TMI Tax Updates - e-Newsletter
January 28, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Highlights / Catch Notes
Income Tax
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Set-off of losses in share trading - The assessee would not be deemed to be carrying on a speculation business for the purpose of section 73(1) - HC
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Disallowance u/s 40A(3) - Payment of expenditure in cash - ITAT deleted the addition on the ground that Prima facie adjustment u/s 143(1)(a) can not be made - revenue appeal allowed - HC
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Unexplained expenditure - When the flow of the money is explained, it is very difficult to accept the contention that the assessee has invested in an unexplained way - AT
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Validity of reassessment proceedings u/s 147 - On the basis of any recent judicial decision which subsequently comes to the knowledge of the AO, the AO can reopen the assessment based on such 'information' - AT
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The assessee is liable for rebate under section 88E, even if the assessment is to be made after computing the book profit under section 115JB - AT
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Mark-to-market loss treated as contingent loss - no prudent trader would care to show increased profits before actual realization - the addition made by the AO deleted - AT
Customs
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Penalty u/s under Section 112 (a) - Forged license of DEPB - the question as to who played the main role is irrelevant for the reason that once the case is settled by the Settlement Commission, it is settled in its entirety - AT
Indian Laws
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RTI - Appellant has sought total Income Tax dues written off in last five years, year-wise - There is no reason why this information should not be placed in public domain - CIC
Service Tax
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Cenvat Credit - input services - transportation of the finished goods for delivery at the destination - Tribunal has merely disposed of the matter following the judgment in the case of ABB Limited - matter remanded back - HC
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Reverse charge mechanism - prima facie, the foreign company had undertook the erection job through their agency in India and therefore demand of tax under Section 66A is not sustainable. - AT
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Collection of fees - nature of amount collected from students for placement scheme / employment - prima facie not taxable as Manpower Recruitment Services - AT
Central Excise
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Denial of refund claim - Merely because, the assessee sold the vehicles at loss would not mean that the incidence of duty had not been passed on to the customers - HC
VAT
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Condonation of delay - Though it cannot be doubted that refusal to condone delay would result in foreclosing the suiter from putting forth his cause but simultaneously the party on the other hand is also entitled to sit and feel carefree after a particular length of time, getting relieved from persistent and continued litigation. - HC
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2014 (1) TMI 1413
Whether income from lease rent be assessed as income from house property or income from business - Held that:- The assessee has let out the property by the leave and license agreement dated 31.07.2006 for a further period of 33 months upto 31.01.2009 - The assessee has let out the property for the longer period w.e.f. 21-07-2002 by way of leave and license agreement - The assessee was not involved in day to day management or maintenance of the premises and except giving the property on leave and license basis, there are no complex commercial activities involved in this agreement - The agreement was also registered by virtue of Maharashtra Rent Control Act and there are no other plant and machinery so as to consider that the assessee is exploiting it on commercial basis. Immediately after acquiring the property, the property was not occupied by the assessee for its own use for its business and was let out from the time it was acquired on leave and license basis for a longer period of 33 months each time - Decision in CIT vs. Chennai Properties [2003 (3) TMI 28 - MADRAS High Court] followed - The rental income has to be treated as income from house property - The depreciation shall be allowed only when the assessee starts using the property for its business purposes - Decided against assessee.
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2014 (1) TMI 1412
Disallowance of interest under section 14A of the Act – Held that:- No strong grounds have been advanced by the departmental authorities to discard the method adopted by the assessee in disallowing the interest under section 14A of the Act - There can be no dispute that since the amount of interest debited to the Profit and Loss Account is on net basis, the disallowance of interest should also be made only with reference to the net interest, as was done by the assessee - it is not proper to take into consideration only the value of investments and assets as on 31.03.2001 since interest is paid on funds utilized during the entire period between 31.03.2000 and 31.03.2001 and the more appropriate method is to average the funds position as on these two dates and apply section 14A with reference to the average value - Rule 8D of the Income Tax Rules does recognize the averaging method. Reference may be made to Sub- Rule (2) of the Rule, which speaks of average value of the investment - the disallowance of the interest as made by the assessee is adequate and appropriate and no further disallowance is called for – Decided in favour of Assessee. Disallowance of professional fees – Held that:- There is also no evidence adduced by the assessee to show what exactly were the services rendered by Ms Naina Lal Kidwai so as to justify the professional fees, as found by the CIT(A) - the burden is on the assessee to reveal what information was given to it by Ms Naina Lal Kidwai, which would facilitate its business operations in India – Relying upon Lachminarayan Madan Lal vs. CIT [1972 (9) TMI 4 - SUPREME Court] - the mere existence of an agreement between the parties is not conclusive or decisive of the question whether the payment of commission or professional fees is allowable or not and it is for the assessee to prove that the commission or fees was paid for services which were connected to the assessee’s business and which were actually rendered - the assessee failed to discharge its burden – Decided against Assessee. Deduction u/s 80HHE of the Act - The Assessing Officer has not expressed any opinion on this point because according to his calculation the figure of business profits was negative and, therefore, even at the threshold the assessee’s claim could not be entertained - the Assessing Officer ought to have taken only the profits of the back office support services for computing the deduction under section 80HHE of the Act - What would be the export turnover and the total turnover is not the subject matter of the present appeal – Decided in favour of Assessee. Whether, while applying sub-section (3) and the formula prescribed therein, the expression “profits of the business” should mean only the profits of the eligible business or the profits of all the businesses carried on by the assessee – Held that:- Relying upon Datamatics Ltd. vs. ACIT[2007 (2) TMI 237 - ITAT BOMBAY-H] - it is only the profits of the export business that have to be so apportioned and the profits of businesses which did not qualify for the deduction, which were also carried on by the assessee, cannot be held eligible for the deduction - The departmental authorities were not correct in taking the profits of the eligible business - They ought to have taken the figure as contended for by the assessee, which figure represents the profits of the back office support services, which in other words are the profits of the eligible business. Disallowance of expenses – stock broking activities – Held that:- It cannot be said to be capital expenditure because the loss arises in the course of the carrying on of the business - The CIT(A) has also held that there was no agreement between the assessee and the clients that the assessee was responsible for such losses - The assessment of such recoveries under the head “Business” is under a deeming provision – the decision in CIT vs. Rampur Timber & Turnery Co. Ltd. [1971 (11) TMI 38 - ALLAHABAD High Court ] followed - despite the fact that some recovery of brokerage relating to the discontinued stock broking business is brought to tax under section 41(1)(a) of the Act, the assessee is not entitled to claim any expenditure against the said receipt - There is no evidence of any business considerations involved in the act of the assessee - no expenditure can be claimed against receipts assessed as profits of the business under section 41(1)(a) of the Act – Decided against Assessee.
