposited before passing of the order in original - manpower recruitment and supply of agency service - penalty under sections 77 and 78 - Held that:- the conduct of the appellant in paying the entire amount of service tax dues together with interest even before the order of adjudication was passed is a factor which must weigh in the balance. The fact that the service tax was deposited even before the order of adjudication was passed was taken note of by the Assistant Commissioner in the order dated 24 November 2011. In these circumstances, we are of the view that no case for the imposition of a penalty was made out. In the present case, the Tribunal in its impugned judgment and order decided the issue of taxability without entering into any specific finding in regard to whether the condition precedent for the imposition of a penalty had been established. We would have remanded the proceedings back to the Tribunal for a fresh consideration but in the present case we have noticed from the records that the quantum of the amount contemplated in the notice is only 74,675/- In the interest of bringing a finality to the matter and in order not to burden the Tribunal by directing a fresh consideration in regard to a matter involving a small amount, we have considered it appropriate, by consent, to consider the issue as to whether the imposition of a penalty was warranted. - penalty waived - decided in favor of assessee.

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• 2014 (9) TMI 216
  Works contract services - valuation - composition scheme - applicability of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 - Held that:- In the contracts there was a specific mention as to the value of the goods supplied. The quantum of consideration in respect of service is also mentioned. The case of the Revenue is that the applicants are paying service tax on the estimate value mentioned in the contracts. We find that before the adjudicating authority the applicants produced the actual data regarding the value of goods transferred in execution of the contract and the VAT paid in respect of all the contracts. The actual value of property of goods transferred in execution of the contract is the value adopted for purposes of payment of VAT and shall be taken as value of property in goods transferred in execution of the said work contracts for determination of value of service portion in the execution of the contract. In the present case, data in respect of actual value of property in goods transferred in execution of the work is available and produced before the adjudicating authority and the same has not been taken into consideration while confirming the demand. - matter requires reconsideration - matter remitted back - decided in favor of assessee.

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• 2014 (9) TMI 215
  Business auxiliary service and renting of immovable property service provided in Special Economic Zone (SEZ) - Notification :4/2004-ST dated 31.3.2004 - it is contended that, the services are in respect of development of Special Economic Zone (SEZ) project and are consumed within the SEZ hence the benefit of the Notification was wrongly denied - Revenue submitted that as the services were not consumed within the SEZ - Held that:- there is no authorisation by the developer in favour of the applicant. The authorisation is in favour of M/s. A2Z Online Services Pvt. Ltd. - the letter dated 26.12.2006 is not before the lower authorities. - prima facie we find it is not a case for total waiver of service tax - stay granted partly.

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• 2014 (9) TMI 214
  Levy of penalty u/s 78 - suppression of facts - Held that:- the appellant, undisputedly, provided "clearing and forwarding agent's service" to their clients during the period of dispute but did not file returns or pay service tax. They paid the tax only when investigations were launched by the Department. In his statement given under section 14 of the Central Excise Act, the manager of the appellant admitted tax liability and also admitted that they had not obtained registration with the Department in respect of the new premises to which they had shifted their business in July 2006. In such circumstances, there is no justification for opposing the penalties. In any case, the appellant has not sought the benefit of section 80 of the Finance Act, 1994 in this appeal. - payment of service tax prior to issue of show-cause notice is no ground to oppose the section 78 penalty - Decided against the assessee.

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• 2014 (9) TMI 213
  Simultaneous penalty u/s 76 and 78 - it is contended that the appellant is a small service provider and, therefore, leniency should have been shown on the appellant and penalty only under one of the section should have been imposed - Held that:- Since the period involved in the impugned case is prior to May 10, 2008, the penalties imposed on the appellant are sustainable. - However, appellant is liable to penalty under section 78 only to the extent of 25 per cent of the penalty imposed inasmuch as he has deposited 25 per cent of penalty along with service tax due and interest thereon within 30 days of the receipt of the order. There is merit in this argument. - Further The appellant's claim with regard to payment of penalty in excess what is permissible under section 76 needs to be verified at the end of the adjudicating authority. - Matter remitted back to adjudicating authority for verification of facts and determination of penalty - Decided partly in favor of assessee.

