TMI Tax Updates - e-Newsletter
November 27, 2017
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Insolvency & Bankruptcy
PMLA
Service Tax
Central Excise
CST, VAT & Sales Tax
TMI SMS
Highlights / Catch Notes
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Income Tax:
Genuineness of expenditure - payment is as per the registered agreement which is a sale deed and there is no requirement of any cash flow statement when payment is from cash book maintained in the ordinary course of business. In fact addition for doubting source is to be made U/s 69 and not for the disallowance of expenditure
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Income Tax:
Addition u/s 69 - The serial No. of DDs and the manner in which DDs were taken to pay the license fee also held to be doubtful and the transactions cannot be held as genuine. - AT
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Income Tax:
Allowability of software expenses - revenue or capital expenditure - purchase of software for Website related application for LAN. - held as capital expenditure - depreciation to be allowed - AT
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Income Tax:
Allowable expenditure - Withheld price / additional price paid to the milk producers for procuring milk - AO is not correct in observing the same as tax evasion device in payment "withheld price" through equity allotment partly and through contribution to trust partly - AT
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Income Tax:
Deduction u/s 80IC cannot be denied invoking the provisions of section 80AC where the return has been filed belatedly but within permissible time u/s 139(4) - AT
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Income Tax:
MAT - computing the book profits u/s 115JB - The depreciation to be allowed while working the book profits is always as per the Companies Act and the depreciation should not be reduced as is done in the normal assessments by substituting the depreciation claimed under the Companies Act by the depreciation allowable under the Act. - AT
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Income Tax:
Disallowance of speculative loss occurred on derivative transactions - Tribunal has correctly held that there is an actual delivery and constructive delivery and they will not come within the purview of the "speculative transaction". - HC
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Income Tax:
Reopening of assessment - the issue for taxation of entire revenue in India was not taken up by the AO during the original proceedings - notice issued u/s 148 sustained. - HC
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Customs:
The Department must pay interest on the sum of ₹ 10 lakhs deposited by the petitioners to the extent of delay in refunding the same - On the Bank Guarantees, we do not see any case for granting interest since the petitioners were not made to deposit the same with the Department. - HC
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PMLA:
SC declared Section 45(1) of the Prevention of Money Laundering Act, 2002, insofar as it imposes two further conditions for release on bail, to be unconstitutional as it violates Articles 14 and 21 of the Constitution of India
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2017 (11) TMI 1375
Addition u/s. 69A - Reopening of assessment - CIT-A deleted the addition due to lack of enquiry conducted by AO - Held that:- It was not appropriate for the learned CIT(A) to have deleted the additions by blaming the AO for not conducting proper enquiry and proceedings during assessment proceedings. However, at the same time we are in agreement with the contention of the assessee that the assessee cannot be prejudiced based on incriminating material seized from third parties at the back of the assessee unless the said relied upon incriminating material is confronted to the assessee and opportunity to rebut as well cross examination is provided to the assessee in view of the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries v. CCE(2015 (10) TMI 442 - SUPREME COURT) . Thus, the matter need to be set aside and restored to the file of the A.O wherein the A.O is directed to provide copies of seized material and others incriminating material relied upon by the Revenue before prejudicing the assessee and the assessee be granted opportunity to rebut the same/cross examine the third parties from whom such incriminating material was seized by the Revenue which revenue intend to rely to prejudice the assessee . - Decided in favour of revenue for statistical purposes.
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2017 (11) TMI 1374
TPA - rejection of internal CUP in relation to project management services - Held that:- In assessment year 2011-12, the learned TPO himself has accepted the CUP as the most appropriate method. In our opinion, when in subsequent assessment years, the Revenue itself has accepted, the CUP as the most appropriate method for benchmarking the international transaction of project management services, contesting the same issue in the year under consideration by the Revenue is not justified. In view of the Rule of Consistency, the action of the Ld. TPO/AO and Ld. DRP cannot be sustained. On merit also the transaction between the GAIL and the AE, is an independent and uncontrolled transaction and therefore, it is an appropriate CUP for benchmarking of the transaction. Accordingly, we set aside the direction of the Ld. TPO/AO and Ld. DRP on the issue in dispute and direct to accept the transaction between the AE and GAIL as CUP for benchmarking the international transaction of project management services. Rejection of internal CPM and TNMM for benchmarking project management and technical services provided to the AE and application of external TNMM by the learned TPO - Held that:- We find that in subsequent assessment years 2011-12 and 2012- 30, the learned TPO himself has accepted the internal TNMM and bifurcations of the AE and non-AE segment, on line similar to what has been followed by the assessee in the year under consideration. In view of the above facts, we do not find any justification by the Revenue in litigating the issue, when they have accepted the methodology adopted by the assessee in subsequent assessment years. In view of the Rule of Consistency, we set aside the direction of the Ld. DRP in the year under consideration and direct the Assessing Officer to accept the approach of the assessee in benchmarking the project management and technical services rendered to the AE followed in AY 2010-11 Fee paid to the AEs against technical and managerial services claimed to have been availed by the assessee - benefit test applicability - Held that:- TPO, the assessee has not substantiated the Cost Benefit Test. According to the section 92(2) of the Act, the Arm’s Length Price of the transaction in the nature of cost or expense allocation or apportioned to an enterprise or contributed by an enterprise shall be determined having regard to Arm’s Length Price of such benefit, service facility. Therefore, the benefit test was a necessary part of determining the Arm’s Length Price of the transaction of any intra group services. In the instant case, the ld. TPO has determined the ALP at NIL keeping in view of the factual position that whether in a comparable case, similar payment would have been made or not in terms of the agreement. The ratio of the decision in the case of EKL Appliances Ltd. (2012 (4) TMI 346 - DELHI HIGH COURT) is thus, not applicable over the facts of the instance case. The ld. Transfer Pricing Officer is empowered only to view the benefit mentioned in section 92(2) of the Act from perspective of the assessee. Thus Ld. AO/TPO has not examined the benefit test in this perspective. In the circumstances, we feel it appropriate to restore the matter to the file of the AO/TPO to decide afresh in accordance with law, particularly examine the benefit test. Exclusion of certain expenses towards provision for an ascertained liabilities or extraordinary expenses while calculating the operating expense of the assessee - Held that:- We find that selection of external TNMM for benchmarking the project management and technical services has already been rejected by us while dealing with the ground No. 4 of the appeal of the assessee and thus issue of excluding expenses in dispute out of the operating expenses is rendered infructuous, accordingly the ground of the appeal of the Revenue is dismissed.
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2017 (11) TMI 1373
Assessment u/s 153A - Time limit for completion of assessments and reassessments - limitation period - date of limitation in terms of section 153 (2A) - whether the Assessing Officer was required to pass order within the limitation period as provided in section 153(2A) of the Act or in accordance with section 153(3) - Held that:- First of all, according to us, some noting on the copy of order of the Ld. DRP, appended by the assessee in appeal set, is not an evidence which could establish the date of receipt of the order by the Assessing Officer. This noting is contrary to the fact mentioned by the Assessing Officer himself in the assessment order that the learned TPO passed the order on 31/05/2017 pursuant to the direction of the Ld. DRP. It is the Assessing Officer, who was required to send order of the Ld. DRP to the Ld. TPO for re-computing the arm’s length price of the international transaction. Further, the Revenue has not brought on record any other evidence like dark register or copy of the order of the Ld. DRP bearing date and stamp of the office of the Ld. Assessing Officer, which could substantiate the claim of the Ld. CIT(DR) that the order of the Ld. DRP was received by the Assessing Officer on 05/06/2017. In absence of any such evidences, we are inclined to accept that the Assessing Officer received the order of the Ld. DRP before 31/05/2017 and therefore, he was required to pass the order before 30/06/2017. The impugned order passed by the Assessing Officer being beyond the period provided in section 144C(13) of the Act, and thus barred by limitation. Accordingly, it is liable to be set-aside. - Decided in favour of assessee.