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2014 (1) TMI 1411
Method of working the peak credit - Held that:- During assessment proceedings, the assessee has explained the documents fully and also filed statement of working the peak credit in which no defect was pointed out – The admission of undisclosed income made by the assessee under section 132(4) is an important piece of evidence but the same is not conclusive and it is open to the assessee, who made the admission to show that it is incorrect and the same was made under a mistaken belief of facts or law - Peak of Rs.16,93,308/- is worked out in assessment year 2006-07, whereas, peak of Rs.61,742/- is worked out in assessment year 2006-07 – The Tribunal accordingly decided the matter - Decided against Revenue.
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2014 (1) TMI 1410
Set-off of losses in share trading - Held that:- In computing the gross total income the normal provisions of the Act must be applied - Thenafter it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the Explanation - The gross total income of the assessee was required to be computed, inter alia, by computing the income under the head of profits and gains of business or profession as well - The income both from service charges and the loss in share trading, would have to be taken into account in computing the income under that head, both being sources under the same head - The assessee had a dividend income of Rs.4.7 lakhs (income from other sources) - The Tribunal was justified, in coming to the conclusion that the assessee fell within the purview of the exception carved out in the Explanation to section 73 - The assessee would not be deemed to be carrying on a speculation business for the purpose of section 73(1) - Decided against Revenue.
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2014 (1) TMI 1409
Validity of demand notice - Held that:- The assessment order was passed on 30.12.2013, against which, further appeal can be filed to the Income Tax Appellate Tribunal under Section 253 of the Act within 60 days from the date of receipt of a copy of the order - As the appellate remedy is available to the petitioner, it could be accepted and the authority may thereafter proceed with the matter – The respondents are directed to not to take any coercive steps for recovery against the petitioner, till the appeal time is exhausted – Decided in favour of petitioner.
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2014 (1) TMI 1408
Deduction u/s 80IA - Held that:- The AO has not examined that whether the receipts and expenditure were derived form manufacturing activity or not - The Tribunal has directed the matter for fresh adjudication with a direction to the AO to look at the scrap sales and labour work and other interest receipts vis-a-vis unit wise for the purpose of computing deduction under Section 80IA.
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2014 (1) TMI 1407
Investment Allowance - Held that:- The benefit of Investment Allowance is available to the assessee and it cannot be denied on the ground that they have not been put to use - The Tribunal has rightly allowed the Investment Allowance on machines for Milk Division having found that they have already been installed by the assessee - The installation of machinery at milk division was even duly certified by the District Industries Centre, Dewas - As regard the machinery of Soya Division, as details were not available, the AO was directed for making verification as to whether the same was installed or not - Decided against Revenue.
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2014 (1) TMI 1406
Disallowance u/s 40A(3) - Payment of expenditure in cash - ITAT deleted the addition on the ground that Prima facie adjustment u/s 143(1)(a) can not be made - Held that:- Decision in S.R.F. Charitable Trust v. Union of India and others [1991 (10) TMI 38 - DELHI High Court] followed - The assessing officer cannot unilaterally disallow the claim made by the assessee unless and until he calls upon the assessee to prove the claim made by him. Only after giving such opportunity, from the material placed on record, the assessing officer can disallow the claim as required under Section 40A(3) read with Rule 6DD of the Act - Before arriving at a conclusion that 20% of 29 lakhs and odd has to be disallowed in terms of Section 40A(3) of the Act, the assessing officer ought to have called for further details from the assessee in order to understand whether such claim could be made under Rule 6DD by the assessee - The issue has been restored for fresh adjudication. - Decided in favor of revenue.
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2014 (1) TMI 1405
Whether amount paid is liable for tax deduction at source - Held that:- Decision in Asia Satellite Telecommunications Co. Ltd. v. DIT [2011 (1) TMI 47 - DELHI HIGH COURT] followed - The payments made for providing data transmission services through provision of space segment capacity or satellites did not constitute royalty within the meaning of section 9(1)(vi) - The payments were business profit and accordingly not taxable or chargeable to tax under the Act - The Tribunal in the impugned order has not referred to and examined the effect of the DTAA between India and USA and whether the assessee is entitled to benefit or advantage under the said agreement - The issue has been restored to the Tribunal to decide the other contention raised by the respondent-assessee; whether the payments made, remain untaxable in view of the provisions of the DTAA.
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2014 (1) TMI 1404
Treatment of agricultural land situated in Goa - Held that:- The order of the CIT(A) is merely based upon the findings of the AO without verifying the claims made before him - In the earlier years agricultural income was earned from the said land and declared to the tax authorities - The population therein is less than 10000 and it is beyond 25 kms from the notified area - The issue has been restored for fresh adjudication with regards to the claim made by the assessee.
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2014 (1) TMI 1403
Applicability of section 69A - Held that:- The assessee filed before the AO the declaration of gifts, the bank statements of donors and also their source for giving the gifts - The initial onus is discharged by the assessee by proving the identity of the donors and source of fund - Now the burden shifts on to the AO to prove as to whether the donors have creditworthiness or not - The assessee cannot be called upon to prove the source - The AO has not made any efforts to point out ingenuity of the gift and capacity of the parties – Without verifying as to whether the party had retained such earning and whether he has received a sum of Rs. 1,00,000/- one day prior to the gift through cheque, the AO cannot assume that he would not have received a sum of Rs. 1,00,000/- and could not have given the gift - Without examining the parties in the current assessment proceedings, the AO cannot arrive at conclusions - This would amount to violation of natural justice – The issue has been restored for fresh adjudication.
