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Showing 321 to 340 of 686 Records
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2009 (6) TMI 706
Issues:
1. Stay of operation of the impugned order dated 17-7-2008.
2. Dispensation of the requirement of pre-deposit of the entire duty, interest, and penalty amount.
3. Inclusion of value of bought-out-items in the assessable value of electrical centrifuges.
4. Prima facie case for total waiver of demand of duty.
5. Quantum of the amount to be deposited pending final disposal of the appeal.
Analysis:
1. The appellants sought a stay of the operation of the impugned order dated 17-7-2008 and dispensation of the requirement of pre-deposit of the entire duty, interest, and penalty amount. The Tribunal considered a previous matter between the same parties where a stay was granted subject to a deposit of one-fourth of the duty demanded. The Tribunal directed the appellants to deposit 50% of the duty demanded under the impugned order, staying the rest of the amount until final disposal of the appeal. Compliance was required within six weeks.
2. The issue revolved around the inclusion of the value of bought-out-items such as electric motors and control panels in the assessable value of electrical centrifuges manufactured and cleared by the appellants. The Tribunal noted that the bought-out-items were deemed essential for the electrical centrifuges manufactured by the appellants based on confirmations from the Chief Design Engineer and the appellants themselves. The Tribunal found that the appellants had failed to establish a prima facie case for a total waiver of the duty demanded.
3. The Tribunal referenced a previous order where it was established that the bought-out-items were integral to the functioning of the electrical centrifuges. The Tribunal rejected the contention that the appellants did not need to include the value of these items in the assessable value. Despite the appellants' argument for a similar criteria for deposit as in the previous case, the Tribunal did not find a prima facie case for a total waiver of the duty demanded in the current matter.
4. The Tribunal considered the stand of the respondent and directed the appellants to deposit 50% of the duty demanded under the impugned order, with the remaining amount stayed until final disposal of the appeal. The Tribunal emphasized that the earlier decision regarding the deposit amount was not challenged by the department. The appellants were given six weeks to comply, with a reporting deadline set for confirmation of compliance on 22-7-2009. The application for stay was thus disposed of.
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2009 (6) TMI 705
Issues:
1. Interpretation of the term "export" in the context of clearances to SEZ unit.
2. Applicability of Central Excise Act and rules to SEZ units.
3. Refund of accumulated Cenvat Credit for supplies to SEZ.
4. Compliance with conditions for refund under Rule 5 of Cenvat Credit Rules.
5. Justification for staying the operation of the impugned Orders.
Analysis:
1. The judgment deals with the interpretation of the term "export" concerning clearances to SEZ units. It highlights the definitions provided in the Customs Act, 1962, and the SEZ Act, 2005. The Tribunal notes that the Central Excise Act, 1944, and its rules do not specifically address refund provisions for accumulated credit in such scenarios. The Tribunal concludes that the Boards' Circular lacks legal sanctity and cannot override the provisions of the Central Excise Act, 1944, or its rules.
2. Regarding the applicability of the Central Excise Act and rules to SEZ units, the Tribunal observes that Rule 5 of the Cenvat Credit Rules, 2004, allows for the refund of Cenvat Credit when the final product is exported out of the country. However, in the case at hand, where pre-fabricated steel building structures are supplied to the SEZ for construction within the country, the purpose of Rule 5 is not fulfilled. The Tribunal suggests that suitable amendments to Rule 5 may be necessary to cater to supplies made to SEZ units.
3. The judgment delves into the issue of refunding accumulated Cenvat Credit for supplies to SEZ units. It references Notification No. 5/2006-C.E. (N.T.), dated 14-3-2006, which lays down conditions and limitations for such refunds. The Tribunal notes that the fulfillment of these conditions in the case under consideration is not clearly established. The lack of evidence regarding the impossibility of adjusting the accumulated credit is highlighted as a crucial factor for considering cash refunds.
4. In analyzing the compliance with conditions for refund under Rule 5 of the Cenvat Credit Rules, the Tribunal points out that the Assistant Commissioner's order questioned the lack of evidence regarding the impossibility of credit adjustment. The Commissioner (Appeals) made a general observation about compliance but did not specifically address how all conditions and limitations under the relevant notification were met. This lack of detailed findings is noted by the Tribunal.
5. Lastly, the judgment addresses the justification for staying the operation of the impugned Orders passed by the Commissioner (Appeals). The Tribunal acknowledges the Revenue's strong case for a stay and consequently allows the stay petitions filed by the Revenue. This decision is made to maintain the status quo until further proceedings.
In conclusion, the judgment provides a detailed analysis of the issues related to the interpretation of legal provisions concerning exports to SEZ units, refund of accumulated Cenvat Credit, and compliance with relevant rules and notifications. The decision to stay the operation of the impugned Orders reflects a cautious approach pending further legal considerations.
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2009 (6) TMI 704
Issues:
Stay petition seeking waiver of pre-deposit and penalties for availing Cenvat credit on glass bottles and plastic crates, demands for non-payment of duty, procedural irregularities, financial hardship, and revenue neutrality.
Analysis:
1. The Company filed a Stay Petition seeking waiver of pre-deposit of credit and penalties imposed. The Counsel argued that the Company, with bottling plants nationwide, availed Cenvat Credit on duty paid for new glass bottles and plastic crates, which were later used and returned between units. The Department demanded duty payment or credit reversal on used bottles and crates, leading to the Company adopting a duty payment policy. The Counsel cited revenue neutrality and eligibility of credit recipients in support. The Counsel also argued against time-barred demands, procedural irregularities, and financial hardship.