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• Central Excise

• 2014 (9) TMI 229
  Valuation - inclusion of portion of 50% of sales tax retained by the assessee in the value of excisable goods - nature of 50% sales tax - whether deferred tax or concession in tax - Whether the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) was right in holding that the High Powered Committee (HPC) constituted under the provisions of Rule 28-C of the Haryana General Sales Tax Rules 1975 (the Rules) had merely deferred payment of sales tax by the respondent/assessee and had not granted it any tax concession - Held that:- A bare reading of the entitlement certificate also does not give any indication of deferment of tax or capital subsidy. On the contrary, it only refers to a "tax concession" for the period from 1 st August, 2001 to 31st July, 2015 and the quantum of tax concession is mentioned as Rs. 564.35 crores. The entitlement certificate issued to the assessee is clearly in line with the decision of the HPC and also does not support the case of the assessee. There is nothing in the decision of the HPC or the entitlement certificate to indicate that 50% of the sales tax retained by the assessee on the sale of its vehicles was liable to be adjusted against any capital subsidy entitlement of the assessee. The circular brought to the notice of all concerned that in view of the amended Section 4 of the Excise Act, any amount actually paid or actually payable by way of excise, sales tax and other taxes shall be excluded from the transaction value. It was made clear that if tax is paid at a concessional rate, that amount may be deducted from the transaction value. But, where the tax is not paid at the time of the transaction, but is paid subsequently, as for example, sales tax payable under a deferment scheme, then too the benefit of exclusion would be allowed since the amount would be actually payable. There is no doubt that 50% of the sales tax collected was retained by the assessee and was not actually paid to the exchequer nor was it actually payable since the HPC permitted the assessee to retain that amount. Therefore, whichever way the issue is looked at, the fact remains that the assessee retained with it 50% of the sales tax collected from its customers and it was neither actually paid to the exchequer nor was it actually payable to the exchequer. That being the position, the transaction value was required to be calculated by including the amount of about Rs. 22.44 crores retained by the assessee. - Tribunal misdirected itself in law on several counts and erroneously decided the appeal in favour of the assessee and, therefore, the order of the Tribunal is set aside. - However, penalty is set aside - Decided partly in favour of Revenue.

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• 2014 (9) TMI 225
  Classification of goods - Classification under Entry 87.02.00 or under 87.03.00 - Held that:- Since two Benches of the same strength of Members have taken two conflicting views, we are of the opinion, that judicial discipline requires that instead of disagreeing with the view taken by the first Bench, the appropriate course for the second Bench would have been to refer the matter to a larger Bench. This is the basic requirement of judicial discipline. Since this has not been done, we set aside both orders and remand both the appeals back to the Tribunal and request its President to constitute a larger Bench of three Members to decide the issue whether the vehicles manufactured by the assessee falls under Entry 87.02.00 or 87.03.00 of the Act. Decided in favour of Revenue.

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• 2014 (9) TMI 224
  Denial of rebate claim - 100% EOU - Export initially sanctioned by the original authority - department contends that the petitioner, being a 100% EOU, was not required to export the goods on payment of duty in terms of absolute exemption provided under the notification No.24/2003-CE dt. 31/03/2003 and hence, the petitioner is not liable for rebate claims - Held that:- In view of notification No.24/2003-CE dt. 31/03/2003 and Sec. 5A(i) of the Act of 1944, the exempted goods manufactured by 100% EOU and cleared from export from whole of duty unconditionally. Therefore, in view of the provisions of sub-sec. (1A) of Sec. 5A, the petitioner/manufacturer was not liable to pay any duty. In our view, there is no condition for availing exemption from payment of duty of goods cleared for exports. The 100% EOU has to clear all the goods manufactured by them for exports as per the EOU scheme. Such units can clear the goods in DTA with prior permission of the Development Commissioner and since no prior permission of Commissioner was sought, therefore, the revisional authority has correctly come to this conclusion. Since there is no condition in the notification for availing exemption of goods manufactured by 100% EOU and cleared for export, the provision of sub-sec. (1A) of Sec. 5A(1), are applicable and no duty was required to be paid on such exported goods. Rebate claimed is not admissible in terms of Rule 18 of the Central Excise Rules, 2002 read with notification No.19/2004 -CE(NT) dated 06/09/2004 - Decided against assessee.

