TMI Tax Updates e-Newsletter
Nov 15,2012

Penalty u/s 271(1)(c) - unaccounted cash credits - Held that:- The assessee had placed on record the confirmation of HUF, details of bank account along with details of land holding as per 7/12 and 8A details. It is also noted by CIT(A) that the assessee has also placed on record the confirmation, details of bank account along with details of land holding of 12 HUFs who had advanced money to the assessee HUF. On the basis of these facts, this finding is given by CIT(A) that the assessee has not only proved the immediate source of the credit but also the source of the source - addition & penalty deleted - in favour of assessee.

Penalty u/s. 271E - loan repayment in cash - Held that:- Persuing the two lists of names, it is clear that the names are not the same regarding receipt of loan by cheques and repayment of loans in cash. Thus, argument of D.R. is not valid that when the persons are having bank account at the time of giving the money to the assessee, how they were not having bank account when repayment was made to them. A clear finding is given by CIT(A) that these persons were residing in small villages and the nearest bank was situated about 15 km away from their villages. He has also given a finding that out of 11 persons, 4 persons were not having by bank account and one person had expired and, therefore, the assessee was compelled to make repayment in cash to his legal heirs on their request. Regarding the remaining 6 persons, he has given finding that they were residing in the villages where no bank and banking facilities were available to them and the assessee has repaid in cash to them - addition & penalty deleted - in favour of assessee.

Penalty u/s 271(1)(b) of the Act for not attending assessment proceedings Held that:- Assessment has been completed u/s 143(3) and not u/s 144 of the Act and none of the addition is attributed to any default on the part of the assessee in submitting the details., all the details have been filed on behalf of the assessee and thereafter, assessment completed. As decided by court in case of [[CIT Vs. Standard Marcantile Co., 1985 (7) TMI 44 - PATNA HIGH COURT ]held that:- absence of mens rea or failure of the Revenue to establish mens rea, are entirely irrelevant in penalty proceedings u/s 271(1)(b) of the Act. issue involved in the present case is squarely covered in favour of the assessee by this Tribunal’s decision and therefore, respectfully following the same penalty is deleted - In the result, the appeal of the assessee is allowed.

Penalty u/s 271(1)(c) - Held that:- As the Addition was deleted by the tribunal in quantum proceedings itself, penalty cannot survive and is deleted - appeal of the assessee is allowed.

Penalty u/s 271(1)(c) - disallowance on interest - Held that:- The penalty could not have been imposed merely on the basis that the addition made by the AO has been confirmed by the CIT(A) - It is the assessee who has to decide about the business need and expediency in the particular circumstances, and it has to demonstrate that the interest bearing fund was utilized for business purpose and commercial expediency. Whether there was a business expediency or not is a debatable issue & it has been well settled now that penalty cannot be imposed where the issue is debatable - in favour of assessee.

Sharafi account - difference in account and disclosure made by the assessee during the search - CIT(A) deleted the addition - Held that:- No infirmity into the order of the CIT(A) as the relief has been granted on the basis of telescoping the income of A. Y. 1992-93 (on account of the excess of assets over liabilities as on 31-03-1992) confirmed by my predecessor against the income for A. Y. 1993-94 (on account of the excess of assets over liabilities as on 31.03-1993). The disclosure for both the years was made on the basis of balance sheets found during the course of search. There is nothing on record to show that the income disclosed and confirmed by my predecessor for A Y 1992-93 was invested elsewhere or spent by the appellant.

In agreement with the observation of the CIT(A) that the same income cannot be taxed year after year. This observation of the CIT(A) is not controvered by the Revenue by placing any other evidence suggesting that the income was not earlier taxed. In this view of the matter, this ground of the Revenue’s appeal is dismissed - in favour of assessee.

Penalty u/s. 271(1)(c) - excess deduction u/s. 80HHC - Held that:- As decided in CIT vs. S. Dhanabal [2008 (8) TMI 15 - HIGH COURT DELHI] in respect of penalty imposed for disallowance u/s. 80HHE that explanation offered by appellant is bona fide since appellant claimed deduction on the basis of auditor as per statutory requirement and further appellant disclosed all material facts, hence penalty is not applicable.