2. The Joint CDR countered, emphasizing the need for credit reversal as per Cenvat Credit Rules, highlighting the Company's admission of not availing credit on returned bottles. The Joint CDR argued against the "as such" removal of re-used bottles and crates, citing the Company's record-keeping capabilities. The Commissioner's decision was supported with references to Tribunal rulings and the Company's issuance of duplicate invoices. The financial impact on the Company was also questioned.
3. After hearing both sides, the Tribunal deferred the examination of duty payment correctness to the final hearing. The issue's pendency in other units' cases was noted. The Tribunal considered the revenue neutrality argument and the undue hardship if the Company paid duty again. The Tribunal found merit in the argument against disallowing credit due to procedural breaches and left open the Rule 3(4) conditions examination for the final hearing.
4. The Tribunal acknowledged the lack of suppression or misstatement based on audits and unrebutted evidence. A prima facie case was found for total waiver of demanded duties and penalties. The pre-deposit and recovery of duties and penalties were stayed pending appeal disposal. All issues were left open for final hearing consideration.
5. The judgment was pronounced on 23-6-2009, with a strong prima facie case established for the waiver of duties and penalties. The Tribunal maintained an open stance on all issues for the final hearing.
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2009 (6) TMI 703
Issues:
1. Refund of fine and penalty declined on the ground of unjust enrichment.
2. Applicability of unjust enrichment to a claim for refund of fine or penalty.
3. Crediting the amount to the consumer welfare fund.
4. Burden of proof on passing on the incidence of duty.
5. Presumption against passing on personal penalty.
6. Comparison with cited case law and burden of proof.
Analysis:
1. The lower authorities declined the cash refund of Rs. 1,65,000 to the appellant, citing unjust enrichment. The appellant claimed the refund based on a Commissioner (Appeals) order, contending they suffered a significant loss without passing on the duty incidence. The appellant argued against the application of unjust enrichment in this case, referencing Tribunal decisions.
2. The learned DR argued that unjust enrichment applies to refund claims of fine or penalty, citing Supreme Court decisions. The DR presented the company's profit and loss account, indicating the expenses of redemption fine and penalty were likely included in product costing, potentially passing on the duty incidence to buyers.
3. The Tribunal considered the submissions and noted the appellant did not contest the applicability of unjust enrichment to fine or penalty refunds. The appellant resisted crediting the amount to the consumer welfare fund, asserting the excess fine or penalty was not transferred to others. The Tribunal analyzed the profit and loss account, highlighting the expenses and income, suggesting a possibility of passing on some expenses to buyers.
4. The Tribunal emphasized the burden on the appellant to demonstrate that the burden of fine and penalty was not shifted to buyers. Additionally, a presumption against passing on personal penalties to others was noted, as it contradicts criminal jurisprudence principles. The Tribunal reviewed cited case law and found the current case factually distinct, emphasizing the burden of proof on the appellant.
5. Ultimately, the Tribunal upheld the impugned order, dismissing the appeal. The judgment highlighted the burden on the appellant to prove non-passing of fine and penalty burdens, considering the financial records and legal principles. The decision was pronounced in court, concluding the matter.
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2009 (6) TMI 702
Issues involved: Interpretation of Customs House Agents Licensing Regulations, 2004 regarding liability of Customs House Agent (CHA) and Managing Director, imposition of penalty on firm and its partners, applicability of precedents from various High Courts and Tribunals.
Interpretation of Customs House Agents Licensing Regulations, 2004:
The advocate for the applicants argued that the impugned order lacked material linking the CHA and its Managing Director to the overvaluation of goods by the exporter. He cited a Tribunal order and a High Court decision to support the contention that penalty on the partnership firm precludes separate penalty on partners. In response, the DR for the respondents referenced the Regulations and Customs Act, emphasizing the obligations of the CHA and the liability of the firm and its partner, citing relevant case law.
Contradictory Judgments and Request for Adjournment:
The advocate for the appellants mentioned conflicting judgments to the one relied upon by the DR, seeking time to review the Delhi High Court decision. The request for adjournment was denied, stating that lack of awareness of cited judgments is not a valid ground for delay.
Liability of Principal and Agent under Customs Act, 1962:
The provisions of Section 147 of the Customs Act, 1962 were discussed to establish the liability of the principal and agent, emphasizing that actions by an agent are deemed to be with the knowledge and consent of the principal unless proven otherwise.
Precedents and Imposition of Penalty:
The Delhi High Court ruling clarified that a CHA can be penalized for misdeclaration, even if not explicitly mentioned in the Regulations. The judgment highlighted the responsibility of the CHA and its employee in cases of misconduct. Additionally, the Bombay High Court and Kerala High Court decisions were referenced regarding penalties on firms and partners, with emphasis on the binding nature of High Court decisions over Tribunal rulings.
Decision and Disposal of Applications:
The Tribunal found no merit in the applicants' contentions regarding separate penalties on the firm and its partners. While waiver for partner penalties was considered, no prima facie case was established for waiving the firm's deposit amount. Financial hardship due to license suspension was deemed insufficient for discretion under the Customs Act, leading to the directive for the firm to deposit the amount within 12 weeks.