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• 2014 (9) TMI 223
  Condonation of delay - Inordinate delay of 898 days - interest under Section 11AB - penalty under Section 11AC - whether this Court can, in an appeal under Section 35G of the Central Excise Act, interfere with the judgment and order rejecting an application for condonation of delay on merits - Held that:- The application for condonation of delay filed before the learned Tribunal reveals that there is some explanation for the delay till March 8, 2012 when the order of the learned Tribunal was received by the appellant. According to the appellants, they were given the erroneous legal advice to await the outcome of the appeal from the Interim Order. While considering an application for condonation of delay, no strait jacket formula is prescribed to come to the conclusion if sufficient and good grounds had been made out or not. Each case has to be weighed from its own facts and the circumstances in which the party acts and behaves. From the conduct, behavior and attitude of the appellant, the Supreme Court found that it could not be said that the party had been callous and negligent in prosecuting the matter. We are required to deal with a reasoned order of the learned Tribunal taking into consideration all relevant facts. It is reiterated that, had we been entertaining a delayed application, we might have condoned the delay on the grounds given; but our interference is not warranted in view of the limited scope of an appeal under Section 35G of the Central Excise Act. - Following decision of Improvement Trust, Ludhiana v. Ujagar Singh [2010 (6) TMI 660 - SUPREME COURT] - Decided against assessee.

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• 2014 (9) TMI 222
  Penalty u/s 11AC - Clearance of rough castings to Rice Mill Division without payment of duty - Held that:- Under Section 11AC of the Act, it has been held by the Hon’ble Supreme Court in the case of Dharamendra Textile Processors and Others reported in [2008 (9) TMI 52 - SUPREME COURT] that it is mandatory and adjudicating authority has got no discretion to levy lesser penalty. There must be a factual finding rendered by stating that the act of the assessee attracts the conditions expressly contemplated under Section 11AC of the Act. From the reading of the order of the Tribunal, we could see no such finding of fact with regard to such an intention on the part of the assessee was rendered. Therefore, in the absence of any factual finding on that aspect, imposition of penalty cannot be sustained and therefore, the matter has to be remitted back to the Tribunal for rendering a factual finding as to whether there was any intention on the part of the assessee in not paying the duty in time. In fact the Tribunal had rejected the levy of penalty and interest only on the reason that assessee had paid the duty before issue of show cause notice. - Decided in favour of assessee.

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• 2014 (9) TMI 221
  Recovery of dues when appeal with stay application is pending before CESTAT - Classification of isolators - Classification under Chapter 85.35 or 85.38 - Held that:- The second appeal with the waiver-cum-stay petition filed by the petitioner before the second respondent. Tribunal is still pending consideration, as there was no continuous sitting of the Bench. In the meanwhile, the first respondent had passed the impugned order. It is the submission of the learned counsel for the petitioner that the first respondent has no right to pass the impugned order when the waiver-cum-stay petition is pending before the Tribunal and it may defeat the very object of the waiver petition. But, the petitioner having failed to comply with the condition of pre-deposit of Rs. 1,50,00,000/- imposed by the Commissioner (Appeals), it cannot find fault with the first respondent’s action in passing the impugned order. - It is settled law that when there is no stay of the proceedings, it is always open to the authorities to initiate appropriate recovery proceedings. However, the first respondent, in the light of the directions issued by this Court in Writ Petition No. 34350 of 2003, ought to have considered the case of the petitioner. During the course of arguments, it is reported that there is now regular sitting of the Bench and if the second respondent is directed to dispose of the waiver-cum-stay petition filed by the petitioner within a stipulated period, the entire grievance of the petitioner would be redressed. - CESTAT to hear the waiver-cum-stay petition filed by the petitioner and dispose of the same in accordance with law - recovery proceedings stayed.