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2014 (1) TMI 1402
Estimation of income from contracts - Held that:- The assessee is covered under section 44AB - Where no books of account maintained and where provisions of sec. 44AB found applicable, the estimation of profit sat 12.5% held to be reasonable - The various judicial decisions in this regard also put the margins of the business in the range of 8 to 12.5%, depending on the facts of each case - Assessee is operating as an individual without borrowed funds so margin of 12.5% is reasonable - Decided against assessee. Unexplained expenditure - Held that:- The assessee has paid the amount of Rs. 11 lakhs through his bank account to M/s. Sai Ganesh Builders - Once the amount has gone through the bank account out of the own sources of the assessee it cannot be said to be unexplained - When the flow of the money is explained, it is very difficult to accept the contention that the assessee has invested in an unexplained way - Even for argument sake if it is accepted that the same was advanced/invested by assessee, it still cannot be considered as unexplained as the source is assessee own funds on which there is no dispute - The order of the CIT(A) is not correct - Decided in favour of assessee.
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2014 (1) TMI 1401
Disallownace u/s 14A - Held that:- The assessee has interest free funds in the form of capital, reserve & surplus and interest free unsecured loans from the promoters - The aggregate of such interest free funds comes to Rs. 5.14 crores - Neither the Assessing Officer nor the learned Commissioner (Appeals) has examined this fact and has applied provisions of rule 8D even on the interest component – Decision in Reliance Utilities and Power Ltd [2009 (1) TMI 4 - HIGH COURT BOMBAY] followed - If there are interest free funds available to the assessee which is sufficient to meet its investment and at the same time the assessee has also interest bearing funds in the form of loan, then it can be presumed that the investment had been made from interest free funds available – The issue has been restored for fresh adjudication.
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2014 (1) TMI 1400
Validity of reassessment proceedings u/s 147 - Held that:- Decision in CIT Vs. Ajanta Pharma Ltd. [2009 (5) TMI 7 - BOMBAY HIGH COURT] was available at the time of issue of notice u/s 147 - Later on the the said decision has been overruled by the Supreme Court and law has also been amended by Finance Act, 2011 - Decision in Commissioner Of Income-Tax Versus Novapan India Limited [1998 (10) TMI 67 - ANDHRA PRADESH High Court] followed - On the basis of any recent judicial decision which subsequently comes to the knowledge of the AO, the AO can reopen the assessment based on such 'information' - The Ld. CIT(A) passed the order on 31.10.2011 and at the time of passing the said order by the Ld. CIT(A), the Finance Act, 2011 deleting the provisions of clause (vi) of 115JB 2 of the Act was available since the same has been passed on 08.04.2011 - Decided against assessee.
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2014 (1) TMI 1399
Determination of value of property - Held that:- The assessee has purchased the property at very low price - The reasons for doing so as given by the assessee are not acceptable - Assessing Officer did not enquire the actual market value, even though referred the matter to the Sub- Registrar for valuation of similar properties in and around the same place where Assessee purchased - The determination of value on the basis of DVO's report is also not correct as it is only estimation - The AO could have enquire from the seller and the outcome of his income tax proceedings as provisions of section 50C could have been invoked in seller's case - These aspects are not on record and since order of the CIT(A) is not correct both on facts and on law - The issue has been restored for fresh adjudication.
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2014 (1) TMI 1398
Re-opening order u/s 147 of the Act quashed – Escapement of income or not – Rebate u/s 88E of the Act allowed – Tax liability u/s 115JB of the Act – Held that:- The decision in ACIT v/s Shreepati Holdings and Finance Pvt. Ltd [2014 (1) TMI 1262 - ITAT MUMBAI] followed - Under section 88E, where the total income of an assessee in a previous year includes any income, chargeable under the head 'Profits and gains of business of profession', arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions section also provides the limit to which deductions shall be given. When the total income is assessed and the tax chargeable is computed, it is from that tax which is chargeable - the tax paid under section 88E is given deduction, by way of rebate, under section 87 of the Act - This is the legislative intent - That is a promise to give deduction of the tax already paid - This is the mod, in which tax already paid is handed back at the time of final computation - the assessee is liable for rebate under section 88E, even if the assessment is to be made after computing the book profit under section 115JB – validity of re-opening under section 147 is purely an academic thus, not discussed - Decided against Revenue.
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2014 (1) TMI 1397
Estimation of profit – Held that:- The decision in M/s. C. Eswara Reddy & Co. vs. ACIT [2011 (1) TMI 1238 - ITAT HYDERABAD] followed - On examination of the books of account with reference to the voucher produced, the Assessing Officer found that the voucher does not tally with the cashbook - When the voucher does not tally with cashbook, the book results will not reflect the correct profit of the assessee - The Assessing Officer has rightly rejected the books of account - When the books of account were rejected the only method available to the Assessing Officer is to estimate the profit. The profit ratio cannot be a constant factor for each and every year - Tribunal has been uniformly estimating the profit from main contract at 8% to 12.5% depending upon the factual situation and 5% to 7% on the sub contract depending upon the factual situation - The income of the assessee is to be estimated at 8% of gross contract receipts unless the assessee furnished the details of seigniorage charges - Before the AO the assessee has not furnished details of contract receipts – thus, the assessee is directed to furnish details of contract receipts as well as seigniorage charges - On receipt of these details, the AO shall apply the net profit at 8% on the contract receipts - the issue is remitted back to the AO for fresh consideration. Deletion of addition made u/s 68 of the Act – No scope for further addition - Held that:- The decision in Sri P.V. Sitaramaswamy Naidu vs. Addl. CIT [2014 (1) TMI 1266 - ITAT HYDERABAD] followed - The availability of funds representing the intangible additions should be quantified not with reference to what the assessee offered for taxation but what was actually adopted in assessments for taxation - the assessee has failed to show how the addition u/s. 68 is related to estimated income - the addition made towards sundry creditors made u/s. 68 of the Act falls under the head "income from other sources" – the order of the CIT(A) set aside and the matter remitted back to the AO - Decided partly in favour of Assessee.