Compliance Report:
A compliance report was scheduled for 9-9-2009 to monitor adherence to the Tribunal's directives.
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2009 (6) TMI 701
Issues involved: Interpretation of Central Excise duty exemption notification u/s Notification No. 6/2006, imposition of penalty, demand of duty amount.
Interpretation of Central Excise duty exemption notification: The appellants claimed exemption u/s Notification No. 6/2006 for pipes manufactured by them. Authorities denied exemption based on investigation revealing water usage details. The exemption clause mentions water treatment plant for human and animal consumption, excluding industrial use. The appellants argued that the word "plant" in the explanation clause does not exclude clause 3 of Sr. No. 7 of the notification. They also cited a similar exemption u/s Notification No. 3/2004 for pipes used for industrial purposes. Tribunal found no error in demanding duty but allowed partial waiver of penalty due to interpretation dispute.
Imposition of penalty: The adjudicating authority confirmed a demand of Central Excise duty along with penalties against the companies and a partner. The appellants disputed the interpretation of exemption provisions, leading to a partial waiver of the penalty amount imposed. The Tribunal directed the duty amount to be deposited within 12 weeks.
Demand of duty amount: The adjudicating authority confirmed a demand of Central Excise duty against the appellants. The Tribunal directed the duty amount to be deposited within 12 weeks and compliance to be reported by a specified date. In a separate appeal, the appellants were instructed to produce necessary permission from the Committee on Disputes. The applications were disposed of accordingly.
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2009 (6) TMI 700
The Appellate Tribunal CESTAT, Chennai heard an appeal regarding the confiscation of fresh garlic of Chinese origin imported by the appellants. The declared value was enhanced, but the Tribunal set aside the enhancement and upheld the confiscation under Customs Act, reducing the fine to Rs. 4,50,000 and the penalty to Rs. 50,000. The appeal was partly allowed.
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2009 (6) TMI 699
The Appellate Tribunal CESTAT, Mumbai modified the impugned order to reduce the uploading of 25% to 10% based on the discount offered by the supplier. The transaction value can be enhanced by 10% pending appeal, with verification of the declared value. The application for stay was disposed of accordingly.
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2009 (6) TMI 698
The Appellate Tribunal CESTAT, Mumbai heard two applications together and found that the clubbing of licenses and export obligation fulfillment were not properly considered. The tribunal granted waiver of the demanded amount pending appeal, as pre-deposit would cause undue hardship to the applicants and not prejudice the Revenue's interest. Pre-deposit requirement was waived, and the appeals will be listed for final hearing in due course.
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2009 (6) TMI 697
Issues:
Appeal against demand of interest on differential duty and imposition of penalty.
Analysis:
The appeal involved a case where the assessee had cleared excisable products to manufacturers of motor vehicles during a specific period, paying duty based on the agreed price with buyers. The buyers later issued purchase order amendments for an enhanced price, resulting in the assessee issuing supplementary invoices to recover the differential amount and pay the differential duty to the exchequer. The department issued a show-cause notice seeking interest under Section 11AB of the Act and a penalty under Section 11AC. The original authority confirmed the demand of differential duty, interest, and imposed a penalty. The Commissioner (Appeals) upheld this decision, leading to the current appeal.
The challenge in the appeal was against the demand of interest on the differential duty and the imposition of a penalty. The consultant for the assessee argued that interest was not payable under Section 11AB of the Central Excise Act based on High Courts' decisions and a Tribunal's ruling in favor of the assessee. The Tribunal had settled the issue, leading to the demand of interest being set aside. As the assessee promptly paid the differential duty upon receiving the enhanced price from buyers without any delay, there was no suppression of facts to evade payment. The allegation of suppression was deemed baseless, resulting in the penalty being vacated. Consequently, the impugned order was set aside concerning the demand of interest and penalty, and the appeal was allowed.
In conclusion, the judgment favored the assessee by setting aside the demand of interest and penalty, emphasizing the prompt payment of differential duty and the absence of any intent to evade payment.
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2009 (6) TMI 696
Rate of redemption fine and penalty - Import of second hand photocopiers without obtaining licence - violation of the ITC regulation and the EXIM policy – Held that:- Value as declared by the respondents was not accepted and it was refixed based on the Chartered Engineer’s certificate, which was no doubt higher than the value as declared by the respondent - quantum should depend on the totality of the facts and circumstances of each case and that bona fide action of assessee by itself cannot entitle him to claim full waiver of fine - power of discretion by the authority is to be exercised based on well founded principles and should not be done in a mechanical way - rate at which the redemption fine is imposed in similar cases has been taken note of only for the limited purpose of maintaining consistency - this is not a case where the rate is applied uniformly in a mechanical way; but similar rate of redemption fine was adopted for parity of reasons
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2009 (6) TMI 695
Issues Involved:
1. Nature of receipt of interest income: whether it is business income or income from other sources.
2. Legitimacy of invoking provisions u/s 147/148.
3. Classification of various receipts as business income or income from other sources.
4. Assessment of income from lease rentals.
5. Disallowance of expenditure incurred under various heads.
Summary:
Issue 1: Nature of Receipt of Interest Income
The primary issue was whether the interest income received by the assessee should be classified as business income or income from other sources. The assessee argued that the interest income should be treated as business income, citing various judgments including CIT v. Tamil Nadu Dairy Development Corp. Ltd. [1995] 216 ITR 535 (Mad.) and CIT v. Tirupati Woollen Mills Ltd. [1992] 193 ITR 252 (Cal.). The Tribunal concluded that since the sale proceeds of the divisions were invested in power sector companies or term deposits as per the modified objects in the memorandum of association, the interest income generated therefrom should be treated as business income.
