TMI Tax Updates - e-Newsletter
November 16, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Highlights / Catch Notes
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Income Tax:
Deduction u/s 80P(2)(a)(i) - the rental income has to be assessed as Income from house property and it is not eligible for deduction u/s 80P(2)(a)(i) - AT
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Income Tax:
Charitable purpose u/s 2(15) - It is not proper to characterise the activities of the chamber as activities amounting to a business in the generally understood sense of the word, the most important feature of business being profit motive. - HC
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Income Tax:
Interest on housing loan - a deduction under section 24(b) is claimed when concerned assessee declares income from 'house property', whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. - in favor of assessee - AT
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Income Tax:
Penalty u/s 271(l)(c) - assessed income is a loss - explanation 4 to Section 271(1)(c) is clarificatory and not substantive & penalty can be levied even if returned income is a loss - SC
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Income Tax:
Sale of building material could not be accepted to be derived from “industrial undertaking” eligible for deduction under section 10(B) of the Act - AT
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Service Tax:
Business Auxiliary Service - denial of Notification No.13/2003-ST - The appellant is not merely acting as a Commission Agent - benefit of exemption not allowed. - AT
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Service Tax:
Refund of Terminal Handling Charges (THC) - export - tax paid on terminal handling charges covered under any of the taxable services is refundable - AT
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Service Tax:
Whether an order of penalty could have been passed against the appellant without setting aside the finding of absence of intention – held no, penalty set aside. - HC
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Central Excise:
Authorization for Search – search after surrender of registration - search of another company without separate authorization held as not illegal - HC
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Central Excise:
Waiver of pre-deposit – manufacture of footwear - applicants admitted that they are merely sticking a sticker showing MRP on the footwear - applicants had not made out a case for waiver of pre-deposit - AT
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Central Excise:
Short levy of the duty - Since notices were not issued in terms of the C.B.E. & C. circular even after 1-3-2002 within the normal period therefore the department had to be allowed to suffer for its revenue loss. - AT
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Central Excise:
Denial of cenvat credit – manufacture of batteries - Hydraulic Oil and Hadilin as capital goods – Appellant is eligible for CENVAT Credit - AT
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Central Excise:
Penalty - Area based exemption - when there are divergent views of the higher authorities on the issue and assessees act on the basis of said views, therefore cannot be held guilty for mala fide breach – penalty set aside - AT
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VAT:
Sales Tax - there is no procedure which enables a dealer to avail of the hybrid procedure namely, for some time the regular assessment and for some time, composition secheme in the same assessment year - HC
Case Laws:
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Income Tax
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2012 (11) TMI 431
Penalty u/s 271(l)(c) - assessed income is a loss - Held that:- As decided in CIT v. Gold Coin Health Food (P.) Ltd. [2008 (8) TMI 5 - SUPREME COURT] explanation 4 to Section 271(1)(c) is clarificatory and not substantive & penalty can be levied even if returned income is a loss - in favour of revenue.
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2012 (11) TMI 430
Interest on housing loan - capital gains v/s House property - Held that:- Deduction u/s 24(b) and computation of capital gains u/s 45 are altogether covered by different heads of income i.e., income from 'house property' and 'capital gains'. Further, a perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from 'house property', whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. Thus no doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48. CIT(A) has rightly accepted the assessee's contention - in favour of assessee. Loan transaction - Addition regarding income from the head "other sources" - CIT(A)deleted the addition - Held that:- The CIT(A) has nowhere dealt with the legal aspect of the issue i.e., whether the assessee who, called himself to be a salaried employee could raise a plea his loan transaction could be called as a 'business activity' or not even after the same had led to accrual of interest as held by the assessing authority. This vital aspect, in our opinion has escaped the consideration of the CIT(A). Thus it will be appropriate that the CIT(A) shall redecide this legal aspect - in favour of revenue by way of remand.
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2012 (11) TMI 429
Charitable purpose u/s 2(15) - Income from property held for charitable or religious purposes - whether the provisions of Section 11(4A) were attracted to the assessee’s case - whether by rendering specific services to members and non-members for a fee, a trade, professional or similar association can be said to be carrying on a business activity? Held that:- A survey of the decided cases shows that trade and professional associations have been held entitled to the exemption under Section 11. An association of businessmen who sold goods on hire purchase Add. CIT vs. South India Hire Purchase Association (1978 (2) TMI 59 - MADRAS HIGH COURT), an association of traders dealing in photographic and connected trades Commissioner of Income-tax v. South Indian Photographic and Allied Trades Assn ( 1983 (7) TMI 3 - MADRAS HIGH COURT) and an association consisting of Kirana Merchants Madras Kirana Merchants Association v. CIT, (1976 (8) TMI 29 - MADRAS HIGH COURT) were held by the Madras High Court to be eligible for the exemption under Section 11 notwithstanding that some of the associations charged their members fees for specific services rendered. It is not proper to characterise the activities of the chamber as activities amounting to a business in the generally understood sense of the word, the most important feature of business being profit motive. It has not been suggested by the income tax authorities that the activities carried out by the assessee chamber were propelled by any profit motive. In such circumstances, it is proper to view the activities as driven by a charitable motive in the sense in which a charitable purpose is defined in Section 2(15). In this view of the matter, the provisions of Section 11(4A) are not attracted to the present case and a remand to the AO for finding out whether the activities were incidental to the objectives of the trust and separate books of accounts were maintained for such business was unnecessary - in favour of the assessee.
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2012 (11) TMI 428
Deduction u/s 80P(2)(a)(i) - rental income received by the taxpayer - Held that:- As decided in M/s. The Totgars' Cooperative Sale Society Limited Versus Income Tax Officer, Karnataka [2010 (2) TMI 3 - SUPREME COURT] the source of income is relevant for deciding the applicability of section 80P. Weightage should be given to the words "the whole of the amount of profit and gain of business" attributable to one of the activities specified in section 80P(2)(a). The income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. Unless and until the letting out of property falls within the definition of banking activity, the rental income received by the taxpayer cannot be construed as operational income. At no stretch of imagination it could be said that rental income is attributable to banking business. In the present case the taxpayer has let out the building. It is nobody's case that the commercial asset was exploited in the course of its banking activity or providing credit facility to its members. Therefore, letting out of the property is other than one specified in section and u/s 80P(2)(a)(i) and 80P(2)(c). Therefore, the rental income received by the taxpayer has to be assessed as "Income from house property" and it is not eligible for deduction u/s 80P(2)(a)(i) of the Act - in favour of revenue.