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• 2014 (9) TMI 220
  Condonation of delay in filing appeal before commissioner (Appeals) - good case on merit - Denial of refund claim - Refund sanctioned at first instance - Later sanctioned refund declared errornoeus - Held that:- In the first round of litigation present petitioner was refunded the amount by way of order-in-original. The respondents have also not disputed the fact that the petitioner has extremely good case on merit. We also need to record the fact that the petitioner while challenging the order impugned before the Commissioner (Appeals) not only had preferred the application for condonation of delay, but, had also substantiated the same grounds with sufficient and acceptable grounds for condoning such delay and thus has explained sufficiently from the beginning such delay. It is a different aspect that appellate forums are bound by the law on the issue. Thus the total length of delay being very small and with extremely good ground on merit to sustain, we are of the opinion that non-interference at this stage would cause gross injustice to the petitioner. Therefore, we need to step in by invoking extraordinary jurisdiction. Such powers are required to be exercised very sparingly and in event of extraordinary circumstances in an appropriate case where otherwise we would fail in our duty that such powers are needed to be invoked. We are therefore, of the opinion that orders impugned and appellate forums dated 7-1-2011 and 18-12-2009 though not be interfered with and yet the impugned order of Order-in-Original dated 23-2-2009 requires to be quashed and set aside. Decided in favour of assessee.

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• CST, VAT & Sales Tax

• 2014 (9) TMI 231
  Penalty under section 78 (5) of the Rajasthan Sales Tax Act, 1994 - absence of declaration form ST18C with the goods in transit - contravention of Section 78(2) of the 1994 Act read with Rule 54 of the Rajasthan Sales Tax Rules, 1995 - Held that:- The Board has noted the fact that submission of declaration form ST18C along with the reply to show cause notice entailed compliance with the Section 78 (2) of the 1994 Act. In coming to this conclusion the Board relied upon the judgment of the Hon'ble Supreme Court in the case of State of Rajasthan Vs. D.P. Metals [2001 (10) TMI 881 - SUPREME COURT OF INDIA]. Mr. Ajay Kumar Meena, ACO appearing in person for the department is not in a position to show as to how the enunciation of the Hon'ble Supreme Court in the case D.P. Metals (supra) is not applicable to the facts of the case wherein the declaration form ST18C not in accompaniment of goods in transit at the time of checking was admittedly submitted along with the reply to show cause notice was found compliance with the Section 78(2) of the 1994 Act - The issue raised in this revision petition is fully covered by the judgment in the case of D.P. Metals (supra). No question of law—substantial or otherwise is made out. Decided against assessee.

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• 2014 (9) TMI 230
  Validity of order passed - single order passed for 4 assessment year - Held that:- It is a settled law that each assessment year is a distinct proceeding, independent from each other. Type of transaction may vary between one assessment year and another assessment year. In fact, before passing the impugned assessment order, a single inspection was conducted. Pre-assessment is said to be made from 2009 onwards. Hence, the petitioner is entitled for separate pre-assessment notice. Thereafter, the petitioner should be given opportunity to submit his reply. Thereafter, the matter should be adjudicated and separate orders have to be passed - Since the said procedure has not been followed, on this technical ground alone, the writ petition is allowed and the impugned assessment order is set aside and the matter is remanded to the respondent for fresh consideration - Decided in favour of assessee.