Issue 2: Legitimacy of Invoking Provisions u/s 147/148
The assessee challenged the reopening of the assessment u/s 147/148, arguing there was no escapement of income. The Tribunal noted that the original assessment was framed u/s 143(3) and the reassessment was initiated due to non-consideration of the provision for bad debts. The Tribunal did not find merit in the assessee's challenge and upheld the reopening.
Issue 3: Classification of Various Receipts
The Tribunal examined whether various receipts such as duty drawback, refund of excess electricity charges, and provisions no longer required should be classified as business income or income from other sources. The Tribunal held that these receipts have a direct nexus with the business activities of the assessee and should be treated as business income. However, for miscellaneous receipts of Rs. 87,700, due to lack of details, the Tribunal could not determine their nature.
Issue 4: Assessment of Income from Lease Rentals
The Tribunal did not specifically address the issue of lease rentals in the summary provided, but it can be inferred that the lease rental income was considered in the context of overall business income.
Issue 5: Disallowance of Expenditure
The Tribunal directed the Assessing Officer to allow the set-off of brought forward business losses against the business income, including the interest income and other receipts classified as business income.
Conclusion:
The Tribunal allowed the appeal of the assessee in ITA No. 502/Vizag/2005, treating the interest income as business income and directing the set-off of brought forward losses. In ITA No. 121/Vizag/2007, the appeal was partly allowed, affirming the classification of certain receipts as business income and allowing the set-off of brought forward losses.
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2009 (6) TMI 694
Issues:
1. Whether the assessee trust is entitled to accumulation of income under section 11(2) of the Act.
2. Whether the purposes mentioned in Form No. 10 for accumulation of surplus amount were specific.
Analysis:
Issue 1:
The revenue appealed against the order of the learned CIT(A)-V, Bangalore, for the assessment year 2005-06, raising concerns about the charitable activities of the assessee trust. The revenue argued that since only a small amount was spent on charitable activities out of the total collection, accumulation under section 11(2) without specific purposes should not be allowed. The Assessing Officer rejected the claim for exemption under section 11, treating the unspent amount as income from other sources. The CIT(A) disagreed with the Assessing Officer, citing relevant case laws and observing that all conditions for accumulation were fulfilled, and the trust's objects were for charitable purposes. The CIT(A) concluded that the assessee trust was entitled to accumulation under section 11(2) of the Act.
Issue 2:
The crux of the issue revolved around whether the purposes mentioned in Form No. 10 for accumulation of surplus amount were specific. The revenue contended that the purposes listed were a reproduction of the trust deed objects and not specific, citing a case from the Hon'ble Calcutta High Court. However, the learned Authorised Representative argued that the trust's objects were clear, and the accumulation was for legitimate charitable activities. The CIT(A) analyzed the trust's objects and Form No. 10, finding that the purposes specified were within the trust's objectives. Relevant case laws were cited to support the argument that specificity beyond the trust's objects was not necessary for accumulation under section 11(2). Ultimately, the Tribunal confirmed the CIT(A)'s decision, dismissing the revenue's appeal.
In conclusion, the Appellate Tribunal upheld the decision that the assessee trust was entitled to accumulate income under section 11(2) of the Act, and the purposes mentioned in Form No. 10 were considered specific within the trust's charitable objectives. The Tribunal's ruling favored the assessee trust, dismissing the revenue's appeal.
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2009 (6) TMI 693
Deduction on account of salaries paid to expatriates - payment of salaries was made to them by the Head office outside India - AO was of opinion that provisions of section 44C were applicable as the said expenditure was incurred by the Head office situated outside India. He, therefore, disallowed this amount and allowed deduction u/s 44C - CIT(A), relying on his own order passed in assessee’s own case for AY 1998-99, concurred with the submissions advanced on behalf of the assessee and deleted the remaining amount of addition.
HELD THAT:- The expenditure covered in this section is that of a common nature the benefit from which is derived both by the Head office and branch. If a particular expenditure is incurred by the head office exclusively for branch in India, that cannot be covered within the purview of section 44C. The Hon’ble jurisdictional High Court in the case of CIT v. Emirates Commercial Bank Ltd.[2003 (4) TMI 2 - BOMBAY HIGH COURT] has laid down to this extent. The Tribunal in assessee’s own case for assessment year 1998-99, has upheld the order of the CIT(A) and deleted the partial disallowance made by the AO. The copy of the said Tribunal order is placed on record.
Respectfully following the precedent we uphold the impugned order on this issue. Similar grounds raised by the revenue in its appeals for assessment years 1999-2000, 2000-01, 2001-02, 2002-03 and 2003-04 are dismissed, the facts of which are mutatis mutandis alike.
Loss on sale of securities - ‘Business loss’ or 'Capital loss' - payment of salaries was made to them by the Head office outside India and buying and selling of securities was a normal business activity of a banking company and the current investments were nothing but ‘stock-in-trade’ - AO noted that since the assessee had itself shown the securities as "current investments", then any income/loss from investment was to be dealt with under the head "Capital gains’. Thus, he treated the said sum as capital loss and did not grant deduction as claimed by the assessee as business loss. The ld. CIT(A) allowed deduction.