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2012 (11) TMI 427
Indo-Mauritius DTAA - contracts work - Permanent Establishment (PE) in India - Held that:- Considering the chart tabulated by CIT(A) the duration of first contract is 8 months 11 days and no preparatory work was done by the assessee in this regard as the construction designs were provided by the third party through independent contracts. DR could not controvert the finding given by the CIT(A) in this regard. Thus it becomes apparent that the duration in respect of first contract is only 8 months and 11 days, which is less than 9 months as per Article 5 of the Indo-Mauritius DTAA to constitute permanent establishment. The duration of second contract as per the above table is only 10 days and the third contract is 3 months and 14 days. Patently such duration is less than the prescribed period of 9 months. No material has been placed on record by the DR to show that there is any infirmity in the impugned order in recording the starting or completion dates of duration of such contracts. Since the duration in all these contracts is less than nine months, obviously the mandate of article 5 cannot be activated. In the absence of any PE there cannot be any question of taxability of business profit as per Article 7 - in favour of assessee.
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2012 (11) TMI 426
Exemption u/s 10B - Revision u/s 263 - denial of claim as activity of producing plants through tissue culture does not amount to manufacturing - Held that:- There is no specific definition of word "manufacture or produce" u/s 10B, thus that definition of 'manufacture' contained in the corresponding provisions of section 10AA would also apply qua the assessee's case vis-a-viz its manufacturing activity. The modern day technology of tissue culture is a multifaceted activity with the help of latest biotechnological tools, wherein from one mother plant the manufacturer/producer can get thousands of plant within a short span of time, with limited space and minimum other requirements. The definition of 'manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. We conclude, in the light thereof, that the assessee's business activity of tissue culture is 'manufacture or produces' within the meaning of section 10B(2)(i) of the "Act" and Commissioner of Income Tax had wrongly held that since assessee's produce is "plant", which is a lively object, therefore, it is covered by section 2(29)BA). Assessing Officer in finalizing the assessment had rightly granted the assessee deduction under section 10B of the "Act". It was one of the 'possible view' as per law, which could not be revised by CIT under section 263 of the Act. Consequently, once we have held that the assessee's unit is entitled to be treated to be a qualifying unit under the provision of section 10B(2)(1) of the "Act", our conclusion is that the order of the Commissioner of Income Tax revising the assessment does not withstand the test of the law. - Decided in favor of assessee.
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2012 (11) TMI 425
Penalty u/s 271 (1) (c) - addition on LTCG - Held that:- As per the return of income filed by the assessee the assessee declared long term capital loss of Rs.13,83,666/- but the A.O. assessed long term capital gain at Rs.23,05,136/- but the penalty is imposed by the A.O. on the positive capital gain computed and no penalty on long term capital loss declared by the assessee. Since as per the tribunal order in quantum proceedings, it is held by the tribunal that fair market value of the flat as on 01.04.1981 as declared by the assessee has to be adopted by the A.O. and after effect is given to this tribunal order in quantum proceedings, the resultant capital gain will not be in positive figure but it will be a long term capital loss only although the same may be at a lesser amount than declared by the assessee. But still since no penalty is imposed by the A.O. in respect of capital loss declared by the assessee the present penalty cannot survive because penalty has been imposed by the A.O. on the positive capital gain - in favour of assessee.
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2012 (11) TMI 424
Penalty u/s 271(1)(c) - Whether penalty can be levied in case of disallowance of expense towards payment to contractors and procession fee for violation of provisions of section 40(a)(ia) of the Act - Held that:- when the disallowance is made by the A.O. due to non payment of TDS in time, the addition is technical in nature and hence, the same does not amount to concealment of income or furnishing of inaccurate particulars of income - Penalty u/s 271(1)(c) is not justified in these circumstances. In the present case, the facts are similar and even better because in the present case, TDS was deducted and paid also although belatedly. Hence, by respectfully following the tribunal decision, issue in the present case is decided in favour of the assessee and decline to interfere in the order of Ld. CIT(A) - In the result, the appeal of the revenue is dismissed.
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2012 (11) TMI 423
Penalty u/s 271(1)(c ) - CIT(A) deleted the levy - Held that:- Issue regarding disallowance of addition of deferred revenue expenditure was set aside & G.P. addition made by the A.O. of Rs.64,25,615/- was scaled down to only Rs 17,74,615/- & estimation of turn over to Rs. 3.75 crores from Rs.5 crores and the rate of G.P. was also scaled down to 30% as against 32%. As decided in Jumabhai Premchand (HUF) Versus CIT [1998 (6) TMI 538 - GUJARAT HIGH COURT] estimated addition is not sufficient for levy of penalty u/s 271(1)(c) - the addition in the assessment order is alright but in the proceeding for imposition of penalty, that fact alone was not sufficient and the burden was on the department to prove concealment of income which was not discharged by the department - in favour of assessee.