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2014 (1) TMI 1396
Addition on account of low G.P. rate - Held that:- The gross profit rate for the year under consideration comes to around 11.82% after reducing the value of excess stock found during search – The last year gross profit rate was 12.5% - The AO has made the addition without any basis and material on record to support suppression of sales or inflation of expenses - The fall in the gross profit was primarily due to increase in the cost of production and decrease in the sale prices of certain articles due to fierce market competition - In the year under consideration, 8% deduction of M/s Bata India Ltd. has been taken as direct expenses as in the previous year the same has been taken as indirect expenses – Decided against Revenue. Unexplained stock found at the time of survey and unexplained investment in the plant and machinery and factory building – Held that:- The excess stock was credited to the stock and debited in the profit and loss account which has nullified effect, passed a journal entry debiting the manufacturing account with the goods declared under survey of Rs.29,00,000/- and credited P&L account in schedule of 'other income' - The assessee has shown this income separately - The income declared on account of unexplained investment in plant and machinery and office building has been also included as unexplained investment in the total income of the assessee - The assessee has shown increase in the closing stock by Rs.29 lacs and has also shown Rs.29 lacs as other income and it has debited the profit and loss account by Rs.29 lacs - The effect of all three entries is that on two occasions, the amount has been credited in the profit and loss account and it has been debited only once. In the case of unexplained investment in the plant and machinery in the factory building - The income surrendered is included in the profit and loss account and the action of AO has led to double addition – Decided against Revenue. Unexplained purchases/investment – Held that:- The copies of the purchase invoices of raw material and packaging material was produced before the AO and even before the CIT(A) - The AO has failed to establish that purchases shown till 19.02.2001 were having any discrepancy or included any bogus entries - The AO has wrongly recorded that assessee has failed to furnish the evidences with regard to the additional quantum of purchases reflected in the new trading account as on 19.02.2001 – CIT(A) was justified in deleting the addition – Decided against Revenue. Addition on account of bogus expenses – Held that:- The A.O. has disallowed such expenses only on the ground that necessary documentary evidences in support of such expenses could not be produced - These expenses have been reflected in the audited accounts after due scrutiny and examination - Regarding generator running expenses and repairs and maintenance – The payments made were debited to the party's a/c instead of the expense account which were rectified in the accounts subsequently after discovering such accounting errors - The copies of such accounts along with other supporting evidences were made available during the assessment proceeding. As regards the payment on account of ESIC Employer's contribution, the same is supported by challans for payments and being a payment to Govt. cannot be treated as bogus. In respect of payment in regard to 8% STD cost (BATA) - The debit notes pertaining to such expenses for the period from 01- 11-2000 to 19-02-2001 were received late - The same were accounted for after receipt of such debit notes - This explanation was advanced before the A.O. also along with necessary evidences as revealed in the assessment records - The A.O. has not recorded any specific reason for making disallowance of such expenses - The assessee has submitted details of the expenses before the AO. The AO has not made any enquiry to check the genuineness of these expenses - The AO disallowed only on the ground that necessary document evidences in support of such expenses could not be produced – Decided against Revenue. Bad debt written off – Held that:- The debits were quite old and were taken as an income in the earlier years - As per the law, once a debt is written off in the books then there was no requirement to establish that bad has become bad beyond reasonable doubt - After the amendment to section 36(1)(vii) of the Act w.e.f 01.04.1999 all that is necessary is to write off the debts in the books of account – Decided against revenue and allowed in favour of assessee. Addition on account of discrepancies in several parties' accounts – Held that:- During the course of assessment proceedings, the appellant furnished the necessary explanations against each such party by producing the respective ledger account and confirmation of accounts in most of the cases - In the case of M/s Bata India Ltd., the appellant had shown opening Dr. balance of Rs.38,54,645.60 against which M/s Bata India Ltd. Has indicated an opening Cr. Balance of Rs.14,05,214.33 in favour of the appellant - The appellant had shown excess debit balance of Rs.24,49,431/- and to that extent the appellant had already credited income in the F.Y. 1999-2000 and so even if there is a difference, it cannot be treated as income of the Asstt. Year under consideration – The party was allowed a credit period of 3 months - the assessee has discounted the bills and has met its working capital requirements – This is how the account cannot match. In respect of some parties, although the appellant produced the copies of accounts of the above parties and confirmation of account in such cases before the A.O., all the transaction details as per the claim of the appellant could not be furnished during assessment proceedings but produced before the CIT(A) - The CIT(A) copuld not consider them as it would amount to accepting additional evidences within the meaning of Rule-46A - Partly allowed in favour of assessee.
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2014 (1) TMI 1395
Selection of comparables - Held that:- Under the transfer pricing mechanism, a comparability analysis has to be undertaken for comparing the control transactions with an uncontrolled transaction. This is achieved by identifying potential comparables having similar functions that can stand the test of FAR analysis - The taxing authorities/TPO, should scrutinize the assessee's report on arm's length result and the entire process of arriving at the ALP, whether they are based on transfer pricing principles and statutory provisions or not - If he himself founds some irregularity or mistake in any of the process or the steps undertaken, then he is bound to correct in accordance with the settled principles and law - If the assessee points out some mistake or any irregularity in the arm's length result, then it is incumbent upon the TPO to examine and consider the same and if the assessee's contentions are found to be correct or tenable, then he has to accept the same - The TPO is required under law to analyze every comparables and then only determine the correct ALP based on proper comparability analysis - The assessee has object to the comparables taken by hinself if he have cogent reasons. In respect of Indo wind Energy Ltd and BF Utilities Ltd - these comparables were taken on the basis of data of three financial years which is not permissible under the law. Even the approach of the TPO and the DRP for taking the financials for June and September 2008 is not correct as it is not in conformity with the provisions of rule 10B(4) - Once the financial result for the 31st March 2008 of these comparables are not available, then the same should be excluded from the list - At the functional level also, these companies are entirely different from the assessee - These companies are into business of generation of wind energy whereas the assessee is manufacturing the parts which are used in the generation of solar energy - These two functions are entirely different. M/s. BF Utilities Ltd - This company is a holding company of various submissions and they are into various kinds of manufacturing - The revenues of all the subsidiary and associates are consolidated and do not give proper result of the segments - The revenue of B.F. Utilities Ltd. under the segment of wind energy is only 2%. M/s. Photon Energy Ltd - It is functionally comparable to the assessee and the TPO has rejected on the ground that the financial data was not available in the public domain and segmental results do not give clear profile - These data were duly available and were filed before the DRP. M/s Rajasthan Electronic and Instruments Ltd. - It is very difficult to work out the exact margin on OP/TC and also the working of the operating expenses with regard to the said segment - In the absence of proper segmental details for the working of the margin and the operating expenses, the same shall not be included as comparable. Finally three companies has been selected as comparables - The TPO is directed to look into the operating margin of the finally selected three comparables as aforesaid and bench mark the same with the assessee's PLI of 6.80% to determine the ALP - The issue has been restored. Transfer pricing adjustment relating to provision of engineering services – Held that:- The assessee has not separately bench marked the engineering services which are being carried out by a separate division - Even while selecting the comparables for manufacturing segment, the assessee has not taken into consideration the services rendered to its A.E., therefore, such a segment has to be separately bench marked - The TPO has not given any criteria for the search of his comparables and has not examined the comparables submitted by the assessee - The assessee should be given proper opportunity to explain its case as to how these transactions can be bench marked for proper determination of the ALP – The issue has been restored for fresh adjudication.