HELD THAT:- A certificate from Chartered Accountant certifying that the securities sold by the assessee were under "current investment" category has been given to the lower authorities. When it is so the securities in the nature of current investments automatically become the stock-in-trade of the assessee and not investment. It is a settled legal position that the nomenclature given by the parties to a particular transaction is not material to decide its character. Rather it is the true nature of the transaction, which matters.
Whereas any profit or loss from the sale of ‘Investment’ is taxed under the head ‘Capital gain’, such profit or loss from the sale of ‘stock-in-trade’ is considered under the head ‘Profits and gains of business or profession’. The instant loss arising from the sale of stock-in-trade referred to as ‘current investments’, in our considered opinion has been rightly held by the ld. CIT(A) to be a business loss. Accordingly, this ground is not accepted.
Broken period interest - purchase of two Government securities - whether the broken period interest should be allowed as revenue expenditure in the year of purchase of securities or be considered as part of the purchase price - AO as relying on VIJAYA BANK [1990 (9) TMI 5 - SUPREME COURT] held that such broken period interest was not deductible. CIT(A) ordered for the deletion of addition.
HELD THAT:- The Hon’ble Supreme Court noted the judgment of the Hon’ble Bombay High Court in the case of American Express International Banking Corpn.[2002 (9) TMI 96 - BOMBAY HIGH COURT] and thereafter held that view taken by the Hon’ble Bombay High Court was correct inasmuch as the judgment in the case of Vijaya Bank Ltd.[1990 (9) TMI 5 - SUPREME COURT] was distinguishable and, hence, not applicable. In the ultimate analysis, the decision has been given in assessee’s favour.
In view of the foregoing discussion, it is patent that the judgment of the Hon’ble Bombay High Court, relied on by the learned CIT(A) for granting relief to the assessee, stands affirmed by the Hon’ble Supreme Court in the case of Citi Bank N.A.[2008 (8) TMI 766 - SUPREME COURT]. We, therefore, approve the view taken by the learned CIT(A) and dismiss this ground of appeal.
Revaluation of one part of the closing stock, i.e., securities of the assessee assessee debited a sum to its Profit & Loss Account on account of loss arising to it on the revaluation of current investments, i.e., securities - CIT(A) deleted the addition by noting that the assessee was following "cost or market price, whichever is less" method for valuing its stock-in-trade. He further considered certain norms issued by the Reserve Bank of India on valuation and classification of investments vide Circular No. BP.BC.129/21-04-043-92.
HELD THAT:- The method of ‘cost or market price, whichever is less’ is one of the recognized methods for the valuation of the closing stock as having got the seal of approval from case of Chainrup Sampatram [1953 (10) TMI 2 - SUPREME COURT] - Under this method if the market price is higher than the cost price, then the cost price is to be considered for valuing the closing stock. But if the cost is more than the market price, then that item of stock has to be valued at the market price.
We find that the assessee has valued its closing stock scrip-wise by following this method as per which the appreciation in the value due to the higher market value has been ignored but the depreciation in the value of the other items of stock has been reflected. As the amount represents the excess of market price over the cost price in respect of certain scrips and further going by the method of valuation adopted by the assessee as ‘cost or market price whichever is less’, the same in our considered opinion cannot be added to the total income. We, therefore, uphold the impugned order on this count.
This ground fails. Similar grounds raised by the revenue in assessment years 2001-02, 2002-03 and 2003-04 are also liable to be and are hereby dismissed.
Addition in respect of guarantee commission - principle of accrual of income - reason in support of not declaring such income was stated to be the assessee following mercantile system of accounting and, hence, the recognizing the guarantee commission as income on accrual basis - As per AO amount of commission was received as income which accrued at the time the bank issued guarantee and the period for which the guarantee was given had nothing to do with the assessee’s right to receive the income in this year.
HELD THAT:- When the bank gives guarantee for period extending the close of the year and there is no obligation to refund the amount in case such guarantee is revoked prior to the prescribed period, the entire commission accrues to it at the time of giving guarantee and no part of such commission can be said to be deferred to next year.
However, if there is some clause in the agreement between the bank and the customer that in case the guarantee is revoked prior to the prescribed period, then the bank shall be liable to refund the proportionate commission for the unexpired period, then the situation will be different. In such a case, the right to income will accrue only proportionately for the period covered in the year. It is for the clear reason that even if the amount of commission is received in advance but the receipt cannot be said to have assumed the character of income because the accrual is dependent on the period for which the guarantee continues.
The accrual of the amount of commission relatable to the period beyond the close of the year in such a situation will be solely dependent on the fact that whether the guarantee continues or not. Thus, in the contingency of the customer revoking the guarantee, the amount earlier received will require refund.
Thus, we find that no material has been placed before us to demonstrate that there was any clause in the agreement or there was some other material obliging the bank to refund the part of the guarantee commission in case it is earlier revoked.