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2012 (11) TMI 422
Disallowance u/s 14A r.w.r. 8D - CIT(A) deleted the addition - Held that:- In view of the factual position that own funds were many times more than the amount of investment and in view of the judgment of CIT Versus Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - HIGH COURT BOMBAY) wherein held that no disallowance u/s 14A when assessee had interest free funds of its own and also in view of the fact that Rule 8D is not applicable in the present year, no interference is called for in the order of CIT(A) on this issue - in favour of assessee. Reopening of assessment - valuation of closing stock, disallowance u/s 14A & escaping of FBT - Held that:- As in the course of original assessment proceedings, the A.O. has made proper queries regarding valuation of closing stock as well as regarding disallowance to be made u/s 14A and on both the counts, reply were submitted by the assessee before the A.O. in course of original assessment proceedings and thereafter, the assessment was completed by the A.O. u/s 143(3) and therefore, it is abundantly clear that opinion was made by the A.O. in course of original assessment proceedings on the basis of queries and its reply and no new material has been indicated which has come to the notice of the A.O. for reopening. FBT which cannot be the ground for issuing notice u/s 148 because for issuing notice in respect of escaping of FBT, there is a separate section 115 WG in the I.T. Act and therefore, no notice can be issued u/s 148 of the I.T. Act - Hence, in the facts of the present case, the reopening is on the basis of mere change of opinion which is not permissible as per law - against revenue.
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2012 (11) TMI 421
Unexplained expenditure u/s. 69C - addition to income - Held that:- On the basis of the loose sheets impounded the fact that it represents expenditure is not in doubt. From the sheet it was seen that in the remarks column there were notings which indicate that in certain occasions the amounts were returned/repaid. On the basis of query from the Bench, the assessee agreed to verify the figures and after verification recalculated the figures after considering the amounts repaid/returned to the partners and the net figure of expenses worked out to ₹ 31,46,500/- also checked and confirmed by the Revenue - thus the addition made by the AO be restricted to ₹ 31,46,500/- instead of ₹ 1,32,57,366/- made by AO - partly in favour of assessee. Addition u/s.68 - Held that:- The Revenue has not been able to prove that the notings in the loose sheet belong to the assessee & represents the amount received/spent by the assessee. The loose sheet being undated, unsigned, without the name nature of transaction thus cannot be considered for the basis of making addition. In view of these facts, we are of the view that no addition can be made on the basis of loose sheets - There is no evidence found by the Revenue in the form of extra cash, jewellery or investment outside the books - in favour of assessee. Unaccounted loan - Held that:- the assessee has obtained aggregate loan of ₹ 5,70,000/- from six parties. The assessee had submitted the copies of confirmation of account of the lenders, copy of their pass book, copy of acknowledgement of Income tax returns in case of Income tax payers, copy of 7/12 utara, copy of PAN card etc. before the A.O. and has thus discharged the initial onus cast u/s. 68. The Revenue has not placed on record any material to controvert the submissions made by the assessee - the assessee is not required to prove the source from which the lenders have acquired the money deposited with the assessee - in favour of assessee. Non deduction of TDS - Addition u/s. 40(a)(ia) - Held that:- As decided in Merilyn Shipping & Transports Versus ACIT, Range-1, Visakhapatnam the provisions of section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS - issue remitted back for verification - in favour of assessee for statistical purposes. Interest u/s 234A - Held that:- The assessment order reveals that the assessee filed its return of income on 28-12-2006. The due date of filing of return in the case of assessee was 31-10-2006. CBDT vide order issued u/s.119 dated 13-10-2006 extended the date of filing of return for the assessees in the state of Gujarat to 31st December, 2006. Since the assessee had filed the return of income on 28-12-2006 which is within the extended due date of filing of return, we are of the view that assessee is not liable to pay interest u/s. 234A - in favour of assessee.
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2012 (11) TMI 420
Interest u/s 36(1)(iii) - disallowance as interest bearing funds have been utilized for making investments - CIT(A) allowed the claim - Held that:- Persuing the P/L A/C of assessee net profit after tax for the year ending 31-3- 2003 is ₹ 488.04 lakhs and the depreciation in that year is of ₹ 150.14 lakhs and hence total generation of own fund in that year is ₹ 638.18 lakhs, whereas investment in shares in that year is only of ₹ 352 lakhs & similarly in the year ending as on 31-3-2004 profit after tax is ₹ 214.25 lakhs and the depreciation in this year is ₹ 195.16 lakhs and hence total generation of funds is ₹ 309.41 lakhs whereas the investment in shares in this year is of only ₹ 55.25 lakhs - it is not justified to make any disallowance of interest claimed by the assessee u/s. 36(1)(iii) in the absence of any direct nexus between the investment in shares and interest bearing borrowed funds - in favour of assessee. Deduction u/s. 80IA - disallowance as undertaking is not a distinct entity with no separate plant and machinery owned by the enterprise having not approved by the Central Government - Held that:- The facts in the year under appeal are identical to that of A.Y. 2004-05 and A.Y. 2005-06, thus following the order of co-ordinate Bench, restore the matter back to the file of A.O. for examining the allowability of deduction u/s. 80IA. The assessee has to furnish the required information called for by the A.O. that enterprise or undertaking is a distinct entity with a separate plant and machinery owned by the enterprise approved by the Central Government/State Government or local authority & maintaining separate books of accounts - in favour of Revenue for statistical purpose. Consumption of closing stock - addition for excise duty debited to P/L A/C - Held that:- No contrary material has been shown proving that any excise duty has been debited in the profit and loss account relating to the finished gods. It is also not shown by the Revenue that cost of finished goods as worked out by the assessee did not contain the element of excise duty paid by it on the raw material consumed in the making of the finished goods. On the other hand, assesse has submitted that excise duty component of raw material has been duly debited to the profit and loss account addition considered in the costing of closing stock. This ground of Revenue is therefore also rejected - in favour of assessee. Disallowance u/s.40A(2)(a) - CIT(A) allowed the claim - Held that:- A.O. has not proved that excessive payment has been made to an associate concern of the assessee. The genuineness of the transactions is not in dispute. The reliance by A.O. on the order of associate concern of the assessee is not proper as that order has been reversed by the CIT (A) and confirmed by the Tribunal. The assessee had provided calculation of fair value of services before the CIT (A) which was sent to the A.O. during remand proceedings. There is no material to justify the disallowance made by the A.O. Further, Tribunal in the case of associate concern of the assessee decided on 30-9-2009 held that there is no excessive payment for services provided to assessee. Thus once factum of excessive payment for services are not proved, there is no case of any addition even in the case of the assessee - in favour of assessee. Software expenses - Revenue v/s capital - Held that:- As assessee has not been able to demonstrate as to how the expenses are of revenue in nature, thus need to be treated as capital - against assessee.