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2014 (1) TMI 1394
Undisclosed income - Held that:- Decision in Commissioner Of Wealth-Tax Versus BM Kanodia (HUF) [1990 (4) TMI 32 - ALLAHABAD High Court] followed - The AO should consider all the evidences furnished at the time of assessment proceedings and otherwise - The AO should re-examine the Wealth tax Returns in which the said jewellery has been claimed to be disclosed - The issue has been restored for fresh adjudication. Disallowance u/s 14A - Held that:- The assessee has maintained mixed funds for investments and the business activities - The assessee has earned exempt income on investments - The assessee has excess interest free funds adequate to earn the impugned exempt income - Decision in CIT vs. Reliance Utilities & Power Ltd [2009 (1) TMI 4 - HIGH COURT BOMBAY] followed - The issue has been restored for fresh adjudication. Estimation of annual lettable value of property - Held that:- The AO has not examined some of the relevant facts such as when the asset was acquired by the assessee, how the asset is reflected in the books of accounts for all the years, how the asset is being used over the years etc - If the books of accounts are found during the search action, at the impugned flat, that should undisputedly indicate that the premises is of business nature - If the books indicate the depreciable nature of the said premises, by figuring out from the depreciation schedule, the provisions of section 23 becomes irrelevant - The issue has been restored for fresh adjudication.
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2014 (1) TMI 1382
Confirmation of enhancement of disallowance u/s 14A of the Act r.w. Rule 8D(2) of the Act – Exempted income as dividend income earned - Held that:- Under section 14A of the Income Tax Act resort can be made to Rule 8D (2) of the Income Tax Rules for determining the amount of expenditure in relation to exempt income, if, the AO is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure - while making the disallowance under consideration – thus, the matter remitted back to the AO to examine the computation made. Confirmation of disallowance - Mark-to-market loss treated as contingent loss – Held that:- The decision in DEPUTY COMMISSIONER OF INCOME TAX. Versus KOTAK MAHINDRA INVESTMENT LTD. [2013 (7) TMI 355 - ITAT MUMBAI] followed - the stock future is one of the types of forward contract, which is traded on exchanges. This can be traded in BSE as well as in NSE. In such type of contracts the stock is not actually purchased rather the profit or loss is calculated on the book value in comparison to the actual market rate of the stocks on the date which has been agreed by the parties for the performance of the contract - it is not only the actual stock but derivatives can also be held as stock in trade and the principle “cost or market price whichever is lower” has been rightly followed by the assessee in valuing the derivatives and further when the derivates are held as stock in trade then whatever rules apply to the stock in trade will have to apply to their valuation also - While anticipated loss is taken into account while valuation of closing stock, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as not prudent trader would care to show increased profits before actual realization - the addition made by the AO on this ground is hereby ordered to be deleted – Decided in favour of Assessee.
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Customs
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2014 (1) TMI 1393
Duty demand - Depreciation on goods - Valuation of goods - Assessee does not dispute liability of duty - Commissioner (Appeals) held that the warehousing sanction had not expired when the demand was raised and in fact it was extended upto 8.9.2005 and therefore the demands originally issued is not sustainable and set aside the demand - Held that:- original demand is not legally sustainable because it was made even when the warehousing permission was valid and further the question whether they are eligible for depreciation was not looked into. We find that in fact the demand was confirmed without hearing the respondent. Therefore, we do not find any fault with the direction of the Commissioner (Appeals) re-storing status quo ante and directing that the matter be decided afresh keeping all the relevant facts and law in mind. While coming to this conclusion we take note of the submission of the respondent that they are not disowning their duty liability. They only want a fair and correct determination of the duty liability after allowing depreciation as per law and taking date of de-bonding into account while arriving at interest liability - Decided against Revenue.
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2014 (1) TMI 1392
Classification of goods - Import of bituminous coal - Whether the CESTAT's order that without department's chemical test, the department has no basis to classify the impugned goods under heading 2701.12, is correct in law - Held that:- The nature of demand made by the appellant/Department is that the coal imported by the respondent is not an ordinary steam coal and it is only a bituminous coal and the same is liable to be taxed - The demand made by the appellant /Department has been accepted in Orders-in-Original as well as the orders passed by the Commissioner of Appeals. But the CESTAT has set aside the demand made by the appellant/Department and also set aside the Orders-in-Original as well as the orders passed by the Commissioner of Appeals - A conjoint reading of the said Sections would clearly go to show that, with regard to determination of any question having a relation to the right of duty of customs or to the value of goods for the purpose of assessment, Appeal shall lie before the Supreme Court - Decided in favour of Revenue.