There is no reference to any facts of the case as to whether or not there was any obligation of the bank to refund the money in case the guarantee was revoked prior to the guarantee period. Further, the Bench did not touch on the aspect of that assessee having made any refund as was the position in the case of Bank of Tokyo Ltd. [1993 (5) TMI 172 - CALCUTTA HIGH COURT] We have already noted that the facts of the instant case are distinguishable from those before the Hon’ble Supreme Court in Madras Industrial Investment Corpn. Ltd.’s case [1997 (4) TMI 5 - SUPREME COURT] and in Bank of Tokyo Ltd.’s case (supra). Thus, no assistance can be taken by the assessee from the case of State Bank of India, Banking Operations Department (supra).
To sum up we hold that CIT(A) was not justified in deleting this addition in assessment year 2002-03. We restore the addition made by the AO on this score and for the assessment year 2003-04, the view taken by the ld. CIT(A) is upheld. Thus, ground raised by the revenue in assessment year 2002-03 is allowed and that of the assessee in assessment year 2003-04 is dismissed.
Addition of upfront guarantee commission - HELD THAT:- In principle we are agreeable with the contention raised on behalf of the assessee for the reason that the appeals for both the years are open before us. When we are holding that Rs. 40.80 lakhs is taxable in assessment year 2002‑03 on account of guarantee commission, then naturally the same amount will require exclusion, if already included in the income for assessment year 2003-04.
Since the necessary details are not available on record, we direct the AO to verify this fact from the assessment records. If it is found that the amount of Rs. 40,80,147 added by the AO in the total income for assessment year 2002-03 has also been reflected by the assessee in its income for assessment year 2003-04 in full or in part, then such portion may be excluded from the income for assessment year 2003-04. Needless to say the assessee will be allowed a reasonable opportunity of being heard.
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2009 (6) TMI 692
Issues Involved:
1. Rejection of the application for renewal of recognition under section 80G(5)(vi) of the Income-tax Act.
2. Determination of whether the activities of the trust constitute "charitable purpose" under section 2(15) of the Income-tax Act.
3. Examination of whether the payment of royalty to the founder chairman/trustee contravenes section 13(1)(c) of the Income-tax Act.
Issue-wise Detailed Analysis:
1. Rejection of the Application for Renewal of Recognition under Section 80G(5)(vi):
The Director of Income-tax (Exemptions) rejected the trust's application for renewal of recognition under section 80G(5)(vi) on the grounds that the activities of the trust involved commercial activities such as publishing and selling books, cassettes, and VCDs, and holding sessions for corporate sectors. The Director relied on the amendment to section 2(15) of the Income-tax Act, effective from 1-4-2009, which expanded the definition of "charitable purpose" to exclude activities involving trade, commerce, or business.
2. Determination of Whether the Activities of the Trust Constitute "Charitable Purpose":
The trust argued that its activities fell under "education" and "relief to the poor," which are recognized as charitable purposes under section 2(15). The trust emphasized its social services, including education for orphans and destitute girls, financial support for needy children, and training individuals in Vedanta and philosophy. The trust also cited the Supreme Court's decision in Sole Trustee, Loka Shikshana Trust v. CIT, which held that "education" in section 2(15) refers to systematic instruction and training, not merely the acquisition of knowledge. The trust's counsel argued that the activities of printing and publishing books, and selling cassettes and VCDs, were incidental to its educational purpose and did not constitute commercial activities.
The trust's counsel also referred to the Board's Circular No. 11/2008, which clarified that the proviso to section 2(15) does not apply to trusts engaged in education, medical relief, or relief to the poor, even if they carry on incidental commercial activities. The Tribunal found merit in this argument and held that the rejection of the application by the Director of Income-tax (Exemptions) was not justified.
3. Examination of Whether the Payment of Royalty Contravenes Section 13(1)(c):
The Director of Income-tax (Exemptions) also rejected the application on the grounds that the payment of royalty to Sri Swami Sukhbodhananda, the founder chairman and trustee of the trust, contravened section 13(1)(c) of the Income-tax Act. The trust argued that the royalty payments were reasonable and in line with industry standards, citing an agreement with Jaico Publishing House, which paid a higher royalty rate to the founder. The Tribunal agreed with the trust's argument, noting that the payment was made by a third party (Jaico Publishing House) and not directly by the trust. Therefore, the payment did not contravene section 13(1)(c).
Conclusion:
The Tribunal concluded that the rejection of the trust's application for renewal of recognition under section 80G was unjustified. The Tribunal directed the Director of Income-tax (Exemptions) to grant the renewal of recognition, as the trust's activities constituted "charitable purpose" under section 2(15), and the payment of royalty did not contravene section 13(1)(c). The appeal of the assessee was allowed.
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2009 (6) TMI 691
Issues Involved:
1. Limitation period for filing the appeal.
2. Treatment of commission payment as capital or revenue expenditure.
Summary:
1. Limitation Period for Filing the Appeal:
The Registry issued a defect memo to the assessee stating that the appeal was barred by limitation of 24 days. The assessee responded, explaining a clerical error in the date of communication of the CIT(A)'s order. The correct date was provided, and the appeal was deemed filed within the permissible time. Consequently, the parties were heard on merits.
2. Treatment of Commission Payment:
The sole ground of appeal was whether the commission payment of Rs. 13,99,803 to Pramaki Finvest (P.) Ltd. should be treated as capital or revenue expenditure. The assessee argued that the payment was for upgradation of technology and improvement in yield and quality of products, thus qualifying as revenue expenditure u/s 37 of the Income-tax Act, 1961. The Assessing Officer disallowed the claim, treating it as capital expenditure, and this view was upheld by the CIT(A).
