TMI Tax Updates - e-Newsletter dated: October 29, 2014 - with Direct Tax, Indirect Tax and GST Updates and Updates on FTP, FEMA, IBC & Corporate Laws etc. published on TMI with Latest Case Laws

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TMI Tax Updates - e-Newsletter October 29, 2014 Case Laws in this Newsletter: Income Tax Customs Corporate Laws Service Tax Central Excise Highlights / Catch Notes Income Tax: The determination of income is on the basis of the impounded materials as a result of survey and not on the basis of any seized materials belonging to the assessee - the pre-conditions for assuming jurisdiction u/s 153C are not satisfied - AT Visit to Get Source Income Tax: Appealability of order - when an order of sale is passed by the Tax Recovery Officer, a person aggrieved by that order cannot bypass the requirements in the Schedule, by not preferring an application to set aside the sale and then opting to challenge the order passed under Rule 63, confirming the sale - HC Visit to Get Source Income Tax: Entitlement for claim of deduction u/s 35B – the activity carried would come within the purview of the provision and, therefore, the weighted deduction was allowable - HC Visit to Get Source Income Tax: Capital expenditure or revenue expenditure - the expenditure incurred in regaining this profit company unit is in the nature of a capital expenditure and not the revenue expenditure - HC Visit to Get Source Income Tax: Scope of Explanation to sec. 73 – the entire transaction carried out by the assessee was within the umbrella of speculative transaction - There was no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares - AT Visit to Get Source Income Tax: Revision u/s 263 - Erroneous and prejudicial to the interest of revenue or not - It is true that the AO is not required to pass a very detailed order but his order must show that he has dealt with various aspects of the matter and should not be a general order - AT Visit to Get Source Income Tax: Computation of MAT - Provision of sales tax - Assessing officer was entitled to adopt the net profit after suitable adjustment for the purpose of computing the book profit u/s. 115JB - AT Visit to Get Source Income Tax: Once the RBI approval of royalty rate was obtained the payment was considered to be held at arm's-length - the TPO erred in holding that no tangible benefits were derived by the assessee out of royalty payments made by it and restricted the payment to 2% of net sales - AT Visit to Get Source Customs: Denial of refund claim - Unjust enrichment - appellant have been able to show that throughout they have been showing this amount in as receivables from the customs department, in their books of account - refund allowed - AT Visit to Get Source Customs: Denial of benefit of Notification No. 14/2004 - The appellant in the present case is manufacturing oil and admittedly the RO machine is not increasing the capacity for production of oil - exemption denied - AT Visit to Get Source Service Tax: Levy and demand of service tax from the Director of Company - appellant signing the contract as the Director of the Bombay Garage (Rajkot) Pvt. Ltd. cannot be held as the service provider. - AT Visit to Get Source Central Excise: Attachment of the movable and immovable properties - priority over the rights - Preference to Banking company or Central Excise Department - Preference of Excise Department sustained - HC Visit to Get Source Central Excise: Manufacture - cold rolling of HR Coils results in emergence of a new product with distinct and different commercial identity, characteristics and uses and therefore this process would amount to manufacture - AT Visit to Get Source Central Excise: CENVAT Credit - The certificates issued by assessee’s customers to this effect, the conclusion is irrestible that sales by the assessee were on FOR basis and therefore the assessee had legitimately availed Cenvat credit on the service tax paid on the freight charges borne for its FOR sales. - AT Visit to Get Source Central Excise: Denial of refund claim of unutilized CENVAT Credit - refund in such cases of closure of factory is not provided under the statute. - AT Visit to Get Source Central Excise: NCCD - Simultaneous availment of exemption Notification and CENVAT Credit - Simultaneous availment of duty exemption and benefit of cenvat credit militates against the very object of NCCD levy and would lead to huge leakages in revenue. - AT Visit to Get Source Articles RESTAURANT SERVICES: PUNJAB AND HARYANA HIGH COURT ISSUES NOTICES TO CENTRE AND STATE Service Tax on Transfer of Development Rights of Land – A Detailed Legal Analysis Service Tax on Joint Development Agreement vis-a-vis Joint Venture Notifications Companies Law F. No. 1/18/2013-CL-V - dated 24-10-2014 - Co. Law Amendment in schedule VII of Companies Act, 2013 Income Tax 53/2014 - dated 22-10-2014 - IT U/s 120 of the Income Tax Act 1961 - Direction made by CBDT to income-tax authority to exercise the powers and perform functions and also jurisdiction as specified. Circulars / Instructions / Orders VAT - Delhi - 14/2014-15 - dated 22-10-2014 Filing of online return for 2nd quarter of 2014-15 – extension of period thereof. News RBI extends Directions on Baranagar Co-operative Bank Ltd., Baranagar, Kolkata Text of the Speech Of the Speech of Secretary (Expenditure) Delivered at the Inauguration of Cross Regional International Conference on “Increasing Financial Outreach of the Youth Population, 2014-Postal Savings Bank Forum and 90th Anniversary of World Thrift (Savings) Day RBI Reference Rate for US $ Auction for Sale (Re-Issue) of Government Stocks A Dedicated Website for Pradhan Mantri Jan-Dhan Yojana (Pmjdy ) Launched; 6.47 Crore Accounts with a Deposit of ₹ 4813.59 Crore Opened till 22nd October, 2014. Case Laws: Income Tax 2014 (10) TMI 669 Transfer pricing adjustment - Transfer of shares without consideration to be treated as gift or not – Transaction covered u/s 47(iii) or not - Held that:- It is a fact that the transfer of shares was made without consideration - there is nothing against a company making gift of its property to another company - A transfer without consideration when claimed as a gift is always a gift - It is not possible to give any other colour - There is nothing anywhere in law, which prescribes that only natural persons can make gift on the ground of “love and affection” - the lower authorities have erred in law in concluding that the assessee being a corporate body cannot make a gift – thus, the transfer of shares made by the assessee company without consideration was a valid gift and as the transaction was a gift, the transfer of shares cannot be regarded as transfer of capital asset for the purpose of capital gains taxation, as provided in sec.47(iii) of the Act - the contention of the assessee company is accepted that the transfer of shares made by the assesse company to its step down subsidiary, RIHL Cayman is a gift eligible for exemption u/s 47(iii) - no capital gains tax is imputable to the transfer of shares. Invocation of section 45 – Capital gain taxation – Held that:- As the transfer of shares was made without consideration, the foremost ingredient of computation provisions is missing and as such, capital gains cannot be computed under sec. 48 - This leads to a situation, where sec. 45 cannot be invoked and charge of capital gains taxation fails - even otherwise, as it was a transfer without consideration, no levy of capital gains tax can be made - the shares were transferred by way of gift and no income arose in the hands of the assessee - As such, ALP determination does not extend to this transaction - The gift of shares made by the assessee company cannot therefore, be subjected to TP provisions - TP provisions would apply only to those international transactions, which are liable to income tax in India – thus, as far as the issue of transfer of shares is concerned, TP provisions do not apply. Corporate and bank guarantees – Held that:- The assessee has not granted any new guarantee in the previous year relevant to the AY - reliance placed by the TPO on the definition of the term “international transaction” as retrospectively amended by the Finance Act, 2012, does not seem to be proper - The corporate and bank guarantees provided by the assessee company enable its associates to secure credit in their overseas jurisdiction - It is necessary for the associate concerns to depend on local source of funds for supporting their business activities - the assessee has provided the corporate and bank guarantees for the over-all interests of its business. Relying upon Bharti Airtel Ltd. vs. Addl. CIT [2014 (3) TMI 495 - ITAT DELHI] - providing of corporate guarantee does not involve any cost to the assessee and, therefore, it is not “an international transaction”, even under the definition of the term as amended by the Finance Act, 2012 - This is because, the guarantee provided by an assessee does not have any bearing on profits, income, loss or assets of the assessee – thus, the TP addition made against corporate and bank guarantees is not sustainable in law. ALP adjustment of trademark/license fees – Held that:- The adjustment made by the TPO is not proper - The assessee is exploiting the trademark “REDINGTON” for the purpose of carrying on its business - there is nothing uncommon in assessee’s making payment to the use of the trade-mark to M/s. Redington Distribution Pte. Ltd., Singapore - It is not necessary for the TPO to go beyond this plausible explanation, since it is a widely accepted business practice around the world - This is not an unique case for the assessee company alone - Further, it is for the assessee to decide the dynamics of its business - The assessee is the best judge to decide on such issues –relying upon S.A. Builders vs. CIT [2006 (12) TMI 82 - SUPREME COURT] - any expenditure incurred by the assessee, if justified by commercial expediency, is an expenditure allowable for the purpose of taxation and what is commercial expediency is a matter to be decided by the assessee – the addition is to be deleted – Decided in favour of assessee. 