As decided in U.O.I. vs. Dharmendra Textiles Processors [2008 (9) TMI 52 - SUPREME COURT] at penalty proceedings are separate than assessment proceedings and in the case of Income tax proceedings, these penalty proceedings are not automatic. Since issue involved for disallowance is debatable hence penalty cannot be imposed - in favour of assessee.

Registration u/s. 12A - rejection of application as assessee trust admitted no activities of commencement - Held that:- As decided in Panna Lalbhai Foundation Versus The DIT (Exemption), Ahmedabad [2012 (11) TMI 293 - ITAT AHMEDABAD] at the stage of registration satisfaction on genuineness of activity is not a pre-condition. Thus in this view of the matter DIT(E) ought to have granted registration when he was satisfied about the objects of the assessee-trust - in favour of assessee.

Assumption of jurisdiction u/s 153 C - rejection of Additional Ground - Held that:- From the findings of CIT(A), it is evident that he has not disposed of the additional grounds as raised by the assessee. He has not given a reason for rejection of additional grounds submitted by assessee

Therefore, in the interest of justice this matter is remitted back to the file of CIT(A) to admit and decide the additional grounds as raised by the assessee in accordance with law by way of a speaking order giving a sufficient opportunity to concerned parities in the interest of natural justice - in favour of assessee for statistical purposes.

Unaccounted expenditure u/s 69 C - Held that:- Even though, the assessee has reasoned out in various ways but he has not produced the actual and accurate working for the valuation of work in progress - further, to justify the assessee’s claim that it has valued the work in progress on the basis of market value the assessee has not submitted any valuation report. Therefore, the decision of the cases relied upon by the assessee are not applicable to its facts of the case.

Looking at the complexity of the issue & on an overall examination of the facts an addition of Rs.30,00,000/- as against Rs.61,44,189/- done by CIT(A) requires to be sustained to meet the end of justice - partly in favour of assessee.

Penalty u/s. 271(1)(c) - Held that:- It is evident from the assessment order that the AO had unearthed certain documents to establish that the assessee had made investment of Rs.15 lacs in gold. At the time of search initially the assessee had agreed for such investment made which was not from accounted income of the assessee, however, the assessee had retracted from his statement subsequently. The learned CIT(A) confirmed the order of the learned AO for the reason that the assessee had failed to discharge the prima facie onus cast upon him to establish that he had not made such investment outside his books of accounts.

As the assessee had also again and again reiterated before the revenue that he had enough holding of gold due to the disclosure made in VDIS Scheme in the year 1997. As from the facts of the case it is apparent that no gold was found at the time of search and the entire episode revolves round the existence of gold based on certain documents found at the time of search, thus as decided in COMMISSIONER OF INCOME-TAX Versus RAVI KUMAR [2007 (7) TMI 45 - HIGH COURT, PUNJAB AND HARYANA] that though addition could be sustained based on certain documents found during the course of search, penalty cannot survive unless and until some more cogent evidence of concealment of income is revealed - in favour of assessee.

Stay filed for monthly remittance - assessee had paid outstanding tax of Rs.3,57,12,514/- against the disputed demand of tax for Rs.10,84,45,192/- and provided security of Rs.7,84,45,192/- - Held that:- The assessee has paid approximately 30% of the outstanding tax and has voluntarily provided security to the revenue as per the requirement of Schedule II Rule 34 of the Act

As it appears that the issues involved in the appeals are complicated and requires substantial deliberations in the interest of justice and to avoid hardships to the assessee the monthly installments required to be paid of Rs.50,00,000/- is to be reduced to Rs.15,00,000/- to be paid before the end of every month starting from 12th of October, 2012 - partly in favour of assessee.

Recalling of Tribunal's Order - non filing of the copy of judgement of Hon’ble Gujarat High Court - Held that:- The issue was not decided by ignoring the judgement of Hon’ble Gujarat High Court rendered in the case of Radhe Developers [2011 (12) TMI 248 - GUJARAT HIGH COURT] but in fact, it was restored back to the file of CIT(A) to decide the matter afresh in the light of this judgement as the same was not made available till the order was dictated - no apparent mistake in the tribunal order.