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• 2014 (9) TMI 228
  Levy of entertainment tax - Held that:- On a plain reading of section 3 of the Act, it is amply clear that the chargeable event is the admission to an entertainment. Thus, if in the case of individual owners of rides, each ride is considered as a separate entertainment, merely because the owner of all the rides is the same, the charging event would not change. The charge is on admission to an entertainment, thus if each ride constitutes an entertainment, the tax is to be levied accordingly. In the present case there is no dispute that the fee for each ride is less than rupees six. In a given case a person may opt for only one ride, in another a person may opt for any number of rides. Thus, entertainment tax cannot be levied in such a case on the basis of the number of persons who have entered the amusement park. Notification dated September 4, 1992 has been issued by the Government of Gujarat in exercise of powers under section 29(1) of the Act. By virtue of the said notification the classes of entertainment enumerated thereunder are exempted from payment of tax leviable under section 3 of the Act to the extent specified thereunder. - entertainment is in the nature of a ride, each of which is a separate entertainment and is operated by a machine operated by electricity, petrol, diesel or otherwise and admission to each ride is subject to payment of a sum not exceeding Rs. 6 per ticket, hence, the same would squarely fall within the ambit of item No. 3 of the above notification and would be fully exempt from payment of entertainment tax. Accordingly, considering the nature of entertainment provided by the petitioner, mere entry into the amusement park does not provide any kind of amusement to the visitor and, therefore, is not chargeable to entertainment tax. Under the circumstances, it is not permissible for the respondents to take into consideration the amount collected by way of entry fee for the purpose of assessment of entertainment tax under the provisions of the Act. Moreover, for the reasons stated hereinabove, it is not permissible for the respondents to club the price of tickets for each individual ride together for the purpose of computing the entitlement of the petitioner for availing of the benefit of the notification dated September 4, 1992 issued in exercise of powers under section 29(1) of the Act whereby entertainment is exempt from the purview of the Act if the admission rates for such entertainment does not exceed Rs. 6. Rides provided by the petitioner not being rides provided in water parks and holiday resorts are not exigible to entertainment tax. In this regard, it may be noted that the orders impugned in the present case pertain to the period January 17, 1997 to February 16, 1997. Schedule III came to be inserted in the Entertainment Tax Act, vide section 3 of the Gujarat Entertainments Tax (Amendment) Act, 1998 (Gujarat Act No. 8 of 1998) which was brought into force on 1st August, 1998. In the aforesaid premises the provisions of Schedule III not being applicable in respect of the period under consideration, the contention raised by the petitioner does not merit acceptance insofar as the facts of the present case are concerned. For the period after August 1, 1998 the petitioner may agitate the issue if it so deemed fit in an appropriate case. - Decided partly in favour of assessee.

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• 2014 (9) TMI 227
  Taxes on the "access charges" received by the petitioners from railway authorities - provisional attachment order - petitioners' liability to pay sales tax - Held that:- where the petitioners have approached this court when the sales tax authorities have merely issued a notice why a certain tax should not be collected. The petitioners have full liberty to produce all materials at their command and raise all legal contentions to canvas that they are not exigible to sales tax in view of the nature of the contract and execution of work done by them under such contract. The sales tax authorities are bound to take into consideration and take a view and only thereafter, would be able to frame any assessment even if ultimately the authorities rule against the petitioners. In such a case against the assessment first appeal would be available before the Departmental appellate authority and thereafter before the Sales Tax Tribunal. The Commissioner and the Tribunal also have revisional powers. When such elaborate machinery of appeals and revisions are provided under the Gujarat Sales Tax Act and its successor VAT Act, we are not inclined to examine these questions of complex factual and legal aspects in the present petition and thereby give a complete go-bye to such machinery under the Act. We have also noticed the statutory provisions contained in the Gujarat Sales Tax Act as well as the VAT Act which provide for such appeals and also for revision at the hands of the Commissioner either suo motu or on an application made by the aggrieved party. Under section 45 of the VAT Act, such order of attachment can have a maximum life of one year. Such period of one year has passed long back. In the meantime, there was no stay against the assessing authority from proceeding further with the assessment. This court in the interim order dated November 29, 2006 only prevented the authority from passing the final order without the permission of the court but permitted to proceed further with the assessment. No such permission was sought. It appears that the assessment is not yet undertaken in full earnest. No further hearing took place after the court's interim order. The court had stayed the attachment subject to the petitioners' depositing a sum of Rs. 1,92,00,000 before this court. It is stated that such amount was deposited. In the last part of the interim order dated November 29, 2006, the court had provided that if the petitioners receive any further access charges, they shall deposit the tax at the rate of 12.5 per cent on that amount with the registry of this court till further orders. The petitioners have been depositing such periodic amounts also. Attachment order cannot survive and it has in any case outlived its life well beyond the statutory period envisaged under section 45 of the VAT Act, such attachment order is therefore, quashed - Decided in favour of assessee.