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2014 (1) TMI 1391
Waiver of pre-deposit - Penalty u/s Section 114(i) and Section 112(b) - Aid and abetment in export of Murate of Potash as free flow salt - Held that:- appellant had filed the shipping bills as per the documents given to them by M/s. Dadi Impex Pvt. Ltd. We find that the adjudicating authority in his findings as regards the role played by the appellant, has not brought out anything specific against the appellant as to his knowledge that the goods which were sought to be exported were Murate of Potash and not Free Flow Salt. In the absence of any such finding, prima facie, we are of the view that the appellant has made out a case for waiver of pre-deposit of penalty imposed under Section 114(i) of Customs Act, 1962 - application for the waiver of pre-deposit of the amounts of penalties imposed on the appellant is allowed and recovery thereof stayed till the disposal of appeal - Stay granted.
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2014 (1) TMI 1390
Penalty u/s under Section 112 (a) - Forged license of DEPB - Held that:- in this case, DEPB forged licences were detected, details of transactions are available, the purchaser and brokers are identified, only the dealers who traded DEPB licences are not identified - the question as to who played the main role is irrelevant for the reason that once the case is settled by the Settlement Commission, it is settled in its entirety and such a case then cannot be adjudicated qua other co noticees. The case against all co-noticees comes to an end once the order of settlement is passed in respect of the person entitled to file an application before the Settlement Commission and therefore penalty imposed upon the appellants cannot be sustained and is set aside - Decided in favour of assessee.
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2014 (1) TMI 1389
Waiver of pre-deposit - Imposition of penalty - Held that:- for imposing penalty under Section 112(a) of Customs Act, 1962, the appellant herein should have done or not done an action, which would have made the goods liable for confiscation. It is seen from the records that the appellant has filed a Bill of Entry as per the documents given to him by the importer - appellant has made out a prima facie case for waiver of pre-deposit of the amounts involved. Accordingly, the application for waiver of pre-deposit of the amounts of penalties involved are allowed and the recovery thereof stayed till the disposal of appeal - Stay granted.
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Corporate Laws
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2014 (1) TMI 1388
Rejection of reference under SICA - Reference based on the audited balance sheet - Erosion in net worth - Delay in filing reference - Held that:- only one point was urged before AAIFR and that was with regard to whether the petitioner fell within the classification of small enterprise under the Micro, Small and Medium Enterprises Development Act, 2006 or not. The petitioner had not even taken the point with regard to the rejection of the reference of account of delay as was recorded by the BIFR - consideration of the question as to whether the petitioner was a small enterprise under the said Act of 2006 or not would be academic in the backdrop of the fact that the petitioner did not challenge the other ground of rejection of his reference on the point of delay before the AAIFR. We, however, leave the question with regard to classification as a small enterprise open and do neither confirm nor reject the stand taken by the AAIFR. Insofar as the point of delay is concerned, we have not gone into the issue as to whether the delay was sufficiently explained or not because that point was not even taken before the AAIFR and, consequently, was not, as it could not have been, taken before us - Decided against Petitioner.
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Service Tax
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2014 (1) TMI 1424
Cenvat Credit - input services - transportation of the finished goods for delivery at the destination - Held that:- By the amendment made with effect from 1st April, 2008 substituting the word “from” by the word “upto” all that has been done is to clarify the issue. Neither the services rendered to the customer for the purpose of delivering the goods at the destination was covered by the definition of input service prior to 1st April, 2008, nor is the same covered after 1st April, 2008. If the definition provided in Section 2(l)(ii) is read as a whole, it would appear that outward transportation charges or taxes paid in regard thereto is claimable only with regard to those transports which were made from one place of removal to another place of removal - Considering that the Tribunal has merely disposed of the matter following the judgment in the case of Commissioner of C.Ex & S.T.,LTU, Bangalore vs. ABB Limited [2011 (3) TMI 248 - KARNATAKA HIGH COURT], the order under challenge is set aside. The matter is remanded to the Tribunal for re-hearing on merits - Decided in favour of Revenue.
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2014 (1) TMI 1423
Waiver of predeposit of cenvat credit - Denial of cenvat credit - Credit is taken at wrong office - Service provider did not issue the invoices within 14 days of providing the service - Held that:- The equipments were received by BSNL and used by BSNL. Whether the credit is taken at wrong office, can be examined during appeal hearing. Also in the matter of construction services the case appears to be one of delay in issuing invoice rather than non-payment of tax. These matters appear to be procedural in nature which will be looked into at the time of hearing appeal. At this stage we consider it proper to grant waiver of pre-deposit of dues arising from the impugned order for admission of appeal - Stay granted.
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2014 (1) TMI 1422
Waiver of pre deposit - Contract for software development - Revenue considered it under manpower supply - Tribunal dismissed assessee's appeal - Held that:- two different type orders (in the cases of Prime Focus and Cognizant Technology [2010 (3) TMI 328 - CESTAT, CHENNAI]) were passed by the Tribunal on the same day without application of mind. As on date on almost the very same facts, the issue stands decided against the applicant by the Tribunal - applicant has placed some additional documents which may be relevant for the purpose of determining the issue. We also notice that the chart now presented claiming deductions from demand confirmed has not been presented before the adjudicating authority and we are not in a position to accept the chart at this stage - Conditional stay granted.
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2014 (1) TMI 1421
Stay application - Reversal of CENVAT Credit - Held that:- Assessee have been maintaining separate accounts for input services attributable to taxable services and exempted services and for the common input services, and that they have reversed the credit amount attributable to exempted services and such reversal should be sufficient for admission of appeal stay has been granted in the earlier case. Hence we waive the requirement of pre-deposit of dues arising from the impugned order for admission of appeal and there shall be stay of collection of dues arising from the impugned order during pendency of appeal - Following decision in assessee's own previous case [2014 (1) TMI 622 - CESTAT CHENNAI] - Stay granted.