No sale of any flat with terrace alleged area of 1700 sq. ft in two years under consideration - no verification is called for on this issue as has been directed by the Tribunal - Held that:- This issue was very much before the CIT(A) in AY 2006-07 as to whether if one of the flats is having built up area of 1700 sq. ft and 1480 sq. ft or has been noted by CIT(A) in his order and he directed the A.O. to verify this aspect and to decide the issue as per law & in 2005-06 it is noted by CIT(A) of his order that the next ground which has been stressed by the A.O. is that there were 2 flats with built up area of 1700 sq. ft. each which disentitled the assessee for deduction, thus no merit in the assessee's contention that no issue in dispute regarding built up area of the flats existed - no apparent mistake in the tribunal order on this aspect also - misc. applications of the assessee dismissed - against assessee.

Unexplained Cash Credit u/s 68 – Held that:- When the assessee could not prove the sundry creditors, the same was liable to be added. further Purchase has been supported by bill and payments having been made, just because the sundry creditors for the supply of goods did not respond to the notices from the Assessing Officer, no addition was liable to be made nor accounts of the assessee was liable to be rejected and estimated addition by disallowing of purchase was liable to be made – Order of Commissioner of Income-tax (Appeals) was liable to be reversed.

Rejection of books of account u/s 145 – Held that:- Rejection of Books by CIT(A) is on right footing and does not call for any interference. The revenue has also not been able to dislodge the reasons given by the learned Commissioner of Income-tax(Appeals) for rejection of books of account, which has resulted in estimation of addition @ 25% of the total purchases - AO has made the addition of sundry creditors, but the sundry creditors are, in fact, the trade creditors of the assessee on account of purchases made by the assessee, which the assessee is unable to substantiate with the proof. In the circumstances, the finding of the CIT(A) is liable to be upheld - In the circumstances, both the appeals of revenue and assessee stand dismissed.

Undisclosed investments – assessee submitted that amount of Rs.15,45,000/- received from Manju Enterprises not considered as a source for making undisclosed investments – Held that:- During the course of search, several slips relating to the deposit of cheques into the bank account of the concern M/s Manju Enterprises were found. The aggregate amount of the said deposits stood at Rs.15,45,000/-. The AO added the entire amount of Rs.15,45,000/- in the hands of the assessee in the original assessment order - AO has excluded both the unexplained deposits of Rs.15,45,000/- as well as the source of Rs.15,45,000/- from the computation of undisclosed income - except in the first assessment order passed on 29.11.1996, the net effect of computation pertaining to Rs.15,45,000/- was that the amount of Rs.15,45,000/- was never considered as the undisclosed income of the assessee - AO has properly dealt with the issue and rightly rejected the said claim of the assessee. Accordingly we dismiss all the grounds raised in this regard.

Capital gain – disallowance of loss assessed under Long Term Capital Gains suffered on transfer of investment in shares to J. K. Agri Genetic Ltd. – Held that:- AO while acting in section 154 of the Act on reappraisal of the facts were already available on record and upon change of opinion, considered the very same transaction as demerger of an undertaking and disallowed the Long Term Capital Loss as not chargeable to tax on the ground that transfer of shares was part of demerger u/s. 2(19AA) of the Act - this adjustment did not amount to mistake apparent from record because there is no jurisdiction for the AO to decide this issue while acting u/s. 154 of the Act as this issue is highly debatable - enhancement of capital gains income was based upon change of opinion on the part of the A.O. which was beyond the purview of Sec. 154 of the Act which permits rectification of mistake which is apparent from record - AO could not by invoking Sec. 154, enhance the capital gains – In favor of assessee

Order of enhancement of the value - assessee not having the manufacturer's invoice and that the goods were not covered by any letter of credit - Held that:- The appellant has imported old and used worn clothing/rags which are to be used for reclaiming purpose as the goods are old and used worn clothing. There is no manufacturer of the same goods as the same are scraps, therefore, the manufacturer's invoice is not available and the same is not required. As the impugned goods are not imported under letter of credit against the letter of credit, therefore, letter of credit for the same does not arise.