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2012 (11) TMI 419
Unaccounted deposits in bank - Held that:- The assessee has explained the source of cash deposits from cash withdrawal, opening balance consisting of gifts and business Income. The assessee’s explanation that the gifts received in earlier years were of small amounts and not liable to tax and therefore no return was filed. This explanation, considering the amount appears to be plausible explanation - no addition is called for in the present case - in favour of assessee.
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2012 (11) TMI 418
Unaccounted investment in house property and cash deposits - Held that:- Entire submission of the appellant is not supported by documentary proof. The appellant has shown to have earned income by way of business including income for A.Y. 2001-02 of Rs.41,931/- during the year under consideration, then also it is difficult to accept that appellant was able to make investment in house property to the extent of Rs.1,05,000/- and to deposit an amount of Rs.22,000/- in the bank. From the chart furnished and placed on record it is seen that the total funds available with the assessee was to the extent of Rs.1,16,581/- and the additions made by the A.O. was to the extent of Rs.1,27,000/-, thus the addition seems to be on higher side. Thus to meet the end of justice the disallowance be estimated and restricted to Rs.35,000/- instead of Rs.1,27,000/- made by the A.O. - partly in favour of assessee.
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2012 (11) TMI 417
Taxability of profits on sale of DEPB license for working out deduction u/s.80HHC - Held that:- Co-ordinate Bench had relied on the decision of Bombay High Court while deciding the issue of profit on sale of DEPB. As decided in M/s Topman Exports Versus Commissioner of Income Tax, Mumbai [2012 (2) TMI 100 - SUPREME COURT OF INDIA] that profit on transfer of DEPB would be sale value of DEPB less its face value which represents the cost of DEPB and not the entire sum received by assessee on such transfer & ACIT vs. Saurashtra Kutch Stock Exchange Ltd. [2008 (9) TMI 11 - SUPREME COURT] that non consideration of a decision of jurisdictional court or of the Hon’ble Supreme Court can be said to be “mistake apparent from the record ” - in favour of assessee.
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2012 (11) TMI 416
Surplus/shortage of closing stock - suppression of purchases of maida and soji - Held that:- Persuing the copy of the reconciliation statement of the quantitative details as per the statement of accounts and as per the audited accounts of the closing stock of raw-material and the finished goods, as filed by the assessee the assessee has tried to explain the reasons for the difference in the two statements of accounts of the closing stock in the written submissions filed before the CIT(A). However, in such type of case, at the most the value of the difference between the stock as per the statement of accounts and stock as per the audited quantitative details of raw-material and finished goods of closing stock could be added as income in the hands of the assessee. Thus the actual difference is slightly more in besan account as per the two account statements and which comes to 9.826 MTs and the value thereof comes to Rs.2,47,850/- and accordingly, the addition on account of difference in besan account is restricted to Rs.2,50,000/- . In other accounts of maida, soji and atta there is in fact shortfall thus the total addition is sustained at Rs.3,00,000/- out of the addition of Rs.19.33 lakhs and Rs.7.42 lakhs sustained by the CIT(A) - partly in favour of assessee. Penalty u/s 271(1)(c) - Held that:- It was the assessee who has filed both the accounts statements with regard to quantitative details of the raw-material and finished goods in various products and they were filed by the assessee at the time of assessment itself. The assessee has filed a reconciliation statement and has tried to reconcile the two statements of account. The mistake on account of difference in two accounts is clearly bona fide and merely because the some part of the addition made on that ground has been sustained by the Tribunal, is no ground to visit the assessee with the penalty under Section 271(1)(c) - in favour of assessee.
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2012 (11) TMI 415
Disallowance of Commission – Held that:- Commission to the extent it exceeds 40% of the brokerage received by the assessee from the clients is clearly prohibited by law and to that extent, as per, Explanation to section 37(1) will clearly be applicable, thus disallowed - AO shall re-decide this issue after considering Bye-Law 218 of the Stock Exchange Ahmedabad after giving proper and reasonable opportunity to the assessee and to allow the commission only to the extent it is permissible in accordance with Bye-Law 218 of the Ahmedabad Stock Exchange - In the result, appeal of the assessee is allowed for statistical purpose.
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2012 (11) TMI 414
Interest on FDR - disallowance as income derived is not from “industrial undertaking” u/s 10(B) - Held that:- The Excise Department has issued security bond after lien of 5% of FDR & assessee was required to keep a security deposit with the Central Excise Department for smooth export-business, but the interest earned on such security deposit could not be said to be derived from industrial undertaking - against assessee. Disallowance of balance written off - Held that:- Written off of sundry balances could not be attributed to the previous year and relates to the earlier years and could not be said to be related to the business income or income derived from export activities of the assessee - against assessee. Disallowance of building material sale - Held that:- the sale of building material could not be accepted to be derived from “industrial undertaking” eligible for deduction under section 10(B) of the Act - against assessee.
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2012 (11) TMI 413
Addition u/s 68 - opening cash balance - Held that:- Assessee was of 58 years of age and was engaged in the business since past many years and was regularly filed return of income year after year, could not be controverted by the Revenue. The accumulated balance of Rs.1,40,886/- could not be said to be unbelievable or excessive - in favour of assessee.