2014 (10) TMI 668 Validity of the proceeding initiated u/s 153C – Held that:- On a perusal of the assessment order, it is not forthcoming, what are the seized materials on the basis of which the assessing officer has initiated proceedings u/s 153C of the Act - the CIT(A) after examining the seized material has given a categorical finding that the so called seized materials by no stretch of imagination could be said to be belonging to the assessee – Relying upon Vijaybhai N. Chandrani Versus Assistant Commissioner of Income-tax [2010 (3) TMI 770 - Gujarat High Court] - the seized materials do not belong to the assessee - That besides, there are no incriminating materials indicating any undisclosed income of the assessee, which could have enabled the AO to invoke the provisions of section 153C of the Act - the income were determined for the assessment years 2001-02, 2002-03 & 2003-04 only on the ground that the assessee has not been approved u/s 10(23C) of the Act - The determination of income has absolutely no relation or relevance to the seized materials - the determination of income is on the basis of the impounded materials as a result of survey and not on the basis of any seized materials belonging to the assessee - the pre-conditions for assuming jurisdiction u/s 153C are not satisfied - the proceeding initiated u/s 153C of the Act is invalid in law. As rightly been stated by the assessee that on the date notice was issued u/s 153C of the Act, there is no assessment proceeding pending before the AO for the AY - in absence of any incriminating material showing concealed/undisclosed income of the assessee, the AO could not have proceeded to assess income which has already been reflected in the books of accounts and disclosed in the return of income filed by the assessee - conclusion drawn by the AO that the agricultural income is unexplained also found to be not on cogent material, because of the fact that the CIT(A) has accepted 50% of the income shown as agricultural income against which the department is not in appeal - in the remand report, the AO himself has accepted that the assessee has earned income from coconut trees and casurina plantation which can be considered as agricultural income - the proceeding initiated u/s 153C of the Act in absence of any incriminating material and only on the basis of the material already disclosed by the assessee is invalid and consequently the assessment orders passed are also unsustainable in law – Decided in favour of assessee. 2014 (10) TMI 667 Appealability of order under Rule 86 - appeal against an order of the Tax Recovery Officer confirming the sale - Held that:- As decided in Subash Chand Goyal Versus Tax Recovery Officer And Others [2002 (2) TMI 75 - ALLAHABAD High Court] - an appeal would lie against an order of the Tax Recovery Officer confirming the sale - The decision proceeds on the basis that, for the purposes of Rule 86, an appeal would lie from any original order passed by the Tax Recovery officer, which is not in the nature of an order that is conclusive, and, therefore, an order by the Tax Recovery Officer confirming the sale, not being one that is made conclusive under Second Schedule to the Income Tax Act, the order would be an appealable order for the purposes of Rule 86. The act of confirmation of sale by the Tax Recovery Officer is in terms of Rule 63 of the Second Schedule - when an order of sale is passed by the Tax Recovery Officer, a person aggrieved by that order cannot bypass the requirements in the Schedule, by not preferring an application to set aside the sale and then opting to challenge the order passed under Rule 63, confirming the sale - To allow a person to do so, would do violence to the procedural scheme contemplated in the Second Schedule – there is no reason to interfere with the findings of the CCIT on the maintainability of an appeal, against the order confirming the sale in this case – Having sold her interest over the property to a third person, the petitioner effectively lost her right to maintain a challenge against the actions of the Department in an appeal preferred under Rule 86 of the Second Schedule - Decided against the appellant. 2014 (10) TMI 666 Accrued interest - Mercantile System of Accounting maintained - Whether the Tribunal is right in deleting the accrued interest added by the AO when amounts were advanced by the Assessee to Shri Budh Holdings & Trading Co. (P) Ltd and Shri Bahi & Co. (P) Ltd. and when the Assessee was maintaining Mercantile System of Accounting – Held that:- The Tribunal was right in accepting the contention of the assessee – following the decision in SHRI APARA TEXTILE TRADERS LTD. Versus INCOME TAX OFFICER [1988 (10) TMI 57 - ITAT AHMEDABAD-C ] - the addition of notional interest income made by the AO and confirmed by the CIT(A) was deleted by the Tribunal – thus, the addition of notional interest income made in the case of the assessee for both the years deserves to be deleted – Decided against revenue. 2014 (10) TMI 665 Validity of reopening of notice u/s 148 – Notice issued by AO to safeguard against a future contingency - Held that:- The notices have been issued in respect of the amount as bogus sales resulting in disallowing deduction u/s 80IA of the Act for AY 1998-99 and 1999-2000 – assessee contended that on the date when the notices were issued namely dated 28 March 2005 and 3 February 2006 the AO could not have had any reason to believe that income chargeable to tax has escaped assessment u/s 148 of the Act - This is for the reason that the block assessment order has been passed by the AO bringing to tax an amount of ₹ 11.04 crores and ₹ 15.10 crores on account of disallowance of deduction u/s 80 IA of the Act. There is statutory bar prohibiting the revenue from subjecting to tax income under regular assessment as the same has already been subjected to tax as block assessment under Chapter XVIB of the Act – the notices are clearly without jurisdiction and bad in law – relying upon CIT vs. H.N. Shindore [1976 (8) TMI 19 - BOMBAY High Court] – the notices were issued to the petitioner - the notices were more in the nature of protective assessments and would come to the aid of the revenue in case the block assessment orders are found not sustainable – thus, the issue of notices u/s 148 of the Act to safeguard against a future contingency is not permissible – Decided in favour of assessee. 2014 (10) TMI 664 Entitlement for claim of deduction u/s 35B – Commission paid to Shri C.G.S. Mani - Whether the Tribunal was rightly in holding that the commission paid by the assessee to Shri C.G.S. Mani amounted to maintenance of an agency within the meaning of clause (iv) of section 35B(1)(b) – Held that:- The Tribunal was rightly of the view that the agreement with Shri Mani records that Shri Mani is appointed as representative of the assessee for export to the countries mentioned in the agreement - He has been given suitable authority to negotiate and conclude any business and trade contracts with the organisation in the countries for supply of stores and goods to the countries mentioned in the agreement and/or for goods and stores to be supplied by the countries mentioned in the agreement to Indian parties - assessee claimed weighted deduction on account of proportionate administrative expenses – relying upon Commissioner of Income Tax V/s. Stepwell Industries Ltd. [1997 (8) TMI 5 - SUPREME Court] - the activity carried would come within the purview of the provision and, therefore, the weighted deduction was allowable – thus, the order of the Tribunal is to be upheld – Decided against revenue. 2014 (10) TMI 663 Accrual of income - Acquisition of right to receive balance consideration - Whether the assessee has acquired the right to receive the balance of 10% of the consideration for the electrical conductor supplied to its customer – Held that:- The Tribunal has rightly dealt with the matter extensively and relying upon Seth Pushalal Mansinghka (P.) Ltd., v. Commissioner of Income-tax [1967 (5) TMI 1 - SUPREME Court] - an assessee can be said to have received the income, only when corresponding right has accrued to him - an income accrues to an assessee not only when it is due to him, but also it is accompanied by a corresponding obligation on the part of the other party, to pay it - though an assessee may claim a particular amount as of right, it cannot be treated as his income, unless the corresponding obligation is either accepted by, or fastened upon, the other party; in accordance with law - assessee was no doubt entitled to receive 10% of the consideration for the goods supplied by it - the corresponding obligation of the recipient of the goods would have arisen only when a certificate, to the effect that the quality conform to the specifications - That event did not take place, by the time the order of assessment was passed – the order of the Tribunal is upheld – Decided against revenue. 2014 (10) TMI 662 Liability to pay capital gains tax or not – Agricultural land or not - Assessee acquired rights vis-a-vis an item of immovable property of agricultural land – Held that:- The rights were acquired by the assessee through MOU, dated 25.12.1993 vis-a-vis the property - the Tribunal rightly found that the possession of the property was delivered in favour of the person, who joined the transaction - Those facts in turn brought about transfer within the meaning of Section 2(47)(v) of the Act - Therefore, the assessee has acquired a right to transfer the same atleast from the point of view of income tax - The sale proceeds to the extent of the share of the asseessee would certainly answer the description of capital gains - However, the classification of the land as the one of agricultural in nature, exempts the assessee from the obligation to pay the capital gains tax – AO did not undertake the required amount of discussion vis-a-vis the nature of rights, which the respondent had acquired through the MOU and parted with other documents - notwithstanding the expressions used either by the assessee or by the officers and authorities under the Act, they are in relation to an item of immovable property and that property in turn is an agricultural land – thus, there was no merit in the appeal – Decided against revenue. 2014 (10) TMI 661 Unclaimed credit balances excluded but included in part of book profits – unilateral action by the assessee in writing back a liability - addition u/s 41(1) - Held that:- The tribunal proceeded on the assumption the appellate commissioner has recorded a finding of fact after verification of the materials that these amounts were already included in sales turnover of respective years and suffered tax - The Assessing Authority asserts that no records were produced before it - No records were produced before the Appellate Authority also. Both the Appellate Authorities have not looked into the records - The Assessing Authority did not look into the records because the records were not produced before it - the findings recorded by the Appellate Authorities is based on no evidence and it cannot be sustained - matter remanded back for reconsideration. Payment made to perfect its title and the right to manufacture IMFL – Capital or revenue in nature - Held that:- This unit run by SDPL was running under loss - It was taken on lease by them from the sister concern of the assessee - Then the assessee granted the licence to manufacture the assessee’s products - It is properly attributable to capital and capital expenditure - It is not a case where the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct the assessee’s business to be carried on more efficiently or more profitably - It is not the expenditure which is incurred to improve the business of the concern or spend for its expansion of its business or for substantial replacement of its equipment - This amount is paid to regain the profit making unit which had gone out of the hand of the assessee and the expenditure incurred in regaining this profit company unit is in the nature of a capital expenditure and not the revenue expenditure - the Appellate Authorities were not justified in recording a finding to the contrary solely based on the judgments referred by them when those judgments expressly stated in every case which should matter and only in that context the law has to be applied – Decided in favour of revenue. 