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2014 (1) TMI 1420
Waiver of pre deposit - Demand of service tax - Reverse charge mechanism - Abatement of 67% under the Notification No. 1/2006 dated 1.03.2006 - Erection, Commissioning and Installation - Held that: - On perusal of the explanation (1) of Section 66A (2) of the said Act and the Board's clarification, it is clear that a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country, which would include India. On perusal of the impugned order, we find that the foreign company in this case rendered the service of erection, commissioning and installation through their agency in India and the identity of such agency had already been mentioned in the impugned order. In our considered view, prima facie, we find that the foreign company had undertook the erection job through their agency in India and therefore demand of tax under Section 66A is not sustainable. Apart from that, we have noticed the erection, commissioning and installation charges are part of the invoice price of the printing machinery, wherein the applicants paid the customs duty. Hence, the applicants have made out a prima facie case for waiver of predeposit of the entire amount of tax including interest and penalty - Stay granted.
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2014 (1) TMI 1419
Availment of CENVAT Credit - Manufacturing of sanitaryware - Imposition of equivalent penalty - Held that:- Prima facie Rule 3(5A) of Cenvat Credit Rules, 2004 provides that “if the capital goods are cleared as waste and scrap the manufacturer shall pay an amount equal to the duty leviable on transaction value”. The capital goods mentioned in the sub-rule are Cenvat credit availed capital goods. Prima facie, sub-rule (5A) of Rule 3 of Cenvat Credit Rules applies in those cases where Cenvat credit availed capital goods after use in the factory are cleared as scrap and waste and only in such situation an amount equal to the duty on transaction value of such scrapped capital goods shall be chargeable. In this case, POP moulds cannot be said to be cenvated capital goods, as cenvat credit has been taken of the duty/Service Tax paid on inputs/input services, not of excise duty on POP moulds. In view of this we are of the prima facie view that the appellant have a case in their favour. Accordingly, the requirement of pre-deposit of duty demand, interest and penalty is waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal - Stay granted.
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2014 (1) TMI 1418
Collection of fees - Manpower Recruitment Services - nature of amount collected from students for placement scheme / employment - Held that:- To attract Service Tax under the category of ‘Manpower Recruitment or Supply Agency’, the services should be rendered to a client. Prima facie, these students cannot be treated as clients to whom services of recruitment and supply are being rendered. In view of the above, there shall be waiver of pre-deposit of dues as per the impugned order and stay of recovery thereof till the disposal of the appeal - Stay granted.
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2014 (1) TMI 1417
Abatement from value of tax to the extent of 60% - Notification No. 9/2004-S.T., dated 9-7-2004 - Cenvat credits on capital goods - Held that:- There is need to verify the fact whether during March 2006 appellant was availing Cenvat credit or not because most of the receipts under disputes relate to services rendered during March 2006 and during this months the new condition has been imposed. However the impugned order shows details of Cenvat credit availed from April 2006 only. The whole matter is dealt with on the premise that rate as prevalent on the date of receipt of consideration for service will apply - Stay granted.
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2014 (1) TMI 1416
Activity of providing and laying spiral welded/fabricated M.S. pipeline - Erection, Commissioning or Installation Services - Held that:- applicants’ main activity is laying pipeline for irrigation purposes. Prima facie we are of the view that the activity of laying of pipelines falls under the ‘Works Contract Service’ and the same has been excluded from the taxable services vide Board’s Circular No. 116/10/2009-S.T. cited herein above. Therefore, the applicants have made out a prima facie case for waiver of 100% of Service Tax, interest and penalties. Accordingly, we waive the requirement of pre-deposit of the entire amount of service tax, interest and penalties and stay recovery thereof during the pendency of the appeal - Stay granted.
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2014 (1) TMI 1415
Condonation of delay - Delay due to sole proprietorship - Held that:- in the case of proprietary firm, it is a one man show, and there can be failure in undertaking the requirements as per law. In view of the peculiar circumstances of the case such as the penalty was imposed on the appellant on an appeal filed by the Revenue and the appellant is a heart patient, medical certificate was submitted that he was not well, and the nature of the business in which the appellant is involved, I consider that in this case, a lenient view is called for and accordingly the delay is required to be condoned - Delay condoned.
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Central Excise
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2014 (1) TMI 1387
Waiver of pre deposit - Imposition of penalty and interest - Held that:- though there had been shortcomings on the part of both the parties but in the ultimate analysis, the cause of justice demands a consideration of the appeal on merits rather than to shunt the applicant out for some part of delay attributable to it and some part of technicalities that may otherwise operate - respondents had not been discreet in this matter on several aspects. Be that as it may, the fact of the matter now remains that the applicant has indeed deposited the amount of ₹ 25 lacs on 09.10.2013. Secondly, the appeal has not been dismissed on merits but has only been dismissed on account of default in not making the deposit of the amount of ₹ 25 lacs. It is apparent that even while dismissing the writ petition, this Court had enlarged the time for making deposit at the request made on behalf of the petitioner-applicant and granted four weeks' further time. Obviously, the anxiety of the Court was to ensure consideration of the appeal on merits upon the petitioner-applicant making the deposit - interest of justice shall be served if the applicant is put to the condition of depositing the entire principal amount towards the tax liability under the order impugned - Conditional stay granted.
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2014 (1) TMI 1386
Condonation of delay - Delay due to 17 skeleton staff working in the writ petitioner company and therefore, it was not possible for them to keep track of the things - Held that:- petitioner company was declared sick and proceedings were initiated in Delhi High Court for winding up. There were only skeleton staff working in the writ petitioner company due to which, it was not possible for them to keep track of the things. Because the Advocates gave legal opinion on 02.02.2005 informing the writ petitioner that they have a good case for filing an appeal. Thereafter, the writ petitioner applied to the High Power Committee for COD clearance and only after obtaining clearance, the appeal could be filed. When the writ petitioner has been declared a sick company and proceedings have been initiated for winding up and when the writ petitioner was entangled in litigation and other consequential proceedings, they cannot be expected to take prompt steps for filing the appeal. Even though, the Writ Court will not normally interfere with the discretion exercised by the Tribunal, but in this case, having gone through the fact that the proceedings have been initiated against the writ petitioner / company, we are of the view that it is a fit case to condone the delay - Delay condoned.