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2017 (11) TMI 1353
Treatment to subsidy - revenue or capital receipt - Held that:- Hon'ble Supreme Court in CIT vs. Ponni Sugar & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT) has laid down that the ‘purpose test’ should be applied for determining the character of subsidy. If the subsidy is given for expansion etc., then, it is a capital receipt irrespective of the fact that it is given in the form of more open quotas etc. We find it as an admitted position that the assessee received this amount as a quid pro quo for setting up of its unit in West Bengal. The same, being, allowed for setting up of industry has been rightly held by the ld. CIT(A) to be capital receipt. The impugned order is confirmed. This ground fails. Addition on account of capitalization of interest - Held that:- In view of this clear proviso set out in section 36(1)(iii), it becomes abundantly clear that any interest paid in respect of capital borrowed for acquisition of asset shall not be allowed as deduction for the period till such asset is first put to use. Since the Pineapple unit of the assessee was not admittedly operational throughout the year, interest on capital borrowed for acquisition of assets meant for the Pineapple unit cannot be allowed as deduction till such assets are put to use. No such details are available with the ld. AR. In the given circumstances, we set aside the impugned order to this extent and remit the matter to the file of Assessing Officer for examining the amount of interest paid by the assessee on capital borrowed for acquisition of fixed assets. Amount of interest pertaining to the period up to the which such assets of Pineapple unit were not first put to use, shall not be allowed as deduction. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in this case. Addition on account of administrative expenses - Following the view taken for disallowing interest, the Assessing Officer opined that no business activity took place till August, 2004 and hence 2/3rd of the Selling and Administrative expenses were to be capitalized on pro-rata basis - Held that:- While disposing off ground no. 2 of the Revenue’s appeal, we have modified the finding of the ld. CIT(A) regarding setting up of the business in the preceding year by holding that only the Mango pulp business was set up and the Pineapple business was in the process of being setting up which the assessee claims to have been actually set up in July, 2004. In view of this fact, the expenses relating to Pineapple unit are required to be capitalized and those relating to Mango pulp unit should be allowed as deduction. Reduction of the amount of subsidy under West Bengal Incentive Scheme, 2000 from the value of fixed assets for the purposes of granting deduction - Held that:- Nothing happened in the year under consideration so as to justify the action of reduction from the written down value of the block of assets. Explanation 10 to sub-section (1) of section 43 of the Act came into effect only from 1.4.1999 that too prospectively and, therefore, has no application, more so, when plant itself was set-up in assessment year 1993-94.’ Since in the instant case, the assets relating to the Pineapple unit were acquired/set up much later than the date of applicability of Explanation 10 and as per the version of the ld. AR the project became ready for operations in July, 2005, we find that the mandate of Explanation 10 to section 43(1) gets fully attracted. The decision in Banco Products (2015 (10) TMI 1282 - GUJARAT HIGH COURT), therefore, supports the Revenue’s stand point instead of the assessee. It is ergo held that the amount of subsidy received by the assessee to the tune of ₹ 2.50 crore will require reduction from the cost of acquisition of the assets and would consequently lower the amount of depreciation as has been held by the lower authorities. The impugned order is countenanced on this score. The ground of the assessee fails.
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2017 (11) TMI 1352
Reopening of assessment - addition u/s 68 - eligible reason to believe - Held that:- Assessee disclosed primary facts and information regarding accommodation entry was already with the Department. Therefore, no new material was with the A.O. to form second time the reasons that income chargeable to tax has escaped assessment. There is no failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment for assessment year under appeal. Therefore, reopening of assessment after expiry of four years from the end of the relevant assessment year is clearly barred by time in this case. The A.O. therefore, did not have any valid reasons for reopening of the assessment and would not get jurisdiction to proceed against the assessee under section 147 of the I.T. Act. We, accordingly, set aside the orders of the authorities below and quash the reopening of the assessment under section 147/148 - Decided in favour of assessee.
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2017 (11) TMI 1351
Disallowance of excessive depreciation in respect of assets purchased from Deltron Ltd - Held that:- The issue involved in this appeal is found squarely covered in favour of the assessee by the decisions of Coordinate Benches, for the preceding assessment years 2008-09 Assessing Officer was not justified in invoking Explanation 3 to section 43(1) of the Act on the facts and circumstances of the case of the appellant company and therefore, appellant is entitled to claim of depreciation on the actual cost as incurred by the appellant on transfer of the electronic business on going concern basis from M/s. Deltron Ltd. to the appellant company. - Decided in favour of assessee.
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2017 (11) TMI 1350
Disallowance u/s. 14A - material to establish the direct nexus between the expenditure incurred and the income not forming part of total income - Held that:- We observe that during the impugned year, assessee has not made any fresh investment. The assessee had total net worth of ₹ 321.82 crores and total investment in subsidiaries is ₹ 113.16 crores, out of which 0.18 crores is in foreign subsidiaries and rest amount of ₹ 112.98 crores has been invested in Indian subsidiary companies. The dividend received from foreign subsidiary companies is taxable. It is evident from the record available before us that the assessee has not paid any interest for making investment in subsidiaries and no fresh investment has also been made during the year. The ld. CIT(A), after considering the submissions of the assessee and the order of the Assessing Officer has made good reasoned order in deleting the disallowance u/s. 14A of expenditure - Decided against revenue
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2017 (11) TMI 1358
Disallowing the adjustment in the amount of penalty imposed u/s 271D - Held that:- Section 271-D of the Act are in the nature of compliance provisions that seek to impose penalty for non-compliance of the statutory scheme contained in Section 269 SS being that no loan in excess of ₹ 20,000/- be taken from any person, through cash mode. A plain reading of Section 269SS indicates that the bar has been created against taking loans in cash, in excess of ₹ 20,000/-. In fact the legislature clearly appears to contemplate that loan in excess of ₹ 20,000/- should be taken only through banking channel and not through cash mode. There is no room for allowing the benefit of the loan taken up to ₹ 20,000/ on the reasoning adopted by the CIT (Appeals). The bar operates in three contingencies. First, if the total loan amount, by way of a single transaction exceeds ₹ 20,000/-. Second, it operates where unpaid amount of an earlier loan exceeds ₹ 20,000/-. Third, it operates where the aggregate amount of first and second contingencies taken together exceeds ₹ 20,000/-. At any rate, it is not the case of the assessee that the loan had been taken by it in parts such that one part of the cash loan was for ₹ 20,000/- and the other in excess thereof. In fact the aggregate amount of loan taken by the assessee from Vikas Motor Finance Company was ₹ 1,00,000/- and that from Singh Traders was in excess of ₹ 70,000/-. Thus, the bar created by Section 269SS of the Act is clearly attracted. Reliance has been placed by learned counsel for the assessee on the judgment in the case of Commissioner of Income Tax Vs. Ajanta Dyeing and Printing Mills reported in (2003 (1) TMI 31 - RAJASTHAN High Court) as made an interpretation in favour of the assessee and granted adjustment of Rs, 20,000/-. However, with due respect, we disagree with the view taken by the Rajasthan High Court inasmuch as the language of the Act is clear and unambiguous. It does not contemplate granting of any such adjustment or benefit to the assessee to the extent of ₹ 20,000/- in respect of loan taken in cash is exceeds of ₹ 20,000/-. In fact the language only suggests, in case the aggregate amount of loan exceeds ₹ 20,000/- or where loan may have been taken in parts, or where fresh loan and outstanding loan taken together exceed ₹ 20,000/-, no penalty would be leviable, to any extent, if the loan in excess of ₹ 20,000/- is taken through banking channel. However, otherwise, penalty is mandatory and no adjustment in penalty is contemplated. - Decided against the assessee
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2017 (11) TMI 1349
Addition on account of bogus purchases - concerned parties have admitted before the Sales Tax authorities that they were providing accommodation bills only without actual delivery of goods - Held that:- Assessing Officer has not made such addition while completing assessment. It is the first appellate authority who in the course of appellate proceeding has made the addition on account of alleged expenditure to have been incurred by the assessee towards commission for availing accommodation bills. Undisputedly, before making the disputed addition, learned Commissioner (Appeals) has not issued any show cause notice to the assessee. Since, the addition made by the learned Commissioner (Appeals) results in enhancement of income determined by the Assessing Officer, as per the mandate of section 251(2), the learned Commissioner (Appeals) should have given a show cause notice to the assessee before enhancing the income. The learned Commissioner (Appeals) having not followed the statutory mandate the addition cannot be sustained. Therefore, on over all consideration of facts and material on record, we are of the considered view that all the issues raised by the assessee in the present appeal requires to be restored back to the Assessing Officer for denovo adjudication after providing reasonable opportunity of being heard to the assessee. We order accordingly. Grounds raised are allowed for statistical purposes.