2014 (10) TMI 660 Reopening of assessment u/s 147 r.w section 148 - Held that:- Nothing new tangible material was available before the AO for reopening the assessment and consequently, the AO acted on the same material, which was available before him at the time of original assessment – following the decision in CIT Vs. Kelvinator India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - It cannot be accepted that only because in the assessment order, detailed reasons have not been recorded, an analysis of the materials on the record by itself may be justifying the AO to initiate a proceeding u/s. 147 of the Act - When a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind - a presumption can also be raised to the effect that in terms of section 114(e) of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed - If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without any thing further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong – thus, the reopening u/s. 147 r.w.s. 148 of the Act is bad in law – Decided in favour of assessee. 2014 (10) TMI 659 Scope of Explanation to sec. 73 – Deemed speculative loss or not - Whether delivery based share trading loss come under the ambit of Explanation to sec. 73 of the Act or not – Held that:- The assessee is engaged in the business of share trading which involves stock and share broking activities, purchase and sale of delivery based shares and purchase & sale of non-delivery based shares i.e., derivative trading - assessee incurred loss on delivery based purchase and sale of shares and earned profit on non-delivery based sale purchase of shares - both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of "speculative transaction" exclusively for purposes of section 28 to 41 of the Act - both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) is concerned goes to confirm that both will have same treatment as regards application of the Explanation to Section 73 is concerned, which creates a deeming fiction. Before application of the said Explanation, aggregation of the business profit/loss is to be worked out irrespective of the fact, whether it is from share delivery transaction or derivative transaction – relying upon assessee’s own case as decided in Commissioner of Income Tax, Kol-III Versus M/s. Baljit Securities Pvt. Ltd. [2014 (6) TMI 475 - CALCUTTA HIGH COURT] - where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the assessee shall be deemed to be carrying on a speculation business - The assessee is a share broker, as already indicated - The assessee is also in the business of buying and selling of shares for self where actual delivery is taken and given and also in buying and selling of shares where actual delivery was not intended to be taken or given - the entire transaction carried out by the assessee was within the umbrella of speculative transaction - There was no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares – thus, the order of the CIT(A) is upheld – Decided against revenue. Invocation of section 14A – Held that:- A plain reading of Rule 8D(2)(ii) and (iii) can only be applied, in the situations, wherever share are held as an investment and this rule will not have any application when the shares are held as stock in trade – relying upon DCIT Vs. Gulshan Investment Co. Ltd. [2013 (3) TMI 393 - ITAT KOLKATA] - the provisions of Rule 8D(2)(ii) and 8D(2)(iii) of the I.T. Rules, 1962 will not be attracted to dividend earned from shares held as stock in trade - the provision of section 14A are indeed attracted whether or not the shares are held as stock in trade or as investments, even though the provisions of rule 8D2(ii) and (iii) cannot be invoked in such a case, and even though the provisions of rule 8D2(1) are much narrower in scope than the scope of section 14A simplicitor – thus, the order of the CIT(A) is upheld – Decided against revenue. 2014 (10) TMI 658 Classification of expenses – Capital or revenue expenses - expenses on conversion of WBM Road into Concrete Road – Held that:- The road is provided for enduring benefit to assessee Expenditure incurred on repair of roads by appellant is revenue expenditure and allowable u/s 37 – following the decision in CIT vs. Pandian Chemicals Ltd. [1997 (4) TMI 38 - MADRAS High Court ] - the road within the factory premises should be treated as a part of the building and the assessee shall accordingly be eligible to depreciation. Expenditure though may be for enduring benefit if incurred for augmenting revenue generating apparatus of the assessee's business is to be allowed as a Revenue expenditure - the assessee's premises is involved with huge and heavy vehicle traffic movement and having the proper road and its maintenance will increase the efficiency of movement of raw materials as well as clearance of finished goods – the order of the CIT(A) is upheld – Decided against revenue. Enhanced depreciation on guest house – Held that:- The harmonious construction of these two sections makes it clear that for the purpose of depreciation, the WDV means actual cost of the asset as reduced by the depreciation actually allowed in the past - even though depreciation was claimed by the assessee during the AYs 1986-87 to AYs 1997-98, it was not allowed in view of provision of Section 37 (4) of the I.T. Act - Since no depreciation was actually allowed to the assessee, the WDV for this year has to be enhanced by an amount of depreciation, which was claimed by the assessee in the past but not allowed by the Department – relying upon Smt. Laxmi vs. DCIT [2006 (2) TMI 60 - HIGH COURT, KERALA] – Decided against revenue. Non-inclusion of Excise Duty in the closing stock u/s 145A – Held that:- Statutory auditors have certified that even though provision for Excise Duty has not been made on closing stock, it has no impact on profit for year - assessee also explained before AO that in any case the entire amount of Excise Duty on closing stock was duly paid before due date of filing of return - assessee valued its closing stock as per consistently followed practice of excluding the Excise Duty element of valuation of closing stock, it has no effect on the profit and loss a/c - Besides closing outstanding Excise Duty amount as on 31-03-2000 has been duly paid before the due date of filing of return of income u/s 139(1) - Copy of the challan evidencing payment of Excise Duty was produced before AO - the corresponding debit of Excise Duty of an identical amount to the profit and loss account shall be deductible in view of the provisions of Section 43B of the Act read with first proviso thereto - the order of CIT(A) is upheld – Decided against revenue. 2014 (10) TMI 657 Income from royalty from M/s. DP Lanka Pvt. Ltd. – Accrual of income - Whether the assignment of accrual of royalty from the Sri Lankan subsidiary namely M/s. DPLPL results into non-taxability of the royalty income in the hands of the assessee company - Held that:- Following the decision in Provat Kumar Mitter. Vs. CIT [1960 (12) TMI 8 - SUPREME Court] - fundamental principle is that an application of income is an allocation of one's own income after it accrues or has arises, although such application may be under a contract or obligation, whereas diversion of income is that which diverts away or deflects before it accrues to or reaches the assessee and it is received by him only for the benefit of the person who is entitled to the income under an overriding charge or little - there is accrual of income to the appellant - The assignment of the income by the appellant cannot waive the liability under the Act - The accrual of the royalty would take place as soon as Pizza is sold by M/s. DPLPL in Sri Lanka - The accrual of royalty is not dependent upon the repayment of loan by the Sri Lankan company to the Ceylon Bank - The assessee's liability to pay to the Sri Lankan/ Ceylon Bank arises because the assessee stood as a corporate guarantor for the loan from the Sri Lankan / Ceylon Bank to the Sri Lankan entity - The utilization of the royalty money by the Sri Lankan entity to the Ceylon Bank will not affect the accrual of royalty to the assessee - The subsequent payment thereof of Sri Lankan Bank is only the application of that accrued royalty for and on behalf of the assessee – thus, the addition made by the CIT(A) is upheld – Decided against assessee. Expenses on sundry balance written off – assessee was not able to provide the details of the sale to which the amount relates – expenses on meeting the accident expenses of the employee – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been decided in DCIT, Circle 4(1), New Delhi Versus Jubilant Foodworks Pvt. Ltd. [2014 (8) TMI 458 - ITAT DELHI] - The AO has not examined whether the debt has been written off in accounts of the assessee - When bad debt occurs, the bad debt account is debited and the customer’s account is credited, thus, closing the account of the customer - In the case of Companies, the provision is deducted from Sundry Debtors - Following the decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] - no appeal was filed by the revenue against the deletion – Decided in favour of assessee. Classification of expenses - Capital or revenue - Franchisee fee disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been decided in DCIT, Circle 4(1), New Delhi Versus Jubilant Foodworks Pvt. Ltd. [2014 (8) TMI 458 - ITAT DELHI] - CIT(A) has considered each and every aspect of the matter before arriving at the conclusion as drawn by him - the assessee had acquired only access to the technical information and there was no transfer of ownership with respect to the process and the know-how under the agreement in favour of the assessee - the payment could only be categorized as one made on revenue account - the assessee had acquired right only to use/only access to the technical information and there was neither transfer of ownership with respect to the process and the know-how nor of the brand or the trade mark in question under the agreement in favour of the assessee - Therefore, this payment is in the nature and character of revenue expenditure and not capital – Decided against revenue. Depreciation on computer peripherals @ 60% - Held that:- CIT(A) has deleted the addition following the orders of the Hon'ble High Court in COMMISSIONER OF INCOME TAX Versus BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. [2010 (8) TMI 58 - DELHI HIGH COURT] - The only contention of the Revenue is that it has preferred on SLP against the order of the HC so – revenue could not bring to our notice any interim order of stay by the Hon'ble Supreme Court in respect to the operation of the order of the Hon'ble High Court relied by the CIT(A) granting relief to the assessee - In the absence of the same, Tribunal is bound by the binding precedent laid down by the Hon'ble Jurisdictional High Court - CIT(A) has rightly relied upon the order of the Hon'ble High Court in BSES Yamuna Power Ltd and there was no infirmity in the order of the CIT(A) – Decided against revenue. 