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2012 (11) TMI 412
Profit earned from undisclosed trading turnover - CIT(A) confirmed the addition - Held that:- CIT(A) has sustained an addition by merely observing that the annexures are recorded in the books of account cannot be accepted since the AO has given such finding after examination of the books of account and seized document which are in the custody of the I.T. department, but this approach of the CIT(A) is not sustainable as the assessee in its written submission filed before the CIT(A) has elaborately cited the figure of the turnover as per the seized material, recorded in its sale register and page number of the sale register along with date, amount and full narration has been detailed therein. Also not considered the submissions that the GP rate as per the I.T. records comes to 14.07% and the NP therein is about 8% only. The CIT(A) has not even rejected the same and has not considered the submissions - as per the pleading of the assessee itself there were some arithmetical inaccuracies in the calculations of the unaccounted turnover of the assessee and petty lapses in the recording of the turnover in the sales register could not be ruled out, thus ends of justice shall be met if the addition on account of profit earned by the assessee not accounted is restricted to Rs.8 lakhs out of the addition of Rs.67.22 lakhs confirmed by the CIT(A) - partly in favour of assessee. On money receipt on sale of timber - Held that:- CIT(A) has dismissed the ground of the appeal of the assessee in a summary manner. The Revenue could not justify with evidence to prove its case regarding receipt of “on money” in respect of sale of premium timber - in favour of assessee. Difference in stock - search - Held that:- As assessee could not establish the nexus between the shortfall in stock found at the time of search and addition made by the AO on account of profit earned from undisclosed trading of timber. Accordingly, the GP element at the rate of 14% on shortfall of timber of Rs.1.14 lakhs which comes to Rs.16,000/- be sustained as addition out of the addition of Rs.1.14 lakhs sustained by the CIT(A) and the balance addition is deleted - partly in favour of assessee. Unexplained expenditure - Held that:- CIT(A) has sustained the addition by observing that the AO appears to have verified the material, and accordingly worked out the amount of expenditure. These observations of the CIT(A) is not sustainable considering the submissions of the assessee and to cover up the possible petty lapses and expenditure which could not have been accounted for by the assessee the ends of justice shall be met if the addition of Rs.7 lakhs is confirmed out of addition of Rs.64.59 lakhs sustained by the CIT(A) and the balance addition is deleted - partly in favour of assessee. Set off of unaccounted profit - Held that:- CIT(A) has observed that further addition equal to 15% of the seized items contained in Annexure BS-43 is made, which works out to Rs.1,81,694/- with the remarks that the same will be set off against the above income on account of unaccounted turnover. We find that separate addition on account of undisclosed turnover was made by the Revenue, and therefore the CIT(A) was wholly justified in allowing the set off of this amount of Rs.1,81,694/- against the income from undisclosed turnover of the assessee - in favour of assessee. Unaccounted initial investment - Held that:- the assessee’s timber business is very old, and therefore there is no justification for addition on account of initial investment in block period, and accordingly the order of the CIT(A) on this issue is confirmed - in favour of assessee. Unaccounted profit on stock found short - GP rate of 15% OR 20% - Held that:- GP rate of the assessee as per the income-tax records comes to 14.07% which could not be controverted on behalf of the Revenue. Thus there is no mistake in the order of the CIT(A) in applying the GP rate of 15% instead of 20% - in favour of assessee. Unexplained cash - Held that:- As at the time of search cash amounting to Rs.1,17,000/- was found at the premises of the assessee, and the AO has recorded that the assessee has admitted it to be unexplained. The assessee later on tried to explain the cash as belonging to the father, mother, brother personal etc. which is to held as an after thought - against assessee. Unexplained cash of Rs.1,17,000/- is covered with the addition sustained above accordingly the assessee is entitled to telescopic benefit, and the issue is decided in favour of the assessee.
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2012 (11) TMI 411
Penalty u/s.271(1)(c) r.w.s. 158BFA(2) - disallowance of educational and traveling expenses of the son - CIT(A) deleted the levy - Held that:- Perusal of the scrutiny assessment u/s 143(3) for the AY 2001-2002 and 2002-2003 revealed that the similar expenses on educational and traveling expenses of the son has been disallowed by the AO holding the same as non-business expenditure but no penalty u/s 271(1)(c) in these two assessment years were initiated. The assessee has filed explanation and there is no material brought on record to suggest that the explanation of the assessee regarding the claim of educational expenses was not bona fide. It is a case of difference of opinion between the assessee and the Revenue regarding allowability of certain claim of expenses claimed by the assessee, as an allowable deduction out of its taxable income. In these facts of the case, the penalty levied was rightly deleted by the CIT(A) by observing that the expenses were claimed by the assessee under a bona fide belief that such expenses were allowable expenses to the assessee - in favour of assessee.
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Customs
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2012 (11) TMI 449
Time Expired Refund claim - Held that:- Appellants paid duty at higher rate than what was applicable, and they have woken up after several years and sought for refund in 2009 and did not succeed before the original authority and also before the Commissioner (Appeals). They have attempted to reopen the issue by invoking provisions under Section 149. Section 149 gives discretionary power to Customs authorities for amending the documents in certain circumstances. This provision cannot be used to revive a time expired refund claim - no interference with the order of the Commissioner (Appeals) - appeal is, therefore, rejected.