The CIT(A) observed that the payments were linked to the acquisition of capital assets and technical know-how, providing enduring benefits to the assessee. The CIT(A) drew support from the Supreme Court decision in the case of CIT v. Assam Bengal Cement Ltd., concluding that the payments were capital in nature.
The assessee contended that the expenditure was incurred wholly and exclusively for business purposes and should be treated as revenue expenditure. The assessee cited the Supreme Court decision in Eastern Investments Ltd. v. CIT to support their claim.
The Tribunal examined the facts and found that the payments were based on the quantity of products sold and were not related to a specific capital sum. The Tribunal concluded that such payments should be treated as revenue expenditure, drawing support from the decisions in CIT v. Sarada Binding Works and Jonas Woodhead & Sons Ltd. v. CIT. Consequently, the depreciation allowed on the expenditure by treating it as capital expenditure was to be withdrawn.
Conclusion:
The Tribunal allowed the appeal, treating the commission payment of Rs. 13,99,803 as revenue expenditure.
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2009 (6) TMI 690
Issues Involved:
1. Penalty under section 18(1)(c) of the Wealth Tax Act for non-disclosure of the value of guest houses.
2. Penalty under section 18(1)(c) of the Wealth Tax Act for non-disclosure of the value of residential flats allotted to employees drawing a salary of more than Rs. 5.00 lakhs per annum.
Issue-wise Detailed Analysis:
1. Penalty under section 18(1)(c) of the Wealth Tax Act for non-disclosure of the value of guest houses:
The assessee company filed its return of wealth, declaring the value of motor cars and claiming exemptions for certain properties, including guest houses, under section 2(ea)(1)(3) of the Wealth Tax Act. The Assessing Officer included the value of guest houses in the net wealth and initiated penalty proceedings under section 18(1)(c) for furnishing inaccurate particulars and concealing wealth. The CIT(A) cancelled the penalty, observing that the value of guest houses was duly disclosed and filed as per the auditor's certificate, relying on the decision of the Hon'ble Kerala High Court in CIT v. A. Sreenivasa Pai [2000] 242 ITR 29.
Upon appeal, the Tribunal noted that the assessee had disclosed the particulars of the guest houses in the balance sheet and note-sheet filed with the return of wealth, claiming them as exempt based on a bona fide belief supported by legal precedents. The Tribunal found no concealment or furnishing of inaccurate particulars by the assessee and upheld the CIT(A)'s decision to delete the penalty on this account.
2. Penalty under section 18(1)(c) of the Wealth Tax Act for non-disclosure of the value of residential flats allotted to employees drawing a salary of more than Rs. 5.00 lakhs per annum:
The assessee claimed exemption for the value of residential flats allotted to employees drawing a salary of more than Rs. 5.00 lakhs per annum under section 2(ea)(i)(3) of the Wealth Tax Act. The Assessing Officer treated this as concealment of net wealth and imposed a penalty. The CIT(A) deleted the disallowance regarding the value of the Landmark property and observed that the assessee had disclosed the value of residential flats in the note forming part of the computation of net wealth.
The Tribunal, however, found that the assessee was aware of the exclusion under section 2(ea)(1) for employees drawing a salary of less than Rs. 5.00 lakhs per annum but still claimed exemption for those drawing more than Rs. 5.00 lakhs. The Tribunal held that the assessee failed to disclose the value of these residential flats in its return, thereby concealing particulars of wealth. The Tribunal directed the Assessing Officer to re-work the penalty on the value of the residential flats as per the CIT(A)'s direction in the quantum appeal and impose the minimum penalty under section 18(1)(c) of the Act.
Conclusion:
The appeal by the revenue was partly allowed. The Tribunal upheld the deletion of the penalty for the guest houses but reversed the CIT(A)'s decision regarding the residential flats, directing the imposition of a minimum penalty under section 18(1)(c) for non-disclosure of the value of residential flats allotted to employees drawing a salary of more than Rs. 5.00 lakhs per annum.
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2009 (6) TMI 689
Issues Involved:
1. Classification of profit from purchase and sale of shares as speculation business.
2. Set-off of business loss against profit from speculation business.
3. Disallowance of expenditure payable to Mahan Enterprise Ltd.
4. Charging of interest under sections 234B and 234C of the Act.
5. Classification of loss on sale/purchase of mutual funds as business loss or short-term capital loss.
Issue-wise Detailed Analysis:
1. Classification of Profit from Purchase and Sale of Shares as Speculation Business:
The assessee was engaged in various activities, including the purchase and sale of shares. The Assessing Officer (AO) treated the short-term capital gain of Rs. 48,65,115 from shares as speculative business income under the Explanation to section 73 of the Income-tax Act, 1961. The AO noted that the assessee had engaged in numerous transactions without taking actual delivery of shares, thus falling under speculative transactions as defined in section 43(5). The CIT (Appeals) upheld this view, stating that the provisions of Explanation to section 73 applied even if the income from shares was positive.
2. Set-off of Business Loss Against Profit from Speculation Business:
The assessee incurred a short-term capital loss of Rs. 48,38,623.88 on mutual fund investments, which the AO accepted as a capital loss. However, the CIT (Appeals) treated it as a business loss but did not allow its set-off against the speculative income from shares, as per section 73(1) of the Act, which restricts set-off of speculative losses only against speculative profits.