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2017 (11) TMI 1348
Bogus purchase - addition u/s 69C - rate of profit at which the income of the assessee is to be assessed - Held that:- Both the authorities have relied upon the BAP report. In CBDT circular no.2/2008, dated 22nd February 2008, the rate of profit in case of diamond manufacturing and trading has been fixed at 6%. However, the percentage referred to in BAP reports or CBDT circular are for transaction under normal circumstances, hence, cannot apply to unproved purchases. Thus, in our view, since, the assessee has failed to prove the genuineness of purchases from concerned parties disallowance on the alleged bogus purchases should be made at 6%. As far as the decision relied upon by the learned Authorised Representative we are of the view that since, what should be the profit rate in a particular case is a purely factual issue, the decision having been rendered in its own factual context will not apply. Accordingly, we direct the Assessing Officer to disallow 6% of the alleged bogus purchase. Ground is partly allowed.
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2017 (11) TMI 1372
Initiation of proceedings u/s 153C - period of six assessment year as reckoned - Held that:- In the case in hand, it would be the date of recording satisfaction under section 153 of the Act i.e. 2nd November, 2009, and therefore, six assessment years which would eligible for assessment/re-assessment would commence from assessment year 2004-05 to assessment year 2009-10. The assessment/re-assessment in respect of assessment year 2003-04 would, thus, be beyond the period of six assessment year as reckoned with reference to the date of satisfaction recorded by the Assessing Officer of the searched person. We, therefore, hold that the learned CIT(A) was quite justified in considering the assessment for assessment year 2003-04 as outside the scope of section 153C of the Act, being barred by limitation and without jurisdiction. Accordingly, the impugned assessment order is liable to be quashed. We decide accordingly.
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2017 (11) TMI 1371
Disallowance of expenses - proof of payment as per the registered agreement which is a sale deed - Held that:- As referring to registered sale deed it is specifically mentioned in the said sale deed that all the expenses on sale deed are borne by the seller. Further it was also seen from the back page no. 51 are purchased by assessee as the same is in the name of assessee. Pg No. 52 of the paper book is the account of the property mentioning payment of ₹ 11,26,600/- in cash for the purchase of stamp papers on the sale of the property. Said account is from regular book of audited accounts, which are examined and accepted by the A.O. and no adverse remark regarding book of accounts, availability of cash etc. was found by the A.O. who in fact specifically accepted such payment. Hence payment is as per the registered agreement which is a sale deed and there is no requirement of any cash flow statement when payment is from cash book maintained in the ordinary course of business. In fact addition for doubting source is to be made U/s 69 and not for the disallowance of expenditure and in fact ld. CIT(A) raised only doubts but has not denied that payment has been made. All the bills are bearing name/address/phone no. of the supplier and most of the bills are bearing printed numbers as well as item supplied like rodi, cement etc. Beside AO has not rejected accounts and specifically accepted these expenses. In any case in case of any doubt ld. CIT(A) had to conduct inquiry from the suppliers or at least had to enquire from the assessee about his doubts as onus was on him to prove expenses bogus. His observation about rented property is wrong on the record. As per above discussions enhancement made by ld. CIT(A) is without any material - Decided against revenue Addition being interest on borrowed funds capitalized - AR argued that the interest paid against housing loan is part of cost of acquisition U/s 48 - Held that:- After considering the settled position of law about the allowance of interest on loan taken for the purchase of house property as part of cost more so when assessee has also not taken any other advantage of said interest and incurrence of interest expenditure is not under doubt, claim of interest is fully allowable against the sale consideration and ground of assessee allowed.
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2017 (11) TMI 1370
Exemption u/s 11 denied - action of the Assessing Officer in holding that the activities of the assessee are commercial and not charitable - Held that:- In AY 1989-90 the Tribunal in the assessee’s own case dismissed the departmental ground of appeal where it was alleged that the CIT(A) had erred in holding that the assessee was entitled to benefit u/s 11(1) of the Act read with Section 2(15) of the Act. In the AY 1990-91 the departmental appeal was again dismissed by the Tribunal where the ground raised was that the CIT(A) had erred in allowing the benefit of Section 11 of the Act by holding that the activities of the Society were charitable though the Assessing Officer had rightly applied the provisions of Section 11(4)(A) of the Act by holding the same as business activity. In AY 1993-94 once again the departmental appeal was dismissed by the Tribunal where the point in issue was that the CIT(A) erred in allowing the benefit u/s 11 of the Act by holding that the activities of the Society were chargeable(sic) although the Assessing Officer had rightly applied the provisions of Section 11(4)(A) of the Act by holding the same as business activity. It seems that the CIT(A)’s first appeal order in AY 1992-93 became final where it was held by the CIT(A) that the Appellant was entitled to exemption u/s 11 of the Act and the provisions of Section 11(4)(A) of the Act were not applicable to the case. There-after in AY 1997-98 the Assessing Officer himself in the assessment order dated 11.01.2000 conferred charitable status to the assessee by applying Section 11 of the Act. While fees may be charged and there may even to be a surplus out of charitable activities, the principle that so long as the surplus funds are redeployed in charitable activities no objection can be taken as to the charitable pursuits is inexceptionable. Thus, on a careful consideration of the entirety of the facts and the material on record and based on the history of the case and the existing precedents on this point, we have no hesitation in holding that the CIT(A) has rightly decided the issue in favour of the assessee Association by directing relief u/s 11 read with Section 12AA of the Act. Resultantly the appeal filed by the Department is dismissed.
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2017 (11) TMI 1357
Stay of recovery of demand - prayer to permit him to pay 5% of the total outstanding demand amounting to ₹ 1,46,76,920/- in monthly instalments of ₹ 1 lakh - power to grant stay - Held that:- This Court is of the considered view that the first respondent should take a decision on merits on the petitions filed by the petitioner dated 03.8.2017. It is made clear that this Court has not accepted the submissions of the petitioner that the first respondent abdicated his powers or outrightly stated that he does not have a power to grant stay. Revenue was fully justified in his submission that the petitioner's conduct virtually amounts to forum shopping. It is true because the petitioner has been moving various authorities, who have considered the petitioner's requests, afforded him an opportunity of personal hearing and passed speaking orders. However, the petitioner did not comply with any of those directions, but once again approached the first respondent. This will clearly shows the conduct of the petitioner. But, this cannot be a ground for refusing to consider the stay petitions by the Appellate Authority, before whom, the appeals are pending. Thus, for all the above reasons in the preceding paragraphs and on the grounds pointed out earlier, the writ petition is partly allowed, the impugned order dated 12.10.2017 passed by the first respondent is set aside and the matter is remitted back to the first respondent to be considered on merits and in accordance with law after affording an opportunity of personal hearing
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2017 (11) TMI 1369
Assessment u/s 153A - Held that:- Respectfully following the decision of the Hon‟ble Delhi High Court in case of CIT versus Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT) no addition can be made in the hands of the assessee for these and impugned assessment year in absence of any incriminating evidence as this assessment is concluded/completed assessment. Addition of bogus purchases - Held that:- Assessing Officer has made this disallowance based on some Inquiry carried on by him in some other party which could not be found at the given address. It is stated that assessee has not purchased any goods from that party. In view of this we do not find any infirmity in the order of the Ld. CIT (A) in deleting the addition by holding that the appellant company has discharged its onus by providing copy of the bills raised by the contractor containing full address, nature of services rendered or goods supplied on payment has been made by account payee cheque and tax deduction at source has been deducted as per the provision of the law. He further held that the Assessing Officer is not conducted any enquiry to disbelieve these documents furnished by the assessee, but simply arrive at the conclusion that these expenses are not genuine. In view of this we find no infirmity in the order of the Ld. CIT (A) in deleting the above addition Addition u/s 14A - Held that:- The assessee explained that assessee has invested a sum of ₹ 5.5 crore in fixed deposits received for which the loan was the source of the funds FDR was encashed on 11/01/2007 and invested in principle floating-rate mutual fund on which the assessee has received dividend. Therefore, with respect to this amount. There is a direct nexus of amount borrowed for the purpose of earning exempt income. Hence the interest were doubted in the table given at page No. 3 of the assessment order at serial No. 5 in investment in mutual fund was made from 1/11/2007, which was encased on 26/3/2007 for 5.5 crores and interest is working out thereon of rupees 1142945/– related to 74 days. In view of this, interest disallowance under rule 8D (2) (i) is required to be upheld. With respect to the other investment where the interest expenditure of ₹ 1 943289/–. There is no nexus of the sum borrowed with the amount of some invested in the mutual funds. The some of the interest amount is with respect to investment made by the assessee in sister Concern Company from which no dividend has been received. Even otherwise, looking to the balance sheet of the company assessee has share capital of rupees 278 lakhs and reserves and surplus of 1346 Lacs which makes the total shareholder‟s funds of rupees 1624 Lacs. The amount of investment made by the assessee is for 0 Lacs as on 31/3/2006 and only ₹ 7 lakhs as on 31/3/2007. Therefore it is apparent that the investment made by the assessee in exempt income generating investments is far less than interest-free funds available with the assessee. Addition on account of lease agreement charges - Held that:- The expenditure is incurred by the assessee in present day business environment in different ways. It is for the revenue to first understand the business of the assessee and then decide about the allowability of the same by putting themselves into the shoes of businessmen. The business are being carried out in today‟s environment involved most volatile manner, it has also become innovative. Therefore, the time has come that revenue should also become contemporary with the running businesses and acquaint themselves with its volatility and innovativeness. Considering the business intent of the assessee and the manner of incurring expenditure, it is apparent that expenditure incurred by the assessee cannot be considered to be not business expenditure. According to us, it is for the purpose of the business of the assessee and hence deductible. For aforesaid reasons we reverse the finding of the lower authorities and direct the Ld. Assessing Officer to allow the claim of the assessee on account of lease agreement charges as deductible business expenditure under the head of profits and gains of business and profession.