2014 (10) TMI 656 Jurisdiction of the CIT to invoke section 263 - Erroneous and prejudicial to the interest of revenue or not - Failure of AO to examine taxability of sale proceeds of the land as business income as against capital gains as offered in Return of Income or not – Held that:- As decided in Malabar Industrial Co. Ltd. vs. CIT [2000 (2) TMI 10 - SUPREME Court] - no specific query was raised by the AO about the amounts received on sale of land as income from business - even after the receipt of reply about the details about the sale of various pieces of land, no further query was raised by the AO about the treatment of tax of the receipts on sale of land and the AO had accepted the submissions of the assessee - AO has not inquired about the details of the land development expenses, amount of advance received by the assessee, details of sales made to parties - CIT has rightly exercised the powers by invoking the provisions of Section 263 - It is true that the AO is not required to pass a very detailed order but his order must show that he has dealt with various aspects of the matter and should not be a general order - while setting aside the assessment, CIT has directed the A.O. to compute the assessee's income by treating the profit on sale of land as income from business instead of short term or long term gains - CIT cannot direct the AO to make the assessment in a particular way – thus, the order of the CIT is to be modified to the extent of deleting the direction of CIT to treat the profits as business income and thus modify the direction to AO to decide the matter of taxation on sale of land as per law – Decided against assessee. 2014 (10) TMI 655 Disallowance u/s 14A(1) – Applicability of Rule 8D - Held that:- CIT(A) has very appropriately, considered and dealt with the assessee’s objection - The assessee’s revenue streams are from trading operations, sale of investments, dividend and interest - It is maintaining composite accounts for its indivisible business, or qua its business segments, determination of any expenditure attributable to exempt income becomes relevant in view of section 14A as explained in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - The volume of the expenditure incurred in relation to a particular activity or income there-from, is a matter of fact, so that its estimation is again a factual matter – If with no prescribed rule or basis, and without even discussing the merits of the method chosen, a method is adopted to resolve an issue, which is essentially one of quantification, and which is accepted by either party or even both, if only to give a quietus to the matter, the same is not reflective of its merits, much less of it being held out as a precedent - Rule 8D becomes effective, and mandatorily so, w.e.f. the current year – there was no scope for either non-application of, or even scaling down of the amount workable with reference, to r. 8D(2)(iii) where the shares, on which the exempt income is received, are held as stock-in-trade, for the disallowance of interest u/r.8D(2)(ii). The disallowance under r. 8D has to be in any case restricted to the amount of the relevant expenditure actually claimed per the return of income – thus, the matter is to be remitted back to the AO to allow the assessee an opportunity to present its case before him with reference to the expenditure claimed as also including expenditure which is in fact not relatable to the income not forming part of the total income - assessee is also in the business of share trading, so that the direct expenditure in respect thereof would also stand debited in its accounts and, accordingly, claimed - The onus to establish its case would only be on the assessee, which the AO shall decide by issuing definite finding/s of fact/s, limiting the disallowance under r.8D(2)(iii) to the amount of expenditure as so determined by him – Decided partly in favour of revenue. 2014 (10) TMI 654 Reopening of assessment – Computation of profits - Assessee submitted that the only reason recorded is that agricultural income reduced from the net profit is ₹ 81,47,859/- in place of ₹ 5,229 in normal computation – Held that:- The assessment was reopened on the reason that while computing business loss under the normal provisions of the Act, the assessee added back to the income as per P&L A/c., agricultural expenses amounting to ₹ 10,943/- and subtracted agricultural income of ₹ 5,228 - While making adjustments from the net profit, in order to arrive at book profit for the purpose of MAT, only those sums can be deducted which are credited to the P&L A/c - Since the assessee had credited only ₹ 5,228 under other income, this alone can be subtracted. The procedure for income that has escaped assessment under section 147 is contained in section 148 whereunder sub-section (2) makes it mandatory for the Assessing officer to record reasons before proceeding to issue notice - once assessment is reopened after recording reasons, the AO has to complete the income escaping assessment by following the provisions of the Act as if the return furnished against notice u/s. 148 as one filed u/s. 139 of the Act - as procedure to be followed is concerned, there is no difference between income escaping assessment and regular assessment because the provisions generally provide for issue of notice, hearing of the assessee and taking of evidence, etc., which are the same for regular assessment and income escaping assessment - Therefore, in the course of income escaping assessment, if it comes to the notice of the AO that any other item or items of income other than the item of escaped income for the assessment of which, assessment originally completed was reopened, also have escaped from original assessment, he is bound to assess such item or items of income also in the course of reassessment u/s. 147 - In view of the specific provision providing for assessment of other items of income that have escaped assessment, and that comes to the notice of the AO in the course of income escaping assessment, the reassessments made are valid – Relying upon Commissioner of Income-tax Versus TBS Publishers and Distributors [2009 (11) TMI 406 - KERALA HIGH COURT] - there is no infirmity in the order of the CIT(A) on this issue – Decided against assessee. Computation of MAT - Provision of sales tax disallowed – Whether the AO was entitled to disturb the net profit shown by the assessee in the profit and loss account prepared as per the Companies Act, 1956 - Held that:- The assessee had contended that the AO was not entitled to make adjustments to book profit shown in the audited accounts - there is an option for the companies not to follow the accounting standards, if it feels so for any reason - Such deviation may have impact to the profit disclosed in the profit and loss account prepared in accordance with Part II and part III of Schedule VI of the Companies Act - Hence in order to enable anybody to understand the implication of such deviation, it was made mandatory for the companies to disclose the financial implications of such deviation - Such kind of deviations are acceptable under the Companies Act, however, they are not always acceptable to the income-tax authorities - Under the income-tax, the AO is entitled to examine the deviations, particularly when it has an impact on the book profit - There cannot be any dispute that it is the responsibility of the assessee to substantiate the legality of any item of expenditure/income found debited/credited in the profit and loss account by drawing support from any document or business practices or accounting requirements. Prior period charges/credits in P&L A/c – Held that:- The assessee had passed the entry for prior period credits/charges in the AY only to ensure that the final book profit (surplus) was to be reduced – the intention of the assessee was very much apparent and glaring - the assessee also could not substantiate the claim with a legally tenable explanation - It was also not shown that the booking of such kind of entries are permitted under the accounting principles - the Assessing officer was entitled to adopt the net profit after suitable adjustment for the purpose of computing the book profit u/s. 115JB – Decided against assessee. The assessee had continuously appeared before the assessing authority as well as before the CIT(A) and participated in all the re-assessment proceedings, answered all queries raised by the AO - even if there is any discrepancy in the format of the notice u/s. 143(2), i.e., non- adherence to some prescribed rule or mode of proceedings, it does not make the assessment orders null and void - Nullity is where there is a void act or an act having no legal force or validity – the AO have followed the rule prescribed, has given adequate opportunity of hearing to the assessee and there is no failure to consider the various objections raised by the assessee in its letters, does not amount to nullity in law – Decided against assessee. 2014 (10) TMI 653 Addition of various incomes deleted - Income from Business Service Centre, letting out services like communication, couriers, provision of electricity, air- conditioning and DC sets are assessable under the head 'income from other sources' in connection with the letting out of business services centre – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been rightly held that it is a case wherein income from lease of premises has to be segregated from the income from services and only income from lease should be assessed as income from house property against which only standard announce of 30% should be allowed - The other receipts should be assessed as income from other sources and expenditure incurred on the provision of such services should he allowed as per sec.57 after verification - This proposal was accepted even by the assessee - the incomes should be assessed separate as income from house property and service charges collected to be assessed separately as income from business and profession after allowing expenditure incurred against provision of such services after verification of the same. Accordingly this ground is partly allowed - this ground of appeal is partly allowed as a part of the service charges collected is to be considered as 'Income from Business and Profession' / 'Income from Other Sources' – thus, the order of the CIT(A) is to be upheld - Decided against revenue. Non-deduction of TDS on commission paid to directors u/s 40(a)(ia) – Requirement u/s 194H fulfilled or not – Held that:- The tax deducted at source was deposited before the due date of filing the return under section 139(1) of the Income Tax Act – following the decision in CIT vs. Rajinder Kumar [2013 (7) TMI 454 - DELHI HIGH COURT] the proviso to section 40(a)(ia) as amended by the Finance Act, 2010 are free from any ambiguity and doubt and clearly support the view that the expression "said due date" in clause (A) to the proviso to unamended section refers to the time specified in section 139(1) of the Act - the amendment vide Finance Act, 2010 as a remedial and therefore