The appellant himself is a regular importer of the same goods and the appellant is produced at least 50 bills of entry of the same goods during the impugned period. Therefore, the same has not been considered by the adjudicating authority while assessing the goods. Therefore, the decision taken by the adjudicating authority as well as the lower appellate authority is not sustainable when there is an evidence on record produced by the appellant that contemporaneous imports of the impugned goods during the impugned period is available at 0.12 US $ per Kg. for the similar goods. Also that the appellant has imported goods at a price of 0.13 US $ per Kg. in the impugned bills of entry. Therefore, the loading of value on the declared price in the bills of entry is not sustainable when the price of similar goods for the same period is available in appellant's own case - in favour of assessee.

Interest – seizure of Indian currency under a reasonable belief that the same is sale proceeds of smuggled goods - order of release – delay in returning seized currency – Held that:- Though there is absolutely no justification for more than 10 years delay in returning the seized currency and the conduct of the officers amounts to defying the Tribunal’s order, the Commissioner (Appeals)’s order sanctioning the interest on the seized currency for the delay in its return is not correct - It is only the Hon’ble High Court, or the Hon’ble Supreme Court which in exercise of their writ jurisdiction can order the payment of interest by the Department for period of delay in return of the currency. In view of this, the impugned order ordering payment of interest is set aside and the Revenue’s appeal is allowed

Penalty - collusion - proceedings were initiated against an exporter, M/s. Radhika Exports, who had exported goods to Bangladesh under Bills of Export and claimed the drawback in contravention of the provisions of the Customs and Central Excise Duties Drawback Rules – alleged that appellant had allowed clearance of the said goods for exportation - Held that:- There was no evidence that Appellant was involved in abetting the Proprietor of M/s. Radhika Exports to avail duty drawback fraudulently - Department could also not produce any evidence to show that there was any collusion between the present Appellant and the exporter - even in the adjudication order, the only finding is that the supervisory officer cannot escape his liability. There is no evidence on record to show that there is any collusion between the present respondents and the exporter - penalty imposed on the Appellant is not sustainable

Winding up – alleged that Company is unable to pay its admitted debts – alleged that Company Judge has not taken into account the very sound financial position of the Company - company is a profit making, ongoing company – Held that:- Even an order for merely admitting a Company Petition under Sec. 432(e) and (f) of the Act also should be a speaking order supported by reasons as it definitely can affect the interest of the respondent -Company to a considerable extent - remand the matter to the learned Company Judge to consider the matter afresh and pass orders

Works contract service - denial of option to pay service tax under the Composition Scheme for old contracts - Validity of the Circular No. 98/1/2008-ST, dated 4.1.2008 - Held that:- Impugned Circular has only explained the contents of Rule 3 (3) of the 2007 Rules so as to provide guidelines to the Revenue Officers. On perusal of Rule 3 (3) of the 2007 Rules it is very clear that the assessee who wants to avail of the benefit under Rule 3 of the 2007 Rules must opt to pay service tax in respect of a works contract before payment of service tax in respect of the works contract and the option so exercised is to be applied to the entire works contract and the assessee is not permitted to change the option till the said works contract is completed.

In the instant case it is an admitted fact that the assessee had already paid service tax on the basis of classification of works contract which was in force prior to 1st July, 2007. In the circumstances, it cannot be said that the appellant had exercised a particular option with regard to the mode of payment of tax after 1st July, 2007 with regard to reclassified works contract. Thus in agreement with the submissions made by the respondents that not availing of CENVAT credit is absolutely irrelevant in the instant case. We do not accept the submission of the learned counsel appearing for the appellant that the Impugned Circular is discriminatory in nature.

The Impugned Circular is not contrary to the Act or the statutory rules made thereunder and the Impugned Circular only provides guidelines as to how the provisions of Rule 3 (3) of the 2007 Rules are to be interpreted. Even if the Impugned Circular is set aside, the provisions of Rule 3 (3) of the 2007 Rules would remain and that would not benefit the appellant. Thus the High Court did not commit any error while upholding the Impugned Circular and, therefore, appeal dismissed - against assessee.

Sale of Space for Advertising - Held that:- Service tax is leviable on selling of space for advertisement as carried out by the appellant, therefore the appellant is directed to deposit an amount of Rs. 21,50,000/- as pre-deposit for admission of the appeal within six weeks - Subject to such pre-deposit the balance amount of dues shall remain waived during pendency of the appeal.