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2017 (11) TMI 1368
Disallowance made u/s.14A r.w.r. 8D - Held that:- FAA has held that provision of Rule 8D of were not applicable for the year under consideration. We do not see any legal or factual infirmity in the order of the FAA. So, confirming his order we decide first Ground of appeal against the AO. Disallowance made u/s.37(1)- AO held that activity of investment for controlling interest in share capital of the other companies could not be treated as business activity - Held that:- It was brought to our notice that identical issue was decided in favour of the assessee and against AO by the Tribunal, while deciding the appeal for the AY. 2004-05 as held that the assessee being an investment & finance company and a promoter of new companies and having interest in the business of these companies has made the investments for business purposes for having control over these subsidiary and associated companies. In the light of the proposition in “S.A. Builders v. CIT” (2006 (12) TMI 82 - SUPREME COURT) it is held that no disallowance in this case is attracted u/s 36(iii) Payment under the head legal and professional fee - non deduction of tds - Held that:- We find that in the remand report the AO, himself had admitted that foreign entities rendered services outside India and they did not have any PE in India, that payment made to Indian consultant was below the threshold limit envisaged by the provisions of section 194J of the Act. Considering the above facts, we are of the opinion that there is no need to interfere with order of the FAA. Disallowance u/s 14A - Held that:- In our opinion, expenditure incurred for earning exempt income only can be disallowed. As stated earlier, Rule 8D was not applicable for the year under appeal. But, the honorable Bombay High Court in the case of Godrej Boyce Manufacturing Company [2010 (8) TMI 77 - BOMBAY HIGH COURT] has held reasonable disallowance can be made u/s.14A of the Act for the year under appeal. Therefore, we hold that disallowance should be restricted to 2% of the expenses of HO. First ground of appeal is decided in favour of the assessee. TDS u/s 194A - Non deduction of tds on payment of interest to a trust - Held that:- .We find the AO had made the disallowance as the assessee had not deducted tax at source while paying interest, that as per the assessee the recipient of the disputed amount had paid the taxes. In our opinion, the matter needs further verification. So, in the interest of Justice, we are restoring that the matter to the file of the AO for verification. We hold that the second proviso to section 40(a) of the Act is retrospective in nature. Respectfully following order of the Tribunal in the case of M/s. Selprint (2015 (12) TMI 396 - ITAT MUMBAI), we direct the AO to decide the issue after affording a reasonable opportunity of hearing to the assessee Taxability of capital gains in the hands of the assessee on sale of shares of IDEA by its wholly owned subsidiary (WOS) - whether provisions of section 93 are applicable to the sale of Idea shares by Apex to Birla Group? - Held that:- Section 93 has to be strictly construed and has to be taken to its logical conclusion. It means that if the situation specified in the section exists, only then it will be applicable. We find that one of the basic fact i.e. transfer of property by a resident to a non resident is not there in the whole transaction. In the case under appeal, a non-resident company has transferred property i.e. shares to a resident and that resident is an unrelated party. Absence of transfer by resident to a non resident entity takes the transaction out of the ambit of section 93,a deeming provision. As stated earlier, the section has to be construed strictly and full effect has to be given to the consequences flowing from it. The apparent consequence is that the assessee is out of the net of the provisions of section 93 of the Act. Therefore, in our opinion, the departmental authorities have wrongly invoked the provisions of section 93.- Decided favour of the assessee.
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2017 (11) TMI 1367
Exemption u/s 11(1) - denial of claim as the activities of the assessee is in the nature of trade, commerce/business, which falls under the “Advance of any other objects of general public utility and hit by the proviso to section 2(15) - CIT-A allowed the claim - AO, while making the addition taxed the income on the ground that the receipts are from non-recognized courses, therefore, it is for non-charitable purposes Held that:- Under the provisions of Explanation-2 of Section-11(1) accumulation of the amount of income, derived from property held under the trust, are permitted to be accumulated u/s 11(2) and under the provision of section 11(1) of the Act, the earning of the assessee from property held for charitable purposes is permitted to be accumulated up to the specified limit of its gross receipts. The assessee society is imparting education to the poor woman for providing vocational and non-vocational education, which has been considered by the Tribunal in its own case for AY 2009-10. The proviso to section-2(15) is applicable only in a situation, when the activities of the assessee are found against the purposes/act and the primary objective even if it is unrecognized by the university/board, it cannot be said that the education is not being imparted. Thus, we don’t find any infirmity in the conclusion of the Ld. CIT(A), - Decided against revenue.
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2017 (11) TMI 1356
Penalty u/s. 271(1)(c) - interest on shortfall in payment of advance income-tax is in the nature of finance cost and hence should not be clubbed with the Current tax and should be separately disclosed - Held that:- In view of the well settled legal provisions as much as in the matter has specifically stated and the referred in the balance sheet, in our considered view, the view taken by the Tribunal is required to be reversed. In view of the observations made in the last para in Shervani Hospitalities’ case [2013 (6) TMI 15 - DELHI HIGH COURT] that the penalty can be imposed when the details furnished by the assessee are found to be incorrect, erroneous and false. Merely making a claim which is held as not sustainable under law should not lead to penalization, when the assessee had furnished full details in the return itself and the claim is a debatable, reasonably plausible or may well have been accepted, no imposition of penalty. Without entering into merit, penalty could not be imposed. - Decided in favour of assessee.
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2017 (11) TMI 1355
Reopening of assessment - failure on the part of the assessee in bifurcating the receipts into outside India and inside India - Held that:- The assessee has conducted the business in India with regard to its contract with ONGC during the year and has thus failed to tax the entire receipts in India as business income at maximum marginal rate as per the Income Tax Act. There was also failure on the part of the Assessing Officer in computing the income from outside India at a low rate. In the relevant assessment year, whether the receipts were taxed as business income, was never discussed by the Assessing Officer. For the relevant assessment year, the issue for taxation of entire revenue in India was not taken up by the Assessing Officer. Thus, according to the reasons assigned, there was tangible material for formation of belief by the Assessing Officer to reopen the assessment. It is in these circumstances, the notice u/s 148 of the Act was issued to the petitioner company on 28.3.2011. Thus it is not the change of opinion but the reassessment has been ordered on the basis of the tangible material placed on record necessitating the reassessment. Sufficient reasons have been assigned for reopening of the assessment. The objections raised by the petitioner company have been specifically dealt with by the respondent no.1. Impugned order dated 19.12.2011 passed by the respondent no.1 is detailed and reasoned and in conformity with the law - Decided against assessee.