the payment of tax deducted at source before the due date of return of income u/s 139(1) is sufficient compliance of provisions of section 40(a)(ia) and no disallowance of the expenditure can be made – the order of the CIT(A) is upheld – Decided against revenue. Disallowance u/s 14A read with Rule 8D – Held that:- Out of total investment of ₹ 59.22 crore, the investment to the extent of ₹ 33.80 crore is in the subsidiaries of the assessee - even in the subsidiaries of the assessee the investment of ₹ 32.80 crore has been made in CG International BV which is a foreign company and the dividend on such investment is not tax free as per the provisions of section 10 - the provisions of section 14A are not attracted to the extent of the investment in the foreign company – the AO is directed to exclude the investment made in the foreign company for the purpose of disallowance under section 14A. Sufficiency of funds - Whether the assessee had sufficient funds for the investment which generates the tax free income – Held that:- Out of the total investment of ₹ 59.22 crore during the year an investment of ₹ 32.80 crore is in the foreign company and therefore after excluding the investment the investment during the year generating the tax free income comes to ₹ 26.42 crore only - there is an increase in the assessee's own fund to the tune of ₹ 300 crore and at the same time there is a decrease in the loan funds during the year to the tune of ₹ 228 crore. Therefore, even if its presumed that out of the ₹ 300 crore increase in the assessee's own fund a sum of ₹ 228 crore is used for repayment of the loan during the year, still the assessee would have a sum of ₹ 72 crore available for investment - Since the investment in the domestic companies is only to the extent of ₹ 26.42 crore during the year, the assessee's own fund is more than sufficient to meet the investment during the year - no disallowance u/s 14A is called for on account of interest expenditure when the assessee's own fund is more than sufficient for the investment generating tax free income. Administrative expenses – Held that:- For taking an investment decision a high level thought process is required and therefore when the assessee has made investment during the year the provisions of section 14A are applicable on account of administrative expenses - out of the total investment of ₹ 59.22 crore a sum of ₹ 33.80 crore has been invested in the subsidiary companies, therefore for the purpose of disallowance under section 14A by applying rule 8D the investment made in the subsidiaries and in the foreign company shall be excluded - The apportionment of the administrative expenses can be made only by considering the investment in the domestic companies other than the subsidiary company – the AO is directed to re- compute the disallowance under section 14A in respect of the administrative expenses by excluding the investment in the subsidiaries and in the foreign companies – Decided partly in favour of assessee. 2014 (10) TMI 652 Condonation of delay to be granted or not – Liberal approached adopted - Claim of remuneration paid to partners – The explanation of the assessee for delay in filing the appeal before the CIT(A) was that a rectification application was pending before the AO and it was not decided by the CIT(A) - Held that:- A specific ground was also taken by the assessee that the AO has not disposed of the rectification application within the period of six months - This ground of the assessee was not decided by the CIT(A) in his order - So far as the finding of the CIT(A) that the pendency of application u/s.154 cannot be termed as a sufficient cause for filing the appeal is concerned, there is no infirmity of finding that the provisions of section 250 and section 154 of the Act, operate in different field - while considering the question of limitation in taxing matter, a liberal approach has to be adopted – relying upon N.Balakrishnan vs. M.Krishnamurthy [1998 (9) TMI 602 - SUPREME COURT OF INDIA] - Revenue could not point out that there was any deliberate act for delay or the assessee has tried to take advantage of delay - The Revenue also could not point out any mala fide on the part of the assessee. CIT(A) ought to have examined whether there is a deliberate attempt on the part of the assessee to avoid liability of tax in making belated claim and thereby filing the appeal after prescribed period - the delay in filing of the appeal is about a month - taking a liberal view the delay is condoned and the appeal is to be remitted back to the CIT(A) for fresh adjudication – Decided in favour of assessee. 2014 (10) TMI 651 Transfer pricing adjustments - Restriction of payment of royalty to 2% instead of 5% and 4% of net sales – Held that:- The assessee was being rendered technical assistance through the royalty agreement entered into with Owens Corning Invest Cooperatief U.A., Netherlands and the royalty agreement has been in application from 1.7.2008 - the TPO was incorrect in going into the business expediency of payment of royalty and arriving at the conclusion of the quantum of the royalty – relying upon CIT vs. EKL Appliances [2012 (4) TMI 346 - DELHI HIGH COURT] - if the expenditure has been incurred or laid out for the purposes of business it is no concern of the TPO to disallow the same on any extraneous reasons - the assessee has claimed that the royalty payments were based on agreement which was approved by RBI and hence the TPO cannot question the same. Once the RBI approval of royalty rate was obtained the payment was considered to be held at arm's-length - the TPO erred in holding that no tangible benefits were derived by the assessee out of royalty payments made by it and restricted the payment to 2% of net sales – the transactions made under Royalty agreement approved by RBI are to be considered to be at arm's-length – Decided partly in favour of assessee. Claim of depreciation @ 25% - Whether non-compete fees paid by the assessee company is eligible to claim depreciation at 25% or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that applying this principle of construction, if the business or commercial right of a patent, trademark, license, franchise etc, fulfilled the condition of being intangible assets, then, the payment made by the assessee company towards non-compete fee also fulfilled the condition by way of a logical corollary - the non-compete right is eligible for depreciation u/s 32 (1) (ii) of the act - when the provisions of the Act make the assessee eligible for depreciation in respect of an intangible asset, assessee has to be allowed the same, notwithstanding any ambiguity which the Income-tax Rules may give rise to, since the statutory legislation, viz., provisions of a statute prevail over the rules framed thereunder - the revenue allowed depreciation for the aforesaid intangible asset in the scrutiny assessment as well - Even though principles of res judicata have no application to income-tax proceedings, principle of consistency has to be respected and followed - payments made towards acquiring marketing network rights have also to be treated as payments made for acquiring commercial/business rights akin to know-how, patent, trade mark, licences, franchises, etc. which are eligible for depreciation – thus, the order of the CIT(A) is to be set aside and the AO is directed to allow the claim for depreciation on payments made by the assessee by way of non-compete fee and for acquiring rights over market network – Decided against revenue. 2014 (10) TMI 650 Administrative and collection charges disallowed u/s 14A Held that:- The AO was of the view that the assessee has made investment of ₹ 21,14,07,850/- and the assessee has paid interest on borrowed funds of ₹ 40,10,861 the AO as well as CIT(A) could not pinpoint any error in the computation of disallowance made by the assessee of ₹ 2,00,000/- in earning tax free dividend income - disallowance of ₹ 6,22,228/- could not have been sustained CIT(A) relying upon CIT vs. Consolidated Photo Finvest Ltd [2012 (7) TMI 312 - DELHI HIGH COURT] thus, the order of the CIT(A) is to be set aside Decided in favour of assessee. Restriction of Travelling expenses Held that:- The AO made a disallowance of 50% of directors' travelling expenses to the income of the assessee on the ground that the assessee had not justified the reasons for incurring of the expenses which were more than five times of expenses incurred on other employees and the assessee has not produce vouchers in support of its claim - the estimated disallowance sustained by the CIT(A) - it is seen that the fact that the travel was undertaken entirely for business purposes has not been established the order of the CIT(A) is upheld Decided against assessee. Addition u/s 40(a)(ia) Effluent treatment charges paid by assessee - Held that:- CIT(A) rightly was of the view that the decision in Sing Killing Vs. ITO [2002 (3) TMI 39 - GAUHATI High Court] is to be followed - TDS provisions were not applicable on services rendered by the attendant association to members - the contribution made by the assessee to its association Vapi Waste Effluent Management Company as a member cannot be classified as payment for contractual services as covered u/s. 194C of the Act revenue could not bring any material on record to show that the payments were covered under the provisions of section 194C of the Act thus, the order of the CIT(A) is upheld Decided against revenue. Overseas freight expenditure Held that:- CIT(A) rightly was of the view that the decision in ITO vs. Freight Systems India Private Ltd. [2005 (10) TMI 229 - ITAT DELHI-F] is to be followed - demurrage charge or handling charge or any other amounts of similar nature are treated at par with carriage freight payable to the ship owner or charter - amounts in the nature of demurrage etc. which may not end up being paid to non-residents are treated as amounts falling within special provisions of section 172 - This has been clarified by CBDT in Circular No. 723 of 1995 where such amounts have been taken outside the purview of the section 192C - where payments are made to shipping agent of non-resident owner or chartership at a port in India, provisions of section 172 will be applicable because the agent steps into the shoes of the owner - These charges are not covered under the provisions of law and no deduction of tax is called for u/s. 194C of the Act revenue could not point out any specific error in the order of the CIT(A) thus, the order of the CIT(A) is upheld Decided against revenue. 