Refund of Service Tax under the category of CHA services, Courier services, Banking and Finance services etc – Held that:- Cross references on the invoices is a curable defect and can be corrected subsequently at any given point of time. first appellate authority has not denied the fact that the said services were rendered by the service providers towards the export of goods. The defects which are pointed out by the first appellate authority as well as by the adjudicating authority are curable and are cured subsequently by the appellants and service providers. As regards the service tax paid by the appellant on Banking and Financial services, it is not in dispute that the said Banking and Financial services were utilised by the appellant towards the Banking charges involved in the export of goods. If that be so, refund claims of the appellants as this point cannot be rejected - appellants are eligible for the refund of amount of service tax paid by the service providers on various services, for which they have filed the refund claims - impugned orders are liable to be set-aside and appeals are allowed with consequential relief to the appellants.

Cenvat credit - input service credit has been denied - services of travel agent which was used by the appellants for the travelling of the technicians and accountants for visiting to their job workers – Held that:- Any service availed for the business of manufacturing of final product, the assessee is entitled for input service credit - appeal is allowed

Refund - rebate appropriated towards dues pending from the appellant - Held that:- As decided in CCE, Bangalore Vs. Stella Rubber Works [2011 (3) TMI 571 - KARNATAKA HIGH COURT ] section 11 of the Central Excise Act, 1944 does not contemplate adjustment of monies due to the assessee towards the amount due to the revenue and further held that once the adjudicating authority holds that the assessee is entitled to refund, in the absence of a specific provisions authorizing the revenue adjusting the said amount towards dues to them, it is improper to make adjustment.

Therefore, the appropriation of the amounts when the appellant's stay application was pending before the Tribunal is not sustainable in law. Accordingly, set aside impugned order and direct the jurisdictional Deputy Commissioner to refund the appropriated amount forthwith to the appellant along with interest thereon in accordance with the law - in favor of the assessee

Non payment of duty - applicants were clearing goods to their related concerns - Held that:- The applicants are clearing the goods to their sister concern and both the units are managed by one person and the applicants had not paid duty on the basis of their own fixed price and not paid duty on the basis of cost construction as provided under Rule 8 of the Valuation Rules, thus the applicants have not made out a case for total waiver of duty.

The applicants are directed to deposit a total amount of Rs.10,00,000/- within six weeks - the appeals were dismissed by the Commissioner (Appeals) without going into the merits hence the impugned order is set aside and the matter is remanded to the Commissioner (Appeals) to decide the appeals on merits, on showing the pre-deposit of the above mentioned amount.

Waiver of pre-deposit of duty,interest and Penalty - Following the decion of court in case of VXL Instruments Pvt. Ltd. vs. CC, Bangalore 2005 (2) TMI 646 - CESTAT, BANGALORE] Held that:- the benefit of the Notification No.2/95-CE, is available in respect of the goods cleared to DTA which belongs to the same class.

The similar goods means which are similar or which belong to the same class of the goods exported. In the present case as the applicant exported ceramic colours and also cleared ceramic colours in diluted form to DTA - No merit in contention of the applicant - pre-deposit of the dues is waived and recovery of the same is stayed during the pendency of the appeal - stay petition is allowed.

Setting aside of the duty demand confirmed against the company as also penalty imposed upon the company as well as its Directors - Held that:- These appeals are not maintainable as proper authorisation as envisaged under Section 35B(2) of the Central Excise Act, 1944 was not obtained before filing of the appeals. Neither the authorisation nor the annexure to the authorisation, memorandum of appeal bears signatures of the other Commissioner who purportedly was member of the Committee of Commissioners constituted vide Notification No. 25/2005-C.E. (N.T.), dated 13-5-2005. Appending of signatures on the note forwarded by the subordinate officers is not sufficient compliance of the mandate of Section 35B(2) of the Central Excise Act, therefore, instant appeals have been filed in violation of mandate of Section 35B(2) of the Central Excise Act, 1944 - appeals are not maintainable and dismissed - Signed copy of the order be placed on each of the concerned file.