3. Disallowance of Expenditure Payable to Mahan Enterprise Ltd.:
The assessee claimed Rs. 1,48,40,915 payable to Mahan Enterprises Ltd. as part of a joint venture agreement for services rendered to Gujarat Electricity Board (GEB). The AO disallowed Rs. 83,30,111 of this amount, interpreting the joint venture agreement to mean that expenses should be reimbursed first before sharing profits. The CIT (Appeals) upheld this disallowance, stating that the assessee's interpretation of the agreement was incorrect and that the liability was not crystallized as claimed.
4. Charging of Interest Under Sections 234B and 234C of the Act:
The charging of interest under sections 234B and 234C was deemed consequential to the additions made by the AO. The CIT (Appeals) upheld this, referencing the Supreme Court's decision in CIT v. Anjum M.H. Ghaswala, which mandates the levy of such interest.
5. Classification of Loss on Sale/Purchase of Mutual Funds as Business Loss or Short-term Capital Loss:
The AO treated the loss on mutual fund transactions as a short-term capital loss, which the CIT (Appeals) initially reclassified as a business loss. However, upon review, it was determined that the mutual fund units were held as investments, not stock-in-trade, and thus the loss should be treated as a short-term capital loss. The Tribunal reversed the CIT (Appeals)'s decision and restored the AO's classification of the loss as a short-term capital loss, disallowing its set-off against speculative income.
Conclusion:
The appeals resulted in a mixed outcome, with the Tribunal upholding the classification of mutual fund losses as short-term capital losses and treating the share trading gains as speculative business income. The set-off of business losses against speculative gains was not permitted, and the disallowance of certain expenses payable to Mahan Enterprises Ltd. was upheld but remanded for further examination. Interest under sections 234B and 234C was confirmed as consequential.
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2009 (6) TMI 688
Issues Involved:
1. Deletion of addition of Rs. 13,82,385 on account of Long Term Capital Gain on the sale of DSE Ticket.
2. Jurisdiction of CIT(A) under section 246A of the Income-tax Act.
Detailed Analysis:
1. Deletion of Addition of Rs. 13,82,385 on Account of Long Term Capital Gain on the Sale of DSE Ticket:
The core issue revolves around whether the transfer of a Delhi Stock Exchange (DSE) ticket by Smt. Chand Rani Jain to the assessee-company constitutes a taxable event for capital gains in the assessment year 2001-02. The Assessing Officer (AO) had made an addition of Rs. 13,82,385 as Long Term Capital Gain, arguing that the transfer was complete when the assessee-company allotted 25,000 shares to Smt. Chand Rani Jain in lieu of the DSE ticket.
The assessee contended that the transfer was conditional upon the completion of registration formalities with the DSE and SEBI, which had not been completed during the relevant assessment year. Thus, no valid transfer occurred, and consequently, no capital gain could be assessed.
The CIT(A) accepted the assessee's argument, noting that the transfer was contingent upon the approval from DSE and SEBI, which had not been obtained. Therefore, the CIT(A) concluded that no transfer of the DSE ticket occurred in the assessment year 2001-02, making the AO's addition premature. The CIT(A) directed that the capital gains could be assessed only when the registration formalities were completed.
The Tribunal upheld the CIT(A)'s decision, emphasizing that the formalities required for the transfer were indeed pending, and hence, the transfer was not complete in the assessment year under consideration. The Tribunal found no reason to interfere with the CIT(A)'s order, dismissing the department's appeal.
2. Jurisdiction of CIT(A) under Section 246A of the Income-tax Act:
The cross-objection raised by the assessee questioned whether the CIT(A) had acted beyond the jurisdiction conferred by section 246A of the Income-tax Act while disposing of the appeal. The CIT(A) had directed the AO to take necessary action upon the completion of registration formalities by DSE and SEBI.
However, this cross-objection was not pressed by the assessee during the proceedings. Consequently, the Tribunal dismissed the cross-objection as not pressed.
Conclusion:
The Tribunal concluded that the AO's addition of capital gains was premature as the transfer of the DSE ticket had not been completed due to pending registration formalities with DSE and SEBI. The CIT(A)'s order was upheld, and both the department's appeal and the assessee's cross-objection were dismissed.
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2009 (6) TMI 687
Issues involved: Disallowance of interest payment u/s 40A(2)(b) of the Act.
Summary:
The appeal was filed against the order of the CIT(A) regarding the disallowance of interest paid by the assessee to a related concern. The Assessing Officer disallowed the interest payment on the grounds that it was not for the purpose of business and that the assessee had substantial cash balance available. The CIT(A) confirmed the addition, stating that the cash balance shown in the books did not reflect the true state of affairs, leading to the inference that the cash was not actually available for business purposes. During the hearing, the assessee argued that the interest disallowance was unjustified, citing various reasons including the purpose of keeping cash in reserve for future business expansion. However, the authorities maintained that there was no business necessity to borrow funds from the related concern and pay interest. The Tribunal upheld the decision of the lower authorities, stating that the assessee had sufficient funds of its own available and borrowing from the related concern was without business necessity. The Tribunal dismissed the appeal, affirming the disallowance of the interest payment.
The judgment highlights the importance of demonstrating business necessity for financial transactions and the relevance of maintaining accurate financial records to support claims of expenditure for business purposes.
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