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2012 (11) TMI 448
Grant of Bail – fraudulent availment of duty drawback by exporting inferior quality garments in the name of bogus firms – ACMM granted interim Bail – Held that:- ACMM in his order granting bail to the petitioner, has recorded the involvement of certain custom officers in the offence, and has stated that there are allegations of illegal detention, against those custom officials, pertaining to the same case - apprehension of the respondent to be kept in illegal custody, is justified - right of the respondent, to surrender himself to the competent Court, squarely falls within the ambit and scope of Section 437 CrPC, and cannot be held to be arbitrary or illegal - The provisions of a Special Act, in this case the Customs Act, cannot override the provisions of the CrPC, unless expressly provided so in the special Act - grant of bail to the respondent shall not hamper the investigation or prejudice the investigation
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2012 (11) TMI 447
Import of certain medical equipments duty free by claiming the exemption under Notification 64/88 - certificate given by DGHS has been withdrawn/cancelled – Held that:- Applicant has treated more than 10% indoor and 40% outdoor patients free of charge but there is no evidence on record to show that the patients who have been treated free of charge are having income below Rs. 500/- per month - goods are still in possession and use of the applicant. Therefore, the applicants have failed to make out a case for 100% waiver of the pre-deposit of the amounts - applicants directed to make a pre-deposit
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2012 (11) TMI 443
Import of goods – non-fulfillment of condition - Confiscation – held that:- Therefore, the relevant date for determination of the rate of duty and Customs valuation in respect of imported capital goods would be the rate prevailing on the date of deemed removal, which is 31-3-2001 in the instant case. Coming to the issue of depreciation, inasmuch as the appellants have put to use the capital goods at least for part of the period, they are eligible for depreciation and, accordingly, the Customs duty is liable to be demanded on the imported capital goods on the depreciated value as provided for in Board's Circular No. 14/2004 dated 13-2-2004 and at the rate prevailing on 31-3-2001. Duty on Depreciated value of raw material - held that:- In the case of indigenously procured capital goods and raw materials lying unutilized, there are no specific provisions for grant of depreciation or relevant date for their demand and, therefore, the excise duty foregone at the time of procurement of these goods are liable to be paid by the appellants and we hold accordingly. Interest - held that:- A combined reading of the provisions make it clear that the place where the goods are deposited should be a warehouse at the time of deposit of the goods. On the date of removal, it is not necessary that the place where the goods have been deposited remains a warehouse. Therefore, reading the provisions of Section 61 with Section 2(44) of the Customs Act, the goods are liable to interest on the delayed payment of duty. Penalty - Held that:- Appellant imported the goods subject to the condition that he would fulfil the export obligation which obligation he failed to fulfill - goods became liable to confiscation under Section 111(o). Since the goods are liable to confiscation under Section 111(o), penalty under Section 112(a) is attracted. In this case, penalty has been imposed under Section 112(a) and there is no illegality or infirmity in imposing penalty apart from demanding differential duty Redemption fine – Held that:- When the goods are liable to confiscation, the adjudicating authority has the power to allow the redemption of the goods on payment of fine in lieu of confiscation under Section 125 of the Customs Act - goods were allowed to be cleared by the appellants at the time of importation under a bond executed by the appellant. The clearance of the goods was thus provisional - when the assessment is finalized subsequently, even if the goods are not available for confiscation, redemption fine in lieu of confiscation can be imposed - imposition of redemption fine in the instant case permissible under the law Matter remanded back to the adjudicating authority for re-computation of the duty demand Interest - appellant is also liable to interest on the said duty demand under the provisions of Section 61(2) and in terms of the bond executed by them Fine and penalty, on account of non-fulfilment of export obligation would automatically follow but their quantum again will depend on amount of duty demand - appeals are allowed by way of remand
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Corporate Laws
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2012 (11) TMI 453
Signature on Company Petition - fraud by Petitioners - Held that:- It is not an appropriately constituted petition as the person signing the petition on behalf of Mr. Rupak Gupta Petitioner No. 1 holding 16320 shares of the Company in three different capacities was not duly constituted Power of Attorney of the Petitioners at the time when he signed the petition. Mrs. Supriya Gupta, Petitioner No.2 not being a member of the company was not eligible to file the petition under section 397 & 398 of the Act. Her signing the petition is therefore of no avail. The Petitioners had suppressed material facts and had also made statements on oath which were false to their knowledge. This was done with an intention to gain advantage which would not have been available if true facts were revealed. Elements of Fraud were thus present. The suppression of material facts in the petition and false statements by Petitioner No.l and 2 in their affidavits amounts to an abuse of the process of this Board. By opening the floodgates of affidavits to cover-up or to show that it was a trivial or bona fide error the damage cannot be undone. The Law-firm representing the Petitioners in this petition and one of its Advocates had acted, in the matter of preparing the petition and filing of affidavits, in an irresponsible manner which is appalling and not expected of a Law-firm. False affidavits were sworn on 08/06/2012 by Mr. G.K. Agrawal and notarised by the Notary Shri Dipankar Das. False identification was done by an Advocate representing the Law-firm in the affidavits. Taking a liberal view and granting liberty to the Petitioners Nos. 1, 2 & 4 to file a properly constituted fresh petition subject to cost of Rs. 50,000/- to be deposited within a week with the High Court Legal Aid Committee, New Delhi. The Law Firm and one Advocate had acted in the matter of filing of affidavits in this petition also impose exemplary cost of Rs. 50,000/- on the Law Firm and direct that the cost be deposited within a week from today with the High Court Legal Aid Committee, New Delhi.
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2012 (11) TMI 452
Winding up – purchase of property - Subsequently the applicant-company had experienced financial difficulties and, as such, winding up petition was filed - scheme of arrangement - One of the terms in the scheme being that the said land allotted by the KIADB be transferred to the applicant-company the applicant is before this Court since the KIADB has not executed the sale deed in that regard – Held that:- Company is deemed to have continued in possession of the property once the scheme was approved by this Court, which would span a period of nearly four decades. Hence, the mere contention that the lease-cum-sale agreement was not executed cannot be accepted at this stage, since the period, which has lapsed is much beyond the period that would have been indicated as lease period in a normal course if the agreement had been executed - KIADB is directed to receive the sum of Rs. 3,07,651 from the applicant-company execute and register the sale deed in favour of the applicant-company in respect of the application schedule property
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Service Tax
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2012 (11) TMI 450
Business Auxiliary Service - denial of Notification No.13/2003-ST - service tax demand with interest thereon and penalties - Held that:- Persuing the Management Agent agreement entered into by the appellant with the principal the appellant is required to display, stock and sell jewellery products to the customers through showrooms managed and operated by the agent on stock transfer basis with the design, maintenance and operation of the showrooms undertaken as per the directions of the principal and the insurance cover for the showroom has to be provided by the agent. There is also condition that the agent shall manage and operate or deal in the showroom only the products supplied by the principal company and shall not deal with any other products in the showroom except with the prior written consent of the principal. Even the bills raised for the sale of the products should be in the principal's name. In consideration for services rendered, the agent is entitled to receive a management fee based on the turn over achieved by him on a slab basis Thus from the tenor of the agreement, it is absolutely clear that the appellant is not a mere commission agent as envisaged in the Notification No.13/2003. The appellant is not merely acting as a Commission Agent but does something much more than that i.e., designing, managing and operating a showroom, receiving goods on stock on transfer basis, undertaking sales promotion activities and collecting the sale proceeds on behalf of the principal. These activities do not come within the purview of Commission agent as defined in the notification No.13/2003 - against assessee.