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• 2014 (9) TMI 226
  Seizure of goods and books of accounts - Scope of Power — Seizure of goods upheld by judge on ground seized goods did not tally with invoices produced and hence not accounted for in books of account — Findings based on exhaustive examination of facts and legal provisions — Held that:- The ambit of this jurisdiction dominantly is presided over by the two grounds enumerated in Order 47, rule 1 of the Code, i.e., (i) discovery of new and important matter or evidence which after the exercise of due diligence was not within the applicant's knowledge or could not be produced by him at the time when the decision was made, and (ii) mistake or error apparent on the face of the record. The expression "sufficient reason" as a matter of universal rule even if not insisted upon to be analogous to these two legally codified precepts of review, a perceptible nexus ought to exist and unbridled divagation therefrom is the prepotent precedential mandate. A mistake or error apparent necessarily has to be one which is patent on the face of the record and does not warrant a detailed and exhaustive examination/scrutiny of the facts and the law involved to fathom and ferret out the same. A decision erroneous in law or on the ground that a different view of the same court was plausible is not envisaged within the legally recognized tenets of review jurisdiction and no re-hearing for correcting such a decision is permissible. The carefully secured distinction between these two cardinal jurisdictions is, amongst others, the time-tested endeavour to safeguard against the possibility of the same forum exercising appellate jurisdiction over its own determination—a concept anathemic to the notion of fairplay and justice—the quintessence of the rule of law. Grounds of seizure of the goods revealed that those were allegedly not matching with the invoices produced was also taken note of. Inferring that the allegations as made in the seizure lists are correct, it was held, inter alia, that as the seized goods were found not tallying with the invoices produced, those could not be said to have been accounted for in the books of accounts, registers and other documents of the respondent-company as contemplated under section 74(5)(a) (ii) of the Act. It, thus, concluded that the conditions precedent for the exercise of power under this provision of the Act did exist and, thus, the seizure of the goods could not be repudiated to be without jurisdiction or authority of law. Decision rendered by way of review of the original judgment in Dhanani Shoes Ltd. v. State of Assam [2008 (4) TMI 687 - GAUHATI HIGH COURT] cannot be sustained in law and on facts. The impugned notice dated April 16, 2008 though mentions that the decision in Dhanani Shoes Ltd. v. State of Assam [2008 (4) TMI 687 - GAUHATI HIGH COURT] had been taken note of in issuing the same, we are of the view that the respondent-company ought to avail of its remedies under the law vis-a-vis the same. Having reversed the judgment in Dhanani Shoes Ltd. v. State of Assam [2008 (7) TMI 869 - GAUHATI HIGH COURT] whereby this notice too had been annulled on the limited considerations recited hereinabove, we consider it expedient not to offer any comment on the merit of the challenge to the notice dated April 16, 2008 and leave the parties to exhaust their remedies otherwise available in law. - Decided in favour of Revenue.

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