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2017 (11) TMI 1366
Allowability of software expenses - revenue or capital expenditure - Held that:- CIT(A) has gone through the invoices submitted by the assessee during the course of appellate proceedings and has arrived at a finding that ₹ 99,031 relates to purchase of software. There is nothing on record to suggest that said finding is perverse. Further, the assessee in its submissions has also stated that it had paid for purchase of software for Website related application for LAN. In light of the same, we donot see any infirmity in the findings of the ld CIT(A). The expenditure of ₹ 99,031 is held to be capital expenditure and being in the nature of intangible assets, the assessee shall however be entitled for depreciation as prescribed for intangible assets under section 32 of the Act. The ground of the assessee’s appeal is disposed off accordingly. Addition on account of caution money - 15% of refunded caution money is disallowed for which no proper receipt/evidence has been adduced by the assessee - Held that:- merely on account of the fact that some of the repayments which have been made by the assessee in cash are not verifiable, the same cannot form the basis for disallowance. During the course of hearing, the assessee has submitted that it has adequate internal controls for repayment of caution money to the students and books of accounts have been audited and no adverse finding has been given by the auditors. Further, details of repayments in terms of caution money ledger, vouchers and other details were submitted during the course of assessment proceedings which is also not disputed by the Revenue. Further, the question of disallowance comes where there is a claim of expenditure at first place which is not the case before us. In the entirety of facts and circumstances of case, we are of the considered view that there is no basis for adhoc disallowance of 15% of caution money which has been refunded to the students during the year. We accordingly set-aside the findings of the AO and the ld CIT(A) and the disallowance of caution money so refunded is deleted in entirety. In the result, ground of assessee’s appeal is allowed Addition u/s 40A(2)(b) on account of salary payment to Arti Bansal - Held that:- The reasonableness has to be seen vis-a-vis legitimate needs of the assessee company and benefit derived or accruing to the assessee company and as determined by the assessee company. In the entirety of the facts and circumstances of the case, we are of the view that the salary paid to Arti Bansal is commensurate with qualifications and experience as well as area of her work responsibility in terms of faculty, management and day to day affairs of the Ajmer branch and commensurate vis-a-vis legitimate needs of the assessee company and benefit derived or accruing to the assessee company. In the result, disallowance of salary payment to Arti Bansal under the provisions of section 40A(2)(b) is hereby deleted. Regarding salary payment to Mahima Bansal our reasoning as stated above in case of Arti Bansal shall apply with equal force to the present case. Further, we find that unlike the case of Arti Bansal, in case of Mahima Bansal, comparative data has been examined and analysed by the ld CIT(A) even though it is an internal data as provided by the assessee company. Based on the analysis of the said data, the ld CIT(A) has given a finding that the salary payment to Mahima Bansal is excessive by ₹ 8 lacs in financial year 2011-12 relevant to assessment year 2012-13 and by ₹ 6 lacs in financial year 2012-13 relevant to assessment year 2013-14. The said findings of the ld CIT(A) is therefore in consonance with our reasoning given above in case of Arti Bansal. However, there is no comparative data that is available and analysed for the financial year 2009-10 and 2010-11. We accordingly confirm the deletion of addition of salary payments to Mahima Bansal for AY 2010-11 and AY 2011-12. For AY 2012-13 and AY 2013-14, we confirm the addition as sustained by the ld CIT(A) and balance addition is deleted. The respective grounds of appeal are disposed off accordingly. Disallowance of depreciation on PLD unit building - CIT-A deleted addition on the basis of additional evidence admitted - Held that:- As gone through the construction account of the building and it was seen that in the current financial year, last payment was made on 21.12.2009. It was also seen that assessee applied for increase in electric load from 350KW to 500 KW on 27.07.2009 and demand note was issued (by Jaipur Vidhyut Vitran Nigam Ltd.) on 21.08.2000, which was deposited on 28.08.2009. Considering the above, it is of the opinion that the building was completed and put to use during the second half of current financial year. The AO is therefore directed to delete addition Disallowance of deduction claimed by assessee u/s 80G - Held that:- Setting aside the matter to the file of the AO for a limited purpose to verify the validity of the approval granted by the Commissioner of Income Tax under the provisions of section 80G(5)(vi) to Bansal Public School Education Society for the financial year relevant to the impunged assessment year. Where the Assessing officer finds that the approval granted under section 80G(5)(vi) to Bansal Public School Education Society is valid and in force for the financial year relevant to the impunged assessment year, he is hereby directed to allow the necessary relief to the assessee company by way of allowing the necessary deduction in terms of provisions of section 80G of the Act as claimed by the assessee company in its return of income. The ground of the revenue is disposed off accordingly. Disallowance towards advertisement expenditure - Held that:- No evidence has been submitted to substantiate the expenditure as claimed to have been incurred towards advertisement. Further, the assessee has failed to establish the necessary nexus of incurrence of such expenditure for business purposes. In light of the same, the above findings of the ld CIT(A) remain uncontroverted before us and the same are hereby confirmed. In the result, assessee’s ground of appeal is dismissed. Depreciation on xerox machine - Held that:- Nothing has been brought on record to suggest that Xerox machine cannot function independent of the computer system unlike a printer whose functionality is interconnected with a computer system. In light of the same, we upheld the action of the AO in treating Xerox machine as eligible for depreciation @ 15% as a standalone machine. In the result, the appeal of revenue is allowed. Contribution towards police welfare fund - Held that:- It is an expenditure which has been laid down to develop and strengthen the coordination and working relationship with the local police department. Given the budgetary constraints which, at times, are faced by police department, where an assessee contributes certain amount for welfare of the police personnel to help improve their extreme work conditions where they are deployed in close proximity to assessee’s area of operations, the necessary nexus is certainly established with the business of the assessee. In our view, such an expenditure will be eligible for allowance under section 37(1) as incurred for the purposes of its business. Adhoc disallowance of 15% of student welfare expenses - Held that:- Both the AO and ld CIT(A) has not highlighted specific expenditure which fail the test of business expediency as laid down by the Courts from time to time. Further, no specific instances of expenditure have been highlighted which could not be verified for want of proper supporting documentation. Merely generalization and holding that payments have been made in cash doesn’t necessarily lead to disallowance of eligible expenditure. There is no basis for adhocism in the eyes of law. In the result, disallowance made by the AO is hereby deleted. The assessee’s ground of appeal is allowed
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2017 (11) TMI 1359
Disallowance of interest paid on account of diversion of funds - whether borrowed fund has been utilized for non-commercial purpose without charging any interest? - Held that:- Whether to treat the advance given to sister concern in the course of assessee’s business or not, it all depends upon the facts and circumstance of each case. A specific query from the Bench was raised to the Ld. AR to prove that all 28 concerns are falling in the category group / sister concern. The Ld. AR in this regard requested the Bench to restore the matter to the file of AO for fresh adjudication in accordance with law. Ld. DR agreed to the submission of the Ld. AR for the assessee. In view of the above and in the interest of natural justice and fair play we are inclined to restore the issue back to the file of AO with a direction to adjudicate the issue in the light of above stated discussion and according to the provision of law. Hence, this ground of assessee’s appeal is allowed for statistical purpose. Bogus loss - Held that:- The issue of loss in future & option and derivative transaction was raised before Ld. CIT(A) but he failed to adjudicate the same. Ld. AR further submitted that an application u/s 154 of the Act was preferred before Ld. CIT(A) against his order dated 13.12.2012 wherein the Ld. CIT(A) rejected the claim of assessee without adducing any reason. In view of above, Ld. AR submitted to restore the matter back to the file of Ld. CIT(A) for fresh adjudication. In rejoinder Ld. DR does not raise any objection if the matter is remitted back Disallowance of interest levied on account of late deposit of TDS u/s 40(a)(ii) - AO was of the view that the interest on TDS is nothing but income tax paid by the assessee on behalf of parties - Held that:- The provision of Section 40(a)(ii) of the Act denies for the deduction of income-tax paid by the assessee but it does not speak about the interest levied on account of late deposit of TDS. In fact, the amount of TDS deducted by the assessee does not represent the income of the assessee rather it represent the income for the party in whose name the TDS was deducted. Thus, in our considered view, the amount of interest expense cannot be disallowed under the provision of Section 40(a)(ii) of the Act. As such, the amount of interest expense is eligible for deduction u/s. 37(1) of the Act, as it was incurred in the course of assessee’s business. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted and paid to the Government Exchequer and not the income of the assessee. In view of the above, we conclude that the interest expenses claimed by assessee on account of delayed deposit of TDS are allowable expense u/s. 37(1) of the Act. - Decided against revenue Treating the loss as non speculative as per the Explanation to Section 73 - Held that:- As observed that assessee claimed the loss of ₹65,73,582/- as speculative in nature as per explanation to Section 73 of the Act. Thus, such loss was set off against the speculative income by the assessee. In view of this, we find that the AO has already treated the impugned loss as speculative in nature and the same is also claimed by assessee as speculative in nature. Therefore, we find no infirmity in the order of Ld. CIT(A). We uphold the same. This ground of Revenue’s appeal is dismissed. Undisclosed income of assessee - Held that:- AR fairly conceded that assessee has shown less income in its return filed at ₹1,04,941/- only. Accordingly, Ld. AR requested the Bench to sustain the addition as made by AO. In view of the above proposition, we reverse the order of Ld. CIT(A) and confirm the order of AO. - Decided against assessee. Undisclosed investment - transactions with the BSE Ltd.failed to be explained from the books of account to the AO - Held that:- In the instant case, the addition made by Assessing Officer on the ground that assessee failed to explain the transactions of ₹14,72,050/- from the books of account. However, Ld. CIT(A) has restored the matter back to the file of AO with a direction to verify the necessary details from the books of account of assessee. From the above proposition, we find that necessary details were submitted by assessee before appellate stage to prove the genuineness of the transactions as discussed above. Ld. CIT(A) has accordingly directed the Assessing Officer to verify the same and adjudicate the matter. We find that the matter was not set aside to AO blanket by the ld. CIT(A). In such direction, we do not find any infirmity in the order of Ld. CIT(A)
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2017 (11) TMI 1347
Addition u/s. 69C - in-genuine purchases - Held that:- We find that the assessee purchased from Shree Sai Trading Co. of ₹ 13,89,232/-, from V3 Enterprise of ₹ 24,50,130/-, from Deep Enterprises of ₹ 33,18,054/- and from Niidhish Impex P. Ltd. of ₹ 24,44,624/- and these were same parties from whom purchases were made by assessee in A.Y. 2010-11. Therefore, no addition can be made in respect of these parties as Tribunal has already deleted addition thereof in A.Y. 2010-11. We find that in respect of other parties, the AO during the assessment proceeding asked the assessee to produce the purchase bill, alleged bogus purchase payment detail, corresponding sales details and quantity detail of the stock. We find from the assessment order that AO, without making any independent enquiry, has made addition of 12.5% on total transaction, which was not fair. We find that in the similar situation, it has been decided by ITAT in the case of Ramesh Kumar & Co vs. ACIT [2014 (11) TMI 1016 - ITAT MUMBAI] as held that there is nothing, in the order of the AO, about the cash trail. Secondly, proof of movement of goods is not a doubt. Therefore considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO - Decided in favour of assessee
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2017 (11) TMI 1346
Embezzlement loss due to siphoning of funds of assessee company by the employees - whether a business loss? - Held that:- No infirmity in the order passed by the Ld.CIT(A) in holding that the embezzlement loss due to siphoning of funds of assessee company by the employees is a business loss allowable u/s. 28 of the Act. The fact that there is embezzlement in the assessee company is not in dispute. The fact that the employees have siphoned off the funds of the assessee company and the assessee has filed criminal complaints against the employees for the frauds committed by them is also not in dispute. Thus, the order passed by the Ld.CIT(A) is a well-reasoned order based on the reliance of various High Courts including the Jurisdictional High Court and the Supreme Court. None of the findings of the Ld.CIT(A) have been controverted by the Revenue. In the circumstances we uphold the order of the Ld.CIT(A) and rejected the grounds of Revenue.
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2017 (11) TMI 1361
Disallowing of deduction u/s 80IC - return had not been filed within the time specified u/s 139(1) but within the extended period as specified u/s 139(4) - Held that:- Once it has been held that Section 80AC is a machinery provision, then the issue is to be considered in the light of the facts available. The legal position that the relevant provision is a machinery provision, applying the principles that being directory in nature enables the authorities to consider the reasons, consistently on record for late filing of the return. The delay in filing of the return in the facts of the present case was for reasons beyond the control of the assessee and in fact, there was reasonable cause in the late filing of the return within the extended period as statutorily available under sub-section (4) of Section 139 of the Act. The decision rendered in the case of P.Bhavani [2015 (8) TMI 1147 - ITAT CHENNAI], we find, on facts is not applicable and is entirely distinguishable. As is evident from the assessment order itself, the supporting documents for the claim u/s 80IC was filed well within the extended time prescribed u/s 139(4). The said fact is evident from a reading of the assessment order itself. We also note that the principle of law as applicable to claim of exemption u/s 54 as considered by the Hon'ble jurisdictional High Court in the case of CIT V Jagriti Aggarwal [2011 (10) TMI 279 - PUNJAB AND HARYANA HIGH COURT] is fully applicable to the case at hand The claim of the assessee could not be ousted on the fact that the return was filed within the extended period of sub section(4) of Section 139. Accordingly, we hold that the assessee deserves to succeed in principle. The matter is remanded to the AO for the purposes of verification. Needless to say that the assessee shall be given a reasonable opportunity of being heard. Disallowance of interest u/s 36 - Held that:- We note that though the assessee had canvassed before the AO that the loans were advanced for business purpose namely to Shri Shatrughan Sinha as a sale promotion exercise and to Shri Adil Latif Khan who was a Sales Manager as advance to be adjusted against work, however, in the discussion in the assessment order or the impugned order, there is no finding of fact given thereon. There is no finding whether Shri Shatrughan Sinha to whom an advance of ₹ 5,90,000/- was given, was entrusted with any sales promotion exercise or not and whether Shri Adil Latif Khan was the sales Manager of the company and the advance was adjusted against the work which he was stated to be performing. Accordingly, we deem it appropriate to set aside the issue back to the AO directing the said authority to first address the facts and thereafter consider the applicability of decisions thereon. Accordingly, in the absence of any relevant discussion in the order or the material fact, ground No. 2 of the assessee is set aside and restored back to the file of AO. Payment of PF ESI after due but before the due date of filing of the return - Held that:- We find that though the issue is addressed before the CIT(A), however, there is no specific finding coming out from the order. Since the issue is first to be considered on facts, it is also, accordingly, set aside back to the file of the AO with the direction to first address facts and thereafter pass a speaking order thereon in the light of the provisions of the Act and settled legal position thereon.
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2017 (11) TMI 1360
TPA - Rejection and inclusion of comparable companies - good comparable company for the purpose of determining ALP - Held that:- Assessee is engaged in the business of rendering software development services, thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparability. Disallowance under section 14A of the Act read with Rule 8D(2)(iii) - computation of disallowance u/s 14A of the Act was done by the assessee by attributing 10% of the salary and allowances of the finance and administrative staff. This disallowance was made having regard to the books of accounts of the assessee - Held that:- This disallowance made by the assessee has taken care of the activities of the assessee and the probable time that needs to be spent for managing the investments which are likely to be tax free income. Neither the AO nor the DRP have found fault with this calculation made by the assessee. The provision of Rule 8D(1) as also the provision of section 14A(2) of the Act mandate disallowance in accordance with Rule 8D(2) of the Rules, only where having regard to the accounts of the assessee, the AO is not satisfied with the correctness of the claim of the assessee regarding expenditure incurred to earn tax free income. In the absence of any reason in given for rejecting the claim of the assessee, we hold that disallowance u/s 14A of the Act should be restricted only to the sum of ₹ 1,12,895/- as disallowed by the assessee in its computation. - Decided in favour of assessee. MAT computation - adding back depreciation as per the Appellant’s books of account and in granting deduction of depreciation as per Rules - Held that:- While computing the book profits u/s 115JB of the Act, the AO is not empowered to make any adjustment which is not permitted by the explanation below section 115JB of the Act. The depreciation to be allowed while working the book profits is always as per the Companies Act and the depreciation should not be reduced as is done in the normal assessments by substituting the depreciation claimed under the Companies Act by the depreciation allowable under the Act. The action of the AO is per se unsustainable and the AO is directed to deduct depreciation only as per the Companies Act as done by the Assessee in its computation of book profits for the purpose of Sec.115JB of the Act.