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2012 (11) TMI 444
Refund of Terminal Handling Charges (THC) and the GTA service – alleged that appellant has filed the claim, classifying the Terminal Handling Charges under Port service defined under Section 65(105)(zn) & Section 65(105)(zzl) whereas the terminal handling charges was specified as exempted service vide Notification No. 17/2009-S.T – Held that:- Notification No. 17/2009-S.T., specifies that payment of service tax on services commonly known as terminal handling charges classifiable under any sub-clause of clause (105) of Section 65 is exempted from service tax - tax paid on terminal handling charges covered under any of the taxable services is refundable - refund of transport of goods under Section 65(105)(zzp) is rejected and to that extent the impugned OIO is upheld.
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2012 (11) TMI 438
Penalty under Section 76 & 78 of the Act - entire amount of service tax and education cess with interest was paid before the issue of show-cause notice – assessee submitted that assessee is an illiterate person and did not know the provisions of law and therefore a liberal view is required to be taken – Held that:- Department came to know about the fact that appellant was providing manpower supply service only during the audit of service receivers and thereafter proceeding were initiated - appellant cannot be said to have a bona fide belief about his liability to tax - Penalty under Section 76 is not a mandatory penalty - penalty under Section 76 is required to be set aside by invoking the provisions of Section 80 of the Act which provides for non-imposition of penalty on a reasonable cause being shown - demand for service tax, interest and imposition of penalty under Section 78 of the Act confirmed - penalty under Section 76 of the Act set aside
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2012 (11) TMI 437
Refund of cenvat credit - excise duty on packing materials - appellants have taken credit of excise duty paid in respect of the rice exports made by them – Held that:- Credit was taken since the appellant felt that instead of claiming the refund they take credit of the duty paid and utilise the same - Rule 5 of Cenvat Credit Rules also provides that when credit cannot be utilised, refund can be claimed - demand for interest and imposition of penalty cannot be sustained Regarding maintenance of guest house and security expenses towards guest house – Held that:- Prior to the issue got settled that such expenses are not admissible, there were decisions taking a view that service tax credit in respect of expenses incurred for worker's colony etc. are admissible - subsequently the issue has been settled against the appellants, the appellants are required to pay the interest on this amount but no penalty can be sustained Regarding seminar fees – Held that:- Seminars were related to their business only and prima facie it appears that it is admissible - demand for interest and imposition of penalty as regards seminar fees also cannot be sustained Regarding Share related expenses – Held that:- It is required to be incurred by any Public Limited Company and it cannot be said that this has nothing to do with business - appellant cannot be found fault with for entertaining bona fide belief about the admissibility and therefore penalty cannot be sustained. Since the appellants are not disputing the denial of service tax, interest would be payable Regarding stock broker service, Entertainment expenses and Membership subscription expenses – Held that:- Demand for interest in respect of these three items are upheld as not disputed - this is a case where provisions of Section 80 can be invoked - waiver of penalty under Section 80 of the Finance Act allowed - no penalty shall be payable - in respect of all services where credit is not admissible, the appellant shall be liable to pay interest
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2012 (11) TMI 433
Whether an order of penalty could have been passed against the appellant without setting aside the finding of absence of intention – Held that:- Intention of evasion was not present in the matter - There is no effort by both these Authorities to consider the correctness of the finding or then its impact, in so far as the imposition of penalty or its quantum is concerned - order passed by the CESTAT [2011 (1) TMI 736 - CESTAT, MUMBAI] quashed and set aside - Appeal is thus partly allowed
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2012 (11) TMI 432
Cenvat credit – input service distributor – Revenue contended that appellant had two factories, the head office should have registered itself as an input service distributor and therefore, availment of credit is wrong – Held that:- only ground on the basis of which the credit has been denied is that the registration number was not available and this has been explained subsequently by the respondent by explaining by the time instructions were issued by the Government, the Head office had already issued the invoice and therefore, procedural requirement could not be fulfilled – credit allowed. Decision in the case of Jindal Photo Limited - [2009 (1) TMI 187 - CESTAT, AHMEDABAD] followed.
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Central Excise
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2012 (11) TMI 446
Authorization for Search – search after surrender of registration - proper authorisation of search dated 9.2.2011, premises of M/s. MGM Metallisers Ltd., were searched - premises of M/s. Frenylon Industries. was also searched - Held that:- If such company had discontinued its manufacturing activities, there was nothing on record to suggest that despite such so-called discontinuance the registration of central excise was cancelled. In fact the petitioner agrees that there was no such cancellation of registration. If during such search, any documents, materials, or other incriminating or innocuous materials were found from such premises, nothing prevented the Excise authorities from taking note of the same. Further contention of the petitioner that premises of M/s. Frenylon Industries. was also searched without authorisation, also cannot be accepted. It is the case of Central Excise authorities that certain raw materials/finished products belonging to M/s. Frenylon Industries was found from the premises of M/s. MGM Metallisers Ltd. These are highly disputed questions of facts. We are unable to uphold merely on the basis of affidavits that the Excise authorities transgressed their authorisation and searched and seized materials or documents from outside of the premises of M/s. MGM Metallisers Ltd. From the affidavits filed by the respondents,there was considerable material to prima facie hold a belief that central excise duty evasion was being carried out by the group of companies led by M/s. MGM Metallisers Ltd. whose Director was Shri Nagindas Kapadia. In his case also, a separate search authorisation was issued - Under the circumstances in absence of any illegality pointed out to the authorisation of search and in absence of any foundation for examining allegations of personal mala fide, all the petitions must fail - Same are accordingly dismissed.