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2014 (1) TMI 1385
Penalty u/s 11AC - Clandestine removal of goods - Held that:- the Commissioner (Appeals) had confirmed addition to the extent of 14.555 MT of G.M. Balls and the Tribunal has also affirmed the finding of fact that the respondent-assessee was able to satisfactorily explain from the records maintained in respect of 45.594 MTs and it is admittedly a finding of the fact that even the revenue has not challenged that the evidence produced by the respondent-assessee is fabricated or false and when the said finding has not even been challenged before the Tribunal, then admittedly the respondent-assessee was able to prove his case and found favour with the two appellate authorities. - Decided against Revenue.
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2014 (1) TMI 1384
Waiver of pre deposit - Availment of CENVAT Credit - Appellant was directed to predeposit an amount of Rs.1crore out of the balance amount of cenvat credit still payable - Held that:- The case of the revenue is that prior to restructuring of the tariff, Ethyl Alcohol was an excisable goods as it found mention in the tariff but not after restructuring of the tariff - Tribunal has followed its earlier decision in the matter of Ugar Sugar Works Ltd. vs. Commissioner of Central Excise, Belgaum [2007 (11) TMI 522 - CESTAT, BANGALORE] while dealing with the issue of Ethyl Alcohol manufactured using molasses as an input during the period from 1 July 2005 to 31 March 2006 - Therefore, impugned order is set aside and direct the Tribunal to decide the stay application afresh - Decided in favour of assessee.
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2014 (1) TMI 1383
Denial of refund claim - Availment of modvat credit - Notification No.6/2000-CE - Whether the assessee passed on the incidence of duty paid by them on tubes and tyres to their customers as provided for under Section 12-B of the Central Excise Act, 1944 - Held that:- no efforts of whatsoever nature were made by the assessee in producing the additional materials/evidence before the Tribunal after the order of remand passed by this Court and confirmed by the Supreme Court. The Tribunal, therefore, did not have additional evidence/material before it to consider the claim of the assessee and in view thereof and for the reasons recorded in the impugned order held that the evidence on record is not sufficient to show that the incidence of Central Excise Duty paid on tyres and tubes, which were used in the manufacture of all four models of vehicles by the assessee, was passed on to its customers. It is necessary for the assessee who is seeking refund as contemplated by Section 11B of the Act to satisfy two conditions/circumstances namely that the applicant should be entitled for refund, and secondly, that the incidence of duty had not been passed on to the customers. While examining whether these conditions are satisfied it is necessary to bare in mind the deeming fiction in Section 12B of the Act. In the present case, it is not in dispute that the first condition stands satisfied. Therefore, what remains for us to examined is whether the incident of excise duty was passed on to the customers. Merely because, the assessee sold the vehicles at loss would not mean that the incidence of duty had not been passed on to the customers, more particularly, when the invoices issued to the customers admittedly had indicated the excise duty forming part of the price at which the vehicles were sold. If at all, the assessee suffered loss, it is clear, they suffered loss on their goods and it cannot be stated that excise duty paid by assessee was not passed on to the customers - Decided against the assessee.
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CST, VAT & Sales Tax
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2014 (1) TMI 1426
Penalty u/s 16(2) - Suppression of taxable turnover - Whether the Hon'ble Tribunal has erred in confirming the imposition of penalty under Section 16(2) of the erstwhile Tamil Nadu General Sales Tax Act, 1959 - Held that:- levy of penalty under Section 16(2) of the Act would arise only if a dealer evades payment of tax due to wilful non-disclosure. Further the Assessing Authority must record the satisfaction that the escape from assessment is due to wilful non-disclosure of the assessable turnover. As is seen from the Assessment Order, the reason recorded by the Assessing Officer for revision of assessment was that that the assessee included the entry tax paid into the price for the purpose of charging the sales tax - No ground for holding that there is a suppression of turnover with a wilful intention for the purpose of levy of penalty. The purchase price are consideration for goods, which is agreed to between the willing buyer and the seller, who admittedly, agreed for fixing the price that was inclusive of the entry tax paid and that does not mean that the assessee had wilfully suppressed the turnover. In fact, the assessee had disclosed the entire turnover in the books of accounts, which was dissented to by the Assessing Officer - Therefore, order of the Tribunal is set aside - Decided in favour of assessee.
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2014 (1) TMI 1425
Condonation of delay - Held that:- The Rules of limitation are not meant to destroy rights of parties. They virtually take away the remedy. They are meant with the objective that parties should not resort to dilatory tactics and sleep over their rights. They must seek remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. The statute relating to limitation determines a life span for such legal remedy for redress of the legal injury, one has suffered. Time is precious and the wasted time would never revisit. During efflux of time, newer causes would come up, necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. The statute providing limitation is founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finis litium (it is for the general welfare that a period be put to litigation). It is for this reason that when an action becomes barred by time, the Court should be slow to ignore delay for the reason that once limitation expires, other party matures his rights on the subject with attainment of finality. Though it cannot be doubted that refusal to condone delay would result in foreclosing the suiter from putting forth his cause but simultaneously the party on the other hand is also entitled to sit and feel carefree after a particular length of time, getting relieved from persistent and continued litigation. If delay has occurred for reasons which does not smack of mala fide, the Court should be reluctant to refuse condonation, will not help the petitioner in any manner keeping in view the kind of explanation rendered herein since I find that here is a case which shows a complete careless and reckless long delay on the part of applicant, which has remained virtually unexplained at all - No question of law, in my view, has arisen in this case, particularly when findings of fact recorded by first appellate court as well as Tribunal are also not shown perverse or contrary to material on record - Condonation denied.
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Indian Laws
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2014 (1) TMI 1414
Request for information - Right to information - The appellant has sought names of top Income Tax defaulters - Held that:- Suffice to say that an assessee can be declared a defaulter only when he has not paid taxes as per law. In other words, the Income Tax Department can declare a person a defaulter only after he has exhausted all the legal remedies available to him. Viewed thus, the disclosure of information on para 2 is covered by the ratio of this judgment inasmuch as the State itself has been able to establish prima facie grounds to accuse the individual of wrong doing through properly conducted investigations/enquiries. Appellant has sought total Income Tax dues written off in last five years, year-wise - Held that: - The appellant has sought names of top Income Tax defaulters. There is no reason why this information should not be placed in public domain. - Decided in favour of appellant.
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