2014 (10) TMI 649 Validity of reassessment u/s 143 r.w section 147 – Change of opinion - Nexus between the reasons recorded and additions made in the guise of escapement of income or not – Held that:- CIT(A) erred in holding that the AO had valid reasons to reopen the assessment of Assessee-company to examine the veracities and financial implications between Assessee-company and M/s. Satyam Computer Services Limited - there is no rationale nexus with such statement by Sri Ramalinga Raju and reassessment made - even though the assessment was reopened to examine the transaction between M/s Satyam computers and assessee, no such exercise was undertaken and no findings were given on that issue - The additions made are routine disallowances out of already allowed expenditure in original assessment - There is no nexus between the reasons recorded and additions made in the guise of escapement of income – relying upon Ganga Saran & Sons P. Ltd. vs. ITO and others [1981 (4) TMI 5 - SUPREME Court] – AO had no tangible material to come to the conclusion that there was escapement of income from the original assessment. The assessment made u/s 143(3) has been wrongly reopened u/s 147 beyond period of 4 years, as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself - The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening – thus, there being no nexus or live-link with the reasons recorded and the ‘formation of belief’ to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being ‘no tangible material’ for the reopening of the assessment, the CIT(A) erred in confirming the order of the AO – hence, the reopening of the assessment u/s 147 is bad in law and is to be quashed – Decided in favour of assessee. Customs 2014 (10) TMI 689 Denial of refund claim - Unjust enrichment - Held that:- doctrine of unjust enrichment would be applicable in the case of deposit of disputed amount. However, the appellant have been able to show that throughout they have been showing this amount in as receivables from the customs department, in their books of account. This has been supported by a Chartered Accountant certificate dated 24-11-2006. The ld. advocate on instruction from the appellant also made a statement that at present position is unchanged. Further the department has not challenged the veracity of the Chartered Accountant certificate and the balance sheet produced by the appellant. Commissioner’s order is not sustainable and hence set aside - Following decision of UOI v. Jain Spinners Ltd. [1992 (9) TMI 88 - SUPREME COURT OF INDIA] - Decided in favour of assessee. 2014 (10) TMI 674 Classification of goods - Bituminous Coal or Steam Coal - benefit of lower rate of duty - benefit of concessional rate of duty under Notification No. 12/2012 - Held that:- Following decision of M/s COASTAL ENERGY PVT LTD AND OTHERS Versus COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX [2014 (8) TMI 246 - CESTAT BANGALORE] demand confirmed - Accordingly the impugned order is upheld as far as demand for customs duty and interest thereon if any. Penalty and redemption fine are set aside - Decided partly in favour of assessee. 2014 (10) TMI 673 Revocation of Custom House Broker’s Licence - Held that:- Conclusion reached by the Commissioner that the appellant did not fulfill all the conditions under Regulation 11(n) may not be proper. In the absence of non-existence of the importer and in the presence of authorization by the importer and when the importer is present, we cannot expect a custom house agent to go on investigating as to why a person has filed so many bills of entry and what are the goods coming and what is happening. This is the job of investigating agencies which are engaged in this work in custom house as well as in DRI. No doubt because of their role only these facts have come out. Under these circumstances, it will be difficult to sustain the stand that the offence is so grave that licence of the broker cannot be continued to undertake this activity further. So long as a CHA takes responsibility over the work of his employee and exercises adequate care and supervision, there is nothing wrong or there cannot be anything wrong if the proprietor does not attend to day to day work but exercise only supervision. In the statement there is no indication and no clarification has been asked as to what kind of supervision he exercised over his staff and how he tried to ensure that they did not do any mischief. It has to be taken note that in this case the concerned clerk had been given an ‘H’ Card and therefore it cannot be said that he was totally an unauthorized person or unknown person or unqualified person for this purpose. Unfortunately department has not proved this by investigating the issue by looking on this issue from a different angle. What emerges is the fact that overall the supervision over the work of Shri. Saravanan was not very strict and generally he was given a free hand. Therefore we find that in this case it cannot be definitely said that the CHA has performed to the levels accepted by him. At the same time whether the broker licence should be suspended and revoked on these grounds is a question with which we are not able to agree with the Commissioner totally. Probably in this case the punishment is too harsh - order of revocation of licence of the customs broker is set aside and the Commissioner is directed to issue the licence afresh. It is made clear that the order imposing penalty of ₹ 50,000/- and forfeiting the security already deposited by the appellant is upheld. In the result the appellant will have to apply for a fresh licence and deposit fresh security. Thereafter the Commissioner will permit issue of licence to the appellant - Decided partly in favour of CHA. 2014 (10) TMI 672 Denial of benefit of Notification No. 14/2004, dated 8-1-2004 - Substantial expansion - Import of reverse osmosis machine - Held that:- On going through the said explanation, we find that ‘substantial expansion’ means the expansion which will increase existing installed capacity by not less than 25%. As such, it is clear that the imports would be covered under the project import if the same are required for increasing already existing installed capacity of the plant by 25%. First of all normally, interpretation of the same would lead us to conclude that the expansion means which will increase installed capacity in respect of the appellant manufacturing unit. The appellant in the present case is manufacturing oil and admittedly the RO machine is not increasing the capacity for production of oil. As such, we do not agree with the ld. Advocate’s contention. Secondly the appellants have not produced any evidence on record that installation of RO machine in their unit would result in expansion of oil manufacturing machine to the extent of 25%. As such, we are of the view that RO Machine, cannot be held to be a project in terms of the said regulation. - Decided against assessee. 2014 (10) TMI 671 Enhancement of valuation of goods - Held that:- Order of Commissioner (Appeals) is self-contradictory. On the one hand, he has remanded the matter and on the other hand, he has held that if the remanded matter is not decided within 15 days, the appeals would stand automatically allowed. Admittedly, Commissioner (Appeals) could have fixed the time-limit for the de novo adjudication but it was not proper on his part to hold that though the matter is being remanded, the appeals would be allowed in case of non-decision by the adjudicating authority within a period of 15 days. Such type of order cannot be upheld - Decided in favour of Revenue. Corporate Laws 2014 (10) TMI 670 Restriction on offer of equity shares/OFCDS or any other securities to the public or invite subscription in any manner whatsoever either directly or indirectly - High Court directed to refund the amount collected by Saharas in terms of the RHPs issued by them alongwith interest @ 15% p.a. from the date of the receipt of the deposits till the date of such repayment - Held that:- It is apparent, from the submissions made at the bar, that these IAs have two limbs: In the first instance, the contemnors want relaxation in the restraint orders over the Bank deposits and immovable properties to comply with the directions of this Court regarding deposit of the amounts. That part of the prayer does not pose any difficulty, as the same is in aid of compliance with the directions of this Court. Second set of prayers is for grant of bail or relaxation of jail conditions in the interregnum. Here, we have our reservations. We are not inclined to modify order dated 26th March, 2014 granting interim bail to the contemnors upon conditions stipulated in the said order. Background in which the contemnors came to be committed to the jail and the finding recorded by the Court that they have at all earlier stages tried to adopt dilatory tactics and avoided to comply with the orders passed by the Court does not in our view call for any modification of the terms on which the contemnors can be released. Dr. Dhawan pleaded, in the alternative, that the least which could be done was to shift the contemnors from Tihar Jail to a guest house for incarceration to enable them to take decisions that are necessary for compliance with the directions issued by this Court. This request was opposed by Mr. Venugopal, according to whom similar requests made repeatedly over several hearings in the past have been declined by this Court, although no specific order refusing the same was recorded. The Bench has passed a conditional bail order after due and proper consideration having regard to the attendant circumstances including conduct of the contemnors. The order can be modified only under very compelling circumstances. The only reason given by the applicants is that interim release or transfer of the contemnors to a guest house would enable them to dispose of the properties speedily and enable them to arrange for the requisite Bank Guarantees. We don't think so. It is noteworthy that the total amount to be deposited is between ₹ 33000/- to ₹ 35000/- crores. To show their bonafides, the contemnors have been directed to deposit less than 1/3rd of that amount as a condition for bail. After all, even when this part of the order is complied with and the contemnors are set free, they will have to arrange the deposit of the balance amount, which again is very substantial. Sale of valuable properties at a price lesser than the market value of such assets is bound to prejudicially affect the interest of the depositors and defeat the orders passed by this Court in its letter and spirit. That is particularly so because according to Mr. Venugopal, SEBI is unable to value the properties or process the sale and transfer thereof. It was in that background that we had indicated to Dr. Dhawan learned counsel for the appellants that the restraint orders cannot be lifted in toto and that Saharas should come forward with a proposal for sale of such properties as were sufficient to comply with the interim bail direction of this Court regarding deposit of ₹ 5,000/- crores in cash and a bank guarantee of ₹ 5.000/- in addition. Dr. Dhawan has pursuant to that observation confined his prayer for permission to sell/transfer only nine items of properties situated in nine different cities in the country and disclosed the estimated value of such property in the statement which we have extracted above. Immovable properties owned by Sahara Group of companies situated in 9 different cities mentioned in the note filed by Dr. Dhawan and extracted in the body of this order with an estimated value of ₹ 2500/- crores are permitted to be sold by the companies/other entities persons in whose names such properties are held subject to the condition