Cenvat credit – demand and recovery of wrongly taken cenvat credit – alleged that credit has been taken by them on the basis of the documents which are just letters issued by their Head office as input service distributor – Held that:- When certain input services have been received by a manufacturer under the invoices of the service providers issued in the name of the head office, the head office had taken cenvat credit and thereafter passed on the same to its manufacturing units, the cenvat credit to a manufacturing unit cannot be denied even if the same has been passed on by letters and not the document bearing the name ‘invoices’ or ‘challans’ provided and letters or documents issued by the head office contain all the details which are required to be mentioned in the invoices/challans issued by the input service distributor - matter is remanded to the Commissioner for de novo adjudication

Condonation of delay - delay of 317 days in filing special leave petition - request to Chairman, Central Board of Excise and Customs, to have an enquiry conducted, by a senior officer, in order to fix the responsibility on the officer(s) responsible for causing delay in preferring the present petition – Held that:- In the Special Leave Petition (Civil) No. 29989 of 2010, arising out of the same judgment, filed by the respondent, show cause notice was served on the Department sometime in the month of November, 2010 and counter affidavit on their behalf was filed in January, 2011 - it cannot be pleaded on behalf of the concerned Commissionerate that they were not aware of the impugned order passed by the Tribunal - for the reasons best known to the department, the present special leave petition was filed only in the month of June, 2011 - all these factors will be taken into consideration by the enquiry officer

Demand of duty - allegation against the Appellants was of suppression of actual production; a clandestine removal of goods and of the fabrication of record – Held that:- Electricity consumed in excess is not the sole evidence on which the finding of a suppression of production and of clandestine removals has been made - Adjudicating Officer has adverted to the statements of the transporters. A finding has also been arrived at that the Appellants had procured bogus purchase invoices which were utilised to clear finished excisable goods under the pretext of these being traded goods - Appellants shall make a pre-deposit of twenty five per cents of the demand for duty

Waiver of pre-deposit - demand is confirmed after denying the benefit of Notification No. 83/94-C.E., - alleged that necessary undertaking not submitted – Held that:- As per the provisions of Notification No. 83/94-C.E. the supplier of raw material has to file an undertaking. The applicant is only a job worker there is no obligation in the notification to follow any procedure

Cenvat credit - motor vehicles cleared by the appellant to a dealer for further sale to Diplomatic Missions - Motor vehicles were cleared on payment of duties of excise which include special excise duty - purchaser (German Consulate) filed a claim for refund of basic excise duty same was granted - department treated the motor vehicles as ‘exempted goods’ by virtue of the said Notification and invoked Rule 6(3)(b) for recovery of 10% by alleging that they were clearing both dutiable and exempted goods during the material period – Held that:- Motor vehicles in question were cleared on payment of duty and hence, prima facie, the same cannot be considered to be ‘exempted goods’. Rule 6(3)(b) is prima facie not applicable - pre-deposit waived

Review application - allowance of the high sea sales – alleged that appellant cleared the goods did not let in the proof for endorsement of bill of lading and also payment of customs duty – Held that:- Appellant could not let in this proof at the time of hearing - Now that the applicant produced the said documentary proof - review application allowed

Auction sale from the Official Liquidator - respondent No.1 directed to pay the arrears of electricity dues outstanding against the premises in question - Held that:- Respondent No. 1 has purchased the said unit from the Official Liquidator on “as is where is” and “whatever there is” basis in pursuance of the advertisement for sale and the sale was confirmed on payment of the sale consideration and possession of the unit was handed over on 28.03.2008.

After taking possession of the Unit in order to establish a paper unit in the premises, respondent No. 1 made an application on 10.12.2008 to the NESCO for availing power of 100 KW at 33 KV. Sub-clause 10(b) of Regulation 13 of the Electricity Supply Code that unless respondent No. 1 pays the arrears of electricity dues against the erstwhile company, electricity supply cannot be restored to its Unit will not apply to respondent No. 1 as he had after purchase of the said Unit in an auction sale conducted by the Official Liquidator has applied for a fresh service connection for supply of energy. Respondent No. 1 has not applied for transfer of service connection from the name of the erstwhile company to its name. Such clause applies to a request for transfer of service connection but not to a fresh connection. The interpretation of this clause by learned single Judge as well as by the Division Bench was correct being reasonable, just and fair.