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2017 (11) TMI 1345
Disallowance of labour charges - Held that:- According to the AO, certain bills were not signed and the payments were made mostly in cash, therefore, he made an estimated disallowance of 10% which comes to ₹ 1,08,799/-. The Ld. CIT(A) was also not convinced with the assessee’s aforesaid pleas and according to him, it was a bogus claim. We do not subscribe to such a finding for the simple reason that the AO could not make a finding that the entire claim was a bogus claim. The assessee has produced labourers who has been questioned by the AO and the AO only found fault with certain bills/vouchers and, therefore, made an estimated disallowance of ₹ 1,08,799/-. We note that the AO has not rejected the books of account and has simply made the addition based on few defects in few vouchers. The AO’s justification to make estimation appears to be the expenditure is excessive, which action of the AO cannot be sustained without any material to suggest that the assessee’s claim is not correct or bogus when the labourers were produced before him. The genuineness of the claim on account of labour charges cannot be discarded without any material to make an adverse finding. We do not find any such reason other than an arbitrary disallowance of 10% which cannot be sustained and, therefore, we direct deletion of the same. Amount from savings bank account of Union Bank of India - Held that:- When the cash flow statement along with the statement of bank account from 01.02.2008 to 06.03.2008 stands reconciled, therefore, the assessee has been able to explain the cash deposited in the bank account and, therefore, the addition u/s. 68 of the Act was not warranted. The authorities below on surmise and conjecture have disbelieved the sales of gold as well as the money transferred from one branch to another branch of the assessee, which have been explained before us. The authorities below without conducting proper enquiries have simply disbelieved the evidence furnished before them and has made the addition which cannot be sustained in the eyes of law and, therefore, we are inclined to allow this ground of appeal of the assessee.
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2017 (11) TMI 1362
Treatment to royalty payment - revenue expenditure OR capital expenditure - Held that:- First Appellate Authority has rightly deleted the addition made by the A.O. because these royalty payments are paid for use of trademark licences. After going through the impugned order the Ld. CIT(A) has observed that in case of group companies (G4S Security Systems) in the A.Y. 2002-03, 2003-04 and 2005-06 has been rightly allowed by Hon’ble High Court after appreciating the legal and factual position and in case of G4S Pvt.Ltd. in the A.Y. 2008-09 and 2009-10 the Ld. CIT(A) himself has allowed the appeal of the assessee and in this regard the Ld. DR could not controvert the finding that whether against the order of Ld. CIT(A) for A.Y. 2008-09 and 2009-10 for G4S Pvt.Ltd. the appeal has been filed in upper forum or not. The Ld. CIT(A) has also observed that for the A.Y. 2008-09 and 2009-10 in the assessee’s own case on identical facts and circumstances had allowed the appeal of the assessee. But the Ld.DR could not controvert whether revenue has filed any appeal against such order. In the case of group companies the Hon’ble High Court has allowed the royalty payment as revenue expenditure in the case of assessee group companies. - Decided against the revenue.
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2017 (11) TMI 1363
Allowable expenditure - Withheld price / additional price paid to the milk producers for procuring milk - AO observed the same as tax evasion device in payment "withheld price" through equity allotment partly and through contribution to trust partly - amount which is debited to the profit & loss account, but not actually paid to the milk suppliers, taken to capital contribution and also contribution to the trust, which is not allowable expenditure hence, liable to the disallowed - principles of mutuality - Held that:- For the issue of equity shares is concerned, clause 10(b) of the Articles of Association of the assessee company provides each member shall receive initial payment as may be determined by the Board for the produce/products. Every member shall receive withheld price (remaining price) which will be disbursed in cash or in kind or by allotment of equity shares in proportion to the quantity of milk supplied to the assessee company. Even as per section 581 of the Companies Act, the price withheld may be disbursed to the seller member in cash or through allotment of equity shares in proportion to the milk supplied during the financial year to such extent as may be decided by the Board. We find that the assessee company as per section 581 of the Companies Act and also Articles of Association, passed the resolution dated 05/10/2009 and equity shares are issued. Therefore, the Assessing Officer is not correct in saying that it is a tax avoidance device adopted by the assessee to avoid the payment of tax. The ld. CIT(A) by considering all the details has correctly decided that out of withheld price, equity shares issued is in accordance with law. Insofar as contribution paid to the trust is concerned, as per Memorandum of Association of Companies Act, it is under obligation of the assessee to establish schools, colleges, training centres & hospitals. Accordingly, the assessee has already established hospital and educational institutions and out of withheld price some portion is paid to the trust and same is received by the trust. Nowhere the Assessing Officer doubted the transaction. The only doubt expressed by the Assessing Officer is that the above payments are only made to avoid taxes. In our opinion, the assessee producer company running in the lines of mutuality basis for the benefit of the members, in the interest of the members instead of payment cash, some shares are allowed and established educational institutions and also hospitals for treatment of the members of the milk suppliers and certain payments made out of withheld price as per Companies Act and also Articles of Association followed by Board resolution. The Assessing Officer is not correct in saying that the assessee adopted device for avoidance of tax. We further observe that once the milk suppliers having shares in the company, they will be having a feeling of supplying milk to their own company. Therefore, the assessee company will be able to procure milk from the milk producers continuously. Therefore, allotment of equity shares to the milk producers for the above reason has to be considered as business expediency. - Decided in favour of assessee. Sale of powder - plant machinery not erected and kept idle for six years - assessee has claimed the same as other manufacturing expenses - AO is of the opinion that it is a capital loss and accordingly he disallowed the same - assessee has submitted that once loss claimed by the assessee, is considered by the Assessing Officer as capital loss, whenever there is a capital gain, loss may be allowed to set off of against the capital gain - Held that:- We find that there is a merit in the argument of the counsel for the assessee. Therefore, we direct the Assessing Officer, whenever there is a capital gain, against the gain, the assessee‟s claim of set off may be allowed in future in accordance with law. Accordingly, this cross objection filed by the assessee is allowed for statistical purpose.
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2017 (11) TMI 1354
Disallowance of speculative loss occurred on derivative transactions - ITAT confirming the deletion of addition holding the same as business loss - Held that:- As decided in CIT vs. New Ambadi Estates (P) Ltd [2012 (3) TMI 79 - MADRAS HIGH COURT] it was only NCSD, which is part of the PCD allotted in favour of the existing shareholder and then transferred to the bank, because the amount paid by the bank was treated as a loan to the existing shareholders and the said loan is treated as satisfied by issue of the NCSD to the bank.Therefore, the Tribunal has correctly held that there is an actual delivery and constructive delivery and they will not come within the purview of the "speculative transaction". Further, NCSD cannot be purchased or sold before allotment. Hence, pending allotment, non-convertible portion does not exist as such as commodities – Decided against the revenue.
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2017 (11) TMI 1365
Estimation of income at 10% of the purchase price - Held that:- We direct the A.O. to re-compute the income of the assessee at 5% of purchase price. Accordingly, this ground of appeal raised by the assessee is allowed. Unexplained investment - Held that:- During the appeal hearing, the Ld. A.R. did not bring any evidence to show the source of the payment of ₹ 4,16,667/-. Though the Ld. A.R. argued that once the income is estimated no further addition required to be made, the payment was the initial payment made in the beginning of the year, hence it cannot be held that the assessee has generated income out of business in the beginning of the day, therefore, the argument of the assessee is untenable, accordingly, rejected. Since the assessee failed to explain the sources of the initial investment, we hold that the A.O. has rightly made the addition, which was confirmed by the Ld. CIT(A). Addition u/s 69 - Held that:- CIT(A) examined the transaction of each creditor and given finding that the transactions are not genuine and in some cases the identity of the creditor was also doubtful. None of the creditors are having credit worthiness to make the advances. The ld. CIT(A) also verified the transactions with respect to the DDs purchased and found that there was no evidence to show that the creditors have taken the DDs and the DDs were taken out of the bank withdrawals. The serial No. of DDs and the manner in which DDs were taken to pay the license fee also held to be doubtful and the transactions cannot be held as genuine. During the appeal hearing, the Ld. A.R. did not bring any evidence to controvert the finding of the Ld. CIT(A). Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld and the appeal of the assessee on this ground is dismissed.