that such sales are not for a price lower than the estimated value indicated in the statement filed before this Court or the circle rates fixed for the area in which such properties are situated. The seller shall furnish to this Court the details of the valuation of the properties sold and the terms of sales together with a declaration that the purchasers is not a related party qua Saharas. Needless to say that upon deposit of the sale consideration the title deeds of the property shall be released by SEBI in favour of the purchaser(s). The sale consideration of the properties less transaction cost and statutory dues on the same shall be deposited with the SEBI to the extent the same is necessary to make a total deposit of ₹ 5,000/- crores inclusive of the maturity value and sale proceeds of the FDs, bonds and securities etc. permitted to be encashed and sold in terms of direction (iii) (a) above. The balance/excess amount of the sale consideration shall be deposited by Saharas in a separate account to be opened in a nationalised bank which deposit shall remain subject to further orders of this Court - Saharas are also permitted to charge its immovable properties situated in Aamby Valley (Pune), the details whereof are given in Annexure B to IAs No.101-103, for purposes of furnishing a bank guarantee for an amount of ₹ 5,000/-crores and/or for deposit of ₹ 5,000/- crores if there is any shortfall despite encashment and sales permitted in prescribed terms. - Decided partly in favour of Appellant. Service Tax 2014 (10) TMI 690 Consulting Engineer Services - Held that:- Appellants are not disputing the activity. The appellants undertake the activity of survey, preparation of plan and estimate of canal and distribution under a composite work order - survey and map making service has come into the service tax net from 16.6.2005. Hence the demands relates one of the activities of map making service under the composite work order which is for survey, design, preparation of plan etc therefore we find no infirmity in the impugned order - Decided against assessee. 2014 (10) TMI 688 Levy and demand of service tax from the Director of Company - appellant signed the agreement as a Director on behalf of the Company - Held that:- Demand of Service tax is confirmed against her when in para 13 of OIO dtd 31/3/2013 contains the stand of the appellant that she is only an operator and company is responsible for payment of service tax. This issue raised by the appellant has neither been deliberated upon by the adjudicating authority nor the first appellate authority under OIA dtd 13/3/2014. It is observed from the contract dated 1/4/2012 entered between BPCL and M/s Bombay Garage (Rajkot) Pvt Ltd that Ms Bhavna Jayantibhai Desai is signing on behalf of the M/s Bombay Garage (Rajkot) Pvt Ltd as a Director which is confirmed in her statement dated 12/9/2012 stating that she is receiving a salary of ₹ 25000/- per month for rendering services and is not required to pay any service tax. As the issue involved in the present proceedings lies in a narrow compass, therefore, after allowing the stay application, appeal is taken-up for disposal - appellant signing the contract as the Director of the Bombay Garage (Rajkot) Pvt. Ltd. cannot be held as the service provider. Therefore, no demand can be confirmed against the present appellant when the original show cause notice dated 20/9/2013 was issued to M/s Bombay Garage (Rajkot) Pvt. Ltd, Rajkot and by no stretch of imagination it can be considered that the Director of a Pvt. Ltd company is the service provider in the present case - Decided in favor of assessee. 2014 (10) TMI 687 Rectifications of mistake - Typographical mistake - Held that:- as appellant had not provided any service regarding which the appellants are liable to pay service tax on reverse charge mechanism in respect of any service provided or to be provided by or to such installations, structures and vessels or for supply of any goods connected with such activity to installations, structures and vessels within the continental shelf and the exclusive economic zone of India, the appellants are entitled for refund - Rectification done. 2014 (10) TMI 686 Waiver of pre deposit of Service Tax - construction services - sub contractor or not - Held that:- who supplied manpower to service receivers who in turn rendered construction services to the thermal project. It is the claim of the applicant that as a sub-contractor to the service receiver, the amount of service tax paid by the service receiver on the total taxable value of construction service, be considered as discharge of their service tax liability. The Revenue on the other hand disputes that the services receiver has received the services under the category of manpower supply and rendered services under the category of construction services. Therefore, the service tax paid by the service receiver under the head 'construction services' cannot absolve the present applicant from the liability of service tax on manpower supply service. Prima facie, we agree with the Revenue for the simple reason that to avoid double taxation, mechanism of CENVAT Credit has been introduced in the system. In the event, the service tax paid on manpower supply is used in providing construction service then the service receiver is allowed to take credit and discharge his tax liability. In the result, the applicant could not make out a prima facie case for total waiver of pre deposit of dues adjudged - partial stay granted. 2014 (10) TMI 685 Waiver of the pre-deposit - clubs or association services - Held that:- It transpires from the records that the appellant has effluent treatment plant which is commercially exploited by entering into a contract with the industries nearby for treating the effluent generated. It is also seen from the records that the appellant is raising invoices for such payment of effluent. It is the case of the Revenue that the appellant is club or association person of various persons. The arguments put forth by the ld. Departmental Representative to submit that clubs of association means person or business entity providing services and facilities for the subscription or any other amount as fees may not carry the case of Revenue any further. There is nothing on record to show that the industries in and around the effluent treatment plant were the members of the appellant. In absence of any such evidence, prima facie, we find that though the appellant has rendered some kind of services, it may not fall under the category of club or association services. We are of the view that the appellant has made out a strong prima facie case for waiver of the pre-deposit of the amounts involved. - Stay granted. 2014 (10) TMI 684 Maintainability of appeal - Bar of limitation - Delay in receipt of order - Held that:- Adjudication order was dispatched through post on 30-3-2010 and the observation of the Commissioner (Appeals) in the impugned order is that the same has been received by the appellant on 30-3-2010. The said observation of the Commissioner (Appeals) is not sustainable as the order which had been dispatched on 30-3-2010 could not be delivered by the Postal authorities on the same day. In the absence of any evidence on record of the service of the order on the same day, the observation of the Commissioner (Appeals) is not sustainable in the eyes of law whereas the appellant has produced the inward register showing the receipt of the said order on 3-4-2010. In the absence of any contrary evidence, the evidence produced by the appellant is acceptable. Therefore, I hold that the adjudication order was served on the appellant on 3-4-2010 and against the said order, the appeal was filed by the appellant on 3-6-2010, i.e. within 90 days of the communication of the adjudication order - Matter remanded back - Decided in favour of assessee. 2014 (10) TMI 683 Waiver of pre deposit - Real Estate Agent service - Held that:- Assessee had entered into agreement with four persons for purchase of the land. However subsequently he did not purchase the land but with the four persons with whom he had entered into agreement, the land was sold to M/s. Melmont Construction (P) Ltd. In the sale deed Assessee was also shown as one of the vendors. From the grounds discussed above, it becomes quite clear that Assessee was also a seller along with other four. How he became a part of the selling group is a mystery which we can solve and may be find out at the time of final hearing only. At this stage since as per the records and as per the statement given by him without any contrary evidence, he was also a part of the sale deed, it may not be appropriate to consider him as Real Estate Agent - Stay granted. 2014 (10) TMI 682 Denial of CENVAT Credit - Penalty u/s 11AC - Same registered office of exporter and recipient of service - Whether the manufacturing unit at Mahad of the appellant which is a manufacturer and exporter of the goods can avail CENVAT credit of Service Tax paid on CHA services in respect of the goods exported, when the exporter has a registered office at Pune - Held that:- goods were manufactured at Mahad unit and transported from there to the port of export and the CHA service was availed for the goods manufactured at the Mahad. Therefore, we do not find any infirmity or any provisions in law which prohibits the Mahad unit from availing credit of the Service Tax paid on the CHA service for export of the goods. Accordingly, we hold that the impugned order is not sustainable in law - Decided in favour of assessee. Central Excise 2014 (10) TMI 681 Attachment of the movable and immovable properties - priority over the rights - Preference to Banking company or Central Excise Department - Failure to pay amount due - Held that:- if the contention on behalf of the petitioner is accepted, in that case, Section 11(E) of the Central Excise Act, by which, there would be a statutory first charge over the properties of the defaulter in favour of the Central Government with respect to their excise dues would become redundant and / or nugatory. Under the circumstances, contention on behalf of the petitioner that despite Section 11(E) of the Act their right to recover dues of the borrower / mortgagee in exercise of powers under Section 29 of the SFC Act, cannot be accepted. - Decided against the appellant. 