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2012 (11) TMI 445
Cenvat Credit on Capital Goods - Held that:- As the principal manufacturer has claimed depreciation under Section 32 of the Income Tax Act, 1961, in respect of capital goods supplied by him to be used by the job worker in manufacture of Confectionery and further the assessee have not acquired the capital goods on lease or hire purchase or under loan agreement from a finance company Cenvat Credit on Capital goods cannot be taken - against the appellant - Appellant is directed to deposit the duty along with interest and penalty within six weeks from the date of order.
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2012 (11) TMI 442
Principle of natural justice - non-granting of relied upon documents to the main appellant - documents recovered during the raid in the premises of main appellant - Held that:- It is seen that the entire set of relied upon documents was given to the appellant recently i.e. after the matter has been adjudicated and the matter came up for final disposal before Tribunal. Suffice to say that non-granting of relied upon documents to the main appellant and other appellants would have made their plea and the defence before the adjudicating authority as a weak submission. We also find that the Bench cannot overlook the fact that the defences that can be raised by the appellant based upon the relied upon documents even if the same is not taken up as a ground of appeal. Therefore, matter needs to be remanded back to adjudicating authority.
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2012 (11) TMI 441
Plea for waiver of pre-deposit - denial of credit in respect of capital goods, used in the setting up of Oxygen Plant in the factory of the applicant on the ground that the capital goods on which credit has availed has gone into fabrication of the Plant which is not excisable - Revenue contended that no duty has been paid on the Plant and therefore not entitled for credit - Held that:- In view of decision in case of CCE Vs Gujarat Ambuja Cements Ltd (2008 (10) TMI 363 - HIMACHAL PRADESH HIGH COURT) wherein it was held that if impugned good is a capital good, Rule 57Q is applicable enabling party to claim credit of duty paid on capital goods by the manufacturer of specified goods. A manufacture is entitled to claim Modvat Credit on account of the excise paid on the components, spares and accessories of the goods exempt. If duty is paid on the components used in its manufacture, we see no reason why the manufacturer cannot claim Modvat credit for such duty, applicant has made out a strong prima facie case for waiver. Pre-deposit of the dues is waived and Stay petition allowed.
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2012 (11) TMI 440
Condoning the delay of 486 days in filing the appeal - contention of appellant is that one Shri B.B. Bagaria was dealing with excise matter and retired in Jauuary 2010 and had not informed the appellant - Held that:- Adjudication order was duly served upon them in January 2010 and appeal was filed in May 2011. Therefore, there is no merit in the contentions of the appellant - appellant had not taken care to file the appeal within the period of limitation and shifted blame on his employee - The negligence of the employee of applicant cannot be considered as sufficient cause for not filing the appeal within the period of limitation - appeal dismissed.
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2012 (11) TMI 439
Waiver of pre-deposit – manufacture of footwear - applicants were paying duty on the MRP of the footwear - benefit of Notification No. 5/2006-C.E. and cleared the goods on concessional rate of duty - alleged that the applicant has wrongly availed the benefit of Notification No. 5/2006-C.E. as the applicant has failed to fulfil the condition of the Notification – Held that:- Applicants are availing the benefit of Notification No. 5/2006 and as per the condition of the Notification, the retail sale price has to be indelibly marked or embossed on the footwear itself - applicants admitted that they are merely sticking a sticker showing MRP on the footwear - applicants had not made out a case for waiver of pre-deposit
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2012 (11) TMI 436
Short levy of the duty - Alleged that there was wrong assessment of the goods cleared by the appellant - Held that:- Since notices were not issued in terms of the C.B.E. & C. circular even after 1-3-2002 within the normal period therefore the department had to be allowed to suffer for its revenue loss. Since the payment made by the party was on written communication by way of demand which on merit was sustainable and payable and hence the demand so paid is hereby; held as legal, proper, sustainable and maintainable. They do not deserve any refund neither on merit nor on limitation. However, jacking them with further liabilities after limitation period is over, is not justified and cannot be maintained and sustained. Therefore, the proceedings started by issuance of show cause notice dated 10-9-2004 and tried to be fortified or enhanced by corrigendum are held to be inappropriate and illegal. Show cause notice dated 10-9-2004 as well as corrigendum dated 17-6-2005 and 28-7-2005 were without any authority of law and inappropriate and illegal - demands and other proposed cause of actions are barred by limitation - appeal is allowed
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2012 (11) TMI 435
Denial of cenvat credit – manufacture of batteries - Hydraulic Oil and Hadilin as capital goods – Held that:- ‘Hydraulic Oil’ is indispensable for operating any ‘Hydraulic Machine’ used as component for all Machinery falling under eligible Chapter. It is essential for operating a ‘Hydraulic Machine’, which is in turn, an essential component of a Machinery with which it is functioning - goods are indispensable and undisputedly, they are used in the manufactory for the manufacture of final goods - Appellant is eligible for CENVAT Credit
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2012 (11) TMI 434
Penalty - Area based exemption - whether the Education Cess and secondary and higher Education Cess would get covered under the said notification so as to result in automatic refund to the assessee – Held that:- During the relevant period i.e. January, 2008 to April, 2008, declaration of law by the Tribunal was in favour of the assessee. It was only subsequently in 2009 that the earlier order of the Tribunal was overruled by Division Bench and it was held that the assessee located in the area of Jammu and Kashmir would not get the benefit of Notification No. 56/2002 in respect of Education Cess and secondary and Higher Education Cess - when there are divergent views of the higher authorities on the issue and assessees act on the basis of said views, therefore cannot be held guilty for mala fide breach – penalty set aside - in favour of assessee
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CST, VAT & Sales Tax
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2012 (11) TMI 451
Andhra Pradesh General Sales Tax Act - option of composition of tax under section 5F of the Act – Held that:- In taxation measures composition schemes are not unknown and when such scheme is availed of by the assessee it is not at all permissible for him to turn around and ask for regular assessment - there is no procedure which enables a dealer to avail of the hybrid procedure namely, for some time the assessment under section 5F of the Act and for some time, composition of tax in the same assessment year - Decided against the assessee.
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