2014 (10) TMI 680 Manufacture - whether conversion of HR Coils into CR Sheets/Strips amounts to manufacture or not - Held that:- Heading 72.08 and 72.09 of the Central Excise Tariff are based on the HSN heading 72.08 and 72.09 respectively and similarly heading 72.11 of the Central Excise Tariff is based on the same heading - 7211 of the HSN. Explanatory Notes to HSN heading 72.09 readwith Explanatory Notes Part IV B to Chapter 72 make a clear distinction between the cold rolled products and hot rolled products. According to the HSN Explanatory Notes to 72.09, the Cold rolled products of this heading because of their special properties - better surface finish, better aptitude to cold forming, stricter tolerance higher mechanical strength and generally reduced thickness are in general used for purposes different from those of their hot rolled counter parts and that cold rolled products are used in particular in the manufacture of automobile bodies, metal furniture, domestic appliances and for producing angles, shapes, sections by a cold process and that they are easy to coat by tin plating, electro plating, varnishing, enameling and coating by plastic etc. Thus it is clear that not only the cold rolled products and hot rolled products have different characteristics, but they have different uses and different commercial identity. Therefore, we hold that cold rolling of HR Coils results in emergence of a new product with distinct and different commercial identity, characteristics and uses and therefore this process would amount to manufacture. In view of this, we uphold the Commissioner’s finding on this point. Shortage of 1145.35 M.T. of HR Coils - Held that:- from the correspondence between the appellant and M/s HSC it is also seen that in December 2000, the appellant had asked M/s HSC to return the quantity without any job work and according to the appellant, the coils in respect of which the Cenvat credit had been taken, have been sold on payment of duty under the invoices issued under Rule 57AB. The Commissioner while confirming the demand on the entire quantity of 1145.35 M.T. of HR Coils had not considered, the appellant s plea that out of 1145.35 M.T. of HR Coils, 1106.34 M.T. of HR Coils had been sold as such under invoices issued under Rule 57AB and the balance quantity had been taken up by them for processing into CR Sheets/Strips. When the appellant have produced the invoices issued under Rule 57AB regarding sale of the HR Coils on payment of duty, this claim has to be examined which could be done by ascertaining as to whether the Cenvat credit availed in respect of the 1106.34 M.T. of HR Coils out of 1145.35 M.T. of Coil received from SAIL had been reversed. If duty on 1106.34 M.T. of HR Coils equal to the Cenvat credit availed had been paid, the same cannot be demanded again. This aspect has not been examined in the impugned order. Similarly, the Appellant s claim that about 39 M.T. of HR Coils had been taken up for processing had also not been examined. In view of this, the demand of duty on 1145.35 M.T. Cenvat credit availed HR Coils would have to be set aside and the matter would have to be remanded to Commissioner for denovo adjudication. Suppression of production - clandestine removal of goods - Held that:- The appellant’s contention that the difference regarding quantity of the CR Sheets produced recorded in the two registers may due to calculation mistake is a vague explanation and on this point we agree with the Commissioner’s finding that the difference of 18.87 M.T. had been clandestinely removed without payment of duty. Therefore, the duty demand on this quantity also has to be upheld. Duty demand on clandestine removal of 800.263 M.T. of CR Sheets (570.833 M.T. + 18.870 M.T. + 22.22 M.T. + 66.64 M.T. + 121.7 M.T.) and duty demand of 4.296 of HR/CR Scrap, alongwith interest on this duty under Section 11AB and penalty on the Appellant company under Section 11AC equal to the duty demand, is upheld. However, the duty demand on 42.425 M.T. of Silicon Electrical Steel and Cenvat credit demand on alleged shortage of 1145.335 M.T. of HR Coils is set aside and the matter is remanded to the Commissioner for denovo adjudication after considering the explanation given by the appellant - Decided partly in favour of assessee. 2014 (10) TMI 679 Disallowance of CENVAT Credit - outward transportation charges - invocation of the extended period of limitation - Place of removal - Held that:- there is no provision in the Central Excise Act, 1944 or its rules or in any Circular issued by the Board, that where Duty is charged on a specified rate, the place of removal would invariably be the factory gate. The place of removal would depend upon the specific transaction in issue and where the removal is pursuant to sales on FOR basis, with the risk in the goods manufactured being borne by the manufacturer till delivery to the customer at its premises and where the composite value of sales include the value of freight involved in delivery at the customer s premises, the place of removal would not be at the factory gate, but at the customer’s premises, held the High Court. The certificates issued by assessee’s customers to this effect and adverted to in paragraphs H.13 of the impugned order, the conclusion is irrestible that sales by the assessee were on FOR basis and therefore the assessee had legitimately availed Cenvat credit on the service tax paid on the freight charges borne for its FOR sales. - Following decision of Ultratech Cement Ltd. vs. CCE, Raipur reported in [2014 (8) TMI 788 - CHHATTISGARH HIGH COURT] - Decided in favour of Assessee. Adjudication and drafting of adjudication orders requires training; and incompetent departmental adjudication ill serves the interests of the State. Apart from accentuating the appellate docket load, such casual orders contribute to faith deficit in the process of departmental education and imperils the due process of law. The appropriate authorities may consider this pathology writ large in departmental adjudication. For this purpose, we direct that a copy of this judgment be marked to the Board of Central Excise and Customs and to the Secretary (Revenue), Ministry of Finance, Department of Revenue, for consideration. 2014 (10) TMI 678 Denial of refund claim - Unjust enrichment - Held that:- Commissioner (Appeals) has recorded in favour of the respondent assessee, that it has collected the duty of excise as per the commercial invoice and have not collected the higher duty as indicated in the excise invoice. Further, the appellate authority has considered the C.A. certificate which also categorically indicated that the assessee has not passed on the burden of duty/differential duty to its customers and had also relied on ruling of the Tribunal in the case of Commissioner of Central Excise Vs. Shethia Audio Pvt. Ltd. - [2003 (2) TMI 133 - CEGAT, MUMBAI]. Further, I hold that ruling relied upon by the Revenue are not applicable in the facts and circumstances of the case. The main ground of the Revenue is that the learned Commissioner (Appeals) has allowed the appeal of the respondent assessee taking notice that the prices have remained the same before and during the period in dispute. It is not the case as evident on perusal of the impugned appellate order. Thus, I uphold the appellate order and dismiss the appeal of the Revenue. The respondent assessee will be entitled to refund with interest, if any - Decided against Revenue. 2014 (10) TMI 677 Denial of refund claim of unutilized CENVAT Credit - Refund on closure of factory - The main contention of the learned Counsel of the appellants is that Rule 5 allows refund in cases where for any reason adjustment of accumulated credit is not possible against duty on final products cleared for home consumption. The closure of their factory is well covered by the phrase “for any reason” - Doctrine of merger of appeal - Held that:- Important part of Rule 5 is that it allows refund of unutilized CENVAT Credit subject to such safeguards, conditions and limitations as may be specified by the Central Government by Notification. It is seen that the Central Govt. has issued Notification 5/2006 dated 14.03.2006 which prescribes the conditions and limitations for availing the refund. The basis of determining the refund amount is the export clearances of the final products as mentioned in the appendix to the Notification. The Notification provides for submission of documents such as shipping bills etc. If the appellants' contentions were accepted it would mean that the reference to conditions and limitations in Rule 5 is to no effect and such conditions specified in Rule 5 read with Notification 5/2006 are superfluous. Rule 5 clearly states that refund shall be allowed subject to such conditions as may be specified. In the present case the conditions are not fulfilled. Therefore, refund in such cases of closure of factory is not provided under the statute. - Decided against the assessee. If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. with due respect to High Court's observation in the matter in the case of the appellants, and after detailed analysis, have come to the conclusion that the refund claim does not have sanction of law - Decided against assessee. 2014 (10) TMI 676 Waiver of pre deposit - Denial of Cenvat credit - various input services - scope of the term "activities relating to business" - Held that:- Disputed services indicated should merit consideration as 'input service', since those services are used in relation to the business of manufacture of final product by the appellant. However, I find from the impugned order that the Cenvat credit has been denied on some of the taxable services for non-submission of documents, substantiating the eligibility for taking credit. Therefore, considering the fact that the appellant had not properly presented its case even in two rounds of litigation before the adjudicating authority, I direct the appellant to make a pre-deposit - Thereafter, the adjudicating authority shall decide the matter of eligibility of Cenvat credit on the disputed services upon verification of the relevant documents after providing opportunity of hearing to the appellant - Decided partly in favour of assessee. 2014 (10) TMI 675 Simultaneous availment of exemption Notification and CENVAT Credit - Notification No. 46/2003-CE dated 17/05/2003 - Held that:- Notification No. 46/2003-CE dated 17/05/2003 grants exemption from National Calamity Contingent Duty (NCCD) on goods falling under 54.02, if they are manufactured from goods falling under same heading 54.02. The purpose of exemption is that there is no double levy of duty (NCCD) on goods falling under 54.02 both at the stage of POY as well as at the stage of texturised yarn and the duty liability has to be discharged only once, either at the stage of POY or at the stage of texturised yarn. Therefore, once the exemption is availed, the question of taking any credit once again on the POY captively consumed and utilizing the same elsewhere would not arise. Though there is no one to one co-relation required between the input and output, explanation to sub-rule (7) makes it abundantly clear that if there is a conflict between the provisions of this rule and provisions of notification, the provisions of notification shall prevail. Simultaneous availment of duty exemption and benefit of cenvat credit militates against the very object of NCCD levy and would lead to huge leakages in revenue. Therefore, the impugned order is not sustainable in law. Accordingly we set aside the same and hold that the appellant is liable to reverse the credit taken along with interest thereon as correctly held in the adjudicating authority's order. However, since the issue relates to interpretation of law, imposition of penalty is not warranted. Accordingly, we set aside the penalty imposed - Decided partly in favour of Revenue.
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