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2017 (11) TMI 1364
Nature of expenditure - Treatment to extension fee - Capital Expenditure or revenue expenditure - Held that:- CIT(Appeals) has given a categorical finding that the said extension fee was paid lump sum once before installation of the machine. This finding has also not been controverted by the Ld. counsel for assessee. In view of the same, we have no hesitation in holding that the expenditure incurred by the assessee was linked to the installation of machinery as held by the Ld.CIT(Appeals) and is attributable to the cost of machinery and is thus capital expenditure. - Decided against assessee. Rejection of books of account of the assessee u/s 145(3) - trading addition - Held that:- Assessee had explained each and every discrepancy pointed out by the Assessing Officer vis-à-vis the difference in the stock submitted to the bank and that recorded in the books of account. The contention of the Ld. counsel for assessee that the stocks reflected in the books were based on the stocks as per Excise record maintained, which were duly audited by the Excise Department and that all sales and purchases were duly vouched and supported by bills and even assessed by the Sales Tax Department, have not been controverted by the Revenue. The assessee has demonstrated by way of a certificate filed from the bank that the last inspection for the year was undertaken on 1.2.2010 for verifying the stock statement on 31.12.2009 which again has not been controverted by the Ld. DR. No cognizance therefore can be taken of this report for the purpose of determining the stock as at the end of the year. . There is therefore merit in the contention of the Ld. counsel for assessee that having furnished a satisfactory explanation, there was no reason to make any addition by relying on the stock statement submitted to the Bank . Thus the assessee has demonstrated by way of a certificate filed from the bank that the last inspection for the year was undertaken on 1.2.2010 for verifying the stock statement on 31.12.2009 which again has not been controverted by the Ld. DR. No cognizance therefore can be taken of this report for the purpose of determining the stock as at the end of the year. There is therefore merit in the contention of the Ld. counsel for assessee that having furnished a satisfactory explanation, there was no reason to make any addition by relying on the stock statement submitted to the Bank As far the non-maintenance of wages register, the assessee having produced the same pertaining to the months of April, 2009, October, 2009 and March, 2010 and also the challans in respect of EPF deposits, we hold that it cannot be said that the assessee was not maintaining primary records of wages register. Even the vouchers for firewood were duly produced before the lower authorities and were explained to them as to why no bills pertaining to the same were present since as explained by the assessee, firewood was purchased from petty farmers from the unorganized sector who did not raise or maintain any bill books. Therefore, in view of the above, it cannot be said that there was any material discrepancy in the books of account of the assessee by virtue of which the true profits of the assessee could not be determined so as to warrant the rejection of books of account u/s 145(3) of the Act. - Decided in favour of assessee.
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Customs
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2017 (11) TMI 1340
Interest on refund - redemption fine and bank guarantee - order of the adjudicating authority having reversed, petitioners become entitled to the amount deposited, being there neither any challenge to the order of Tribunal nor was the amount stayed by the Higher Court - Whether the petitioners is entitled to interest on redemption fine and Bank guarantee? - Held that: - As per the settled law, it may be open for the Department to challenge the said judgment before the higher Court, but cannot avoid implementation of the Tribunal’s order for an indefinite period without stay being granted by the Higher Court - In the present case, as on date, admittedly, no stay has been granted, within a reasonable time after the judgment of the Tribunal, therefore, the Department was expected in law to implement the directions, which would result into refund of sum of ₹ 10 lakhs deposited by the petitioners and releasing of Bank Guarantees. Though the petitioners reminded the Department on numerous occasions, this was not done for over three years - Merely because the Customs Act, 1962 does not make any provision for granting interest under such eventuality, would not mean that the Court, in exercise of writ jurisdiction, cannot direct the Department to pay the same. When the facts are gross, to ensure refund of the amount years later without interest would be doing injustice. The Department must pay interest on the sum of ₹ 10 lakhs deposited by the petitioners to the extent of delay in refunding the same - On the Bank Guarantees, we do not see any case for granting interest since the petitioners were not made to deposit the same with the Department. The Respondent is directed to pay interest at the rate of 8% per annum upon completion of period of three months from the date of judgment of the Tribunal till actual payment of refund - no interest on the Bank Guarantee component - petition allowed in part.
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2017 (11) TMI 1344
Penalty on CHA u/s 112 (a) of CHA - classification of imported goods - Rudraksh - Chapter 44 or Chapter 14? - classification as declared in the Bill of Entry was not accepted and it was found that the goods are rightly classifiable under Chapter 14 - case of Revenue is that CHA is obligated to file a Bill of Entry based on correct classification and in case he is aware of different classification being adopted by the importer, he is duty bound to inform the Customs about the wrong classification as advised by the importer - Held that: - the goods were imported and the Bill of Entry was filed for warehousing. Warehoused goods will be in control of the Customs authorities. Classification of the product is claimed under a particular heading. The nature of product for classification could be more appropriately arrived at by physical examination only. Prima facie, Rudraksh classification, as a product of the particular chapter is to be examined with reference to the nature and the manner in which it is imported, whether it is plant product, for use or worked upon product or any declared other purposes. In such situation, it will not be correct to take a penal action against the Appellant who is director of the CHA for filing a classification under a particular chapter. Penalty set aside - appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1343
Classification of imported equipments - Head End - whether 8543 as ordered by the adjudicated authority or 8525 as claimed by the appellant? - Held that: - similar equipments were held to be classified under 8525 in the case of Set India Pvt. Ltd. vs. CC [2002 (11) TMI 421 - CEGAT, MUMBAI] - Similar views have also been held in the case of Commissioner Customs vs. Multi Screen Media Pvt. Ltd. [2015 (8) TMI 241 - SUPREME COURT] - the imported goods are rightly classifiable under 8525 - The differential duty payable is required to be requantified and for this purpose the case is required to be remanded. Valuation - whether the value of software already embedded in the equipment as well as service charges are required to be included in the assessable value? - Held that: - Since the software is already incorporated in the imported goods the value of same is required to be added to the transaction value. Likewise the purchase order also includes the process of installation of equipment after importation. The Explanation as above provides for addition of the charges towards this service also - addition of the above changes paid by appellant to supplier, to the declared value for purpose of charging duty is upheld. Decided partly against appellant - part matter on remand.
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2017 (11) TMI 1342
Non-compliance of Pre-deposit - Section 129E of Customs Act, 1962 - provisional anti dumping duty - enhancement of duty by final notification for ADD - Held that: - Admittedly, there is no order on the merits of the case by the first appellate authority. The appeal stands dismissed by him on the question of predeposit itself - We direct the first appellate authority to hear the appeal without insisting on any predeposit - appeal allowed by way of remand.
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2017 (11) TMI 1341
Valuation of imported goods - rejection of declared value - enhancement of transaction value based on NIDB data of contemporaneous imports - In respect of items in S.Nos.2,6,9,10,11,13,15,18,19 and 20, the enhancement is made merely on the basis of NIDB data - Held that: - reliance placed in the Tribunal's decision in the case of M/s. Best Ways International Company Versus Commissioner of Customs, Trichy [2017 (8) TMI 1262 - CESTAT CHENNAI], where it was held that the NIDB data cannot be made the basis for enhancement of value - enhancement of value to be set aside. In respect of items in S.Nos.1,12 and 21, the enhancement is not on the basis of NIDB data or contemporaneous imports of identical goods, but the value is enhanced on the basis of other models’ descriptions - Held that: - this cannot be the basis for enhancement and thus the enhancement is set aside. In respect of Item No.22, the enhancement is based on the enhanced value of the Bill of Entry which was in dispute in the appellant’s own case as mentioned above - Held that: - the enhancement not sustainable and is to be set aside. In respect of Items in S.Nos.8,14,17, the enhancement is made on the highest value of contemporaneous imports - Held that: - sub Rule (3) provides that in applying this Rule, if more than one transaction value of identical goods is found, the lowest of such value shall be used to determine the value of imported goods - following the decision in appellant own case as mentioned, the enhancement of value is set aside - the matter has to be remanded to the adjudicating authority to re-determine the value on the basis of lowest value of the contemporaneous imports. Appeal allowed in part and part matter on remand.
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Corporate Laws
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2017 (11) TMI 1338
Petitioners eligibility to file Company Petition under section 399 of the Companies Act, 1956 - perentage of share holding - Held that:- Section 399 of the Companies Act, 1956 says that petition under section 397 or 398 of the Companies Act, 1956 can be made by not less than one hundred members of the Company or not less than one-tenth of the total members of the company. In the case on hand, admittedly, petitioners are having only 0.001% of shareholding of the first respondent company. As per the register of the first respondent company there are 13 shareholders as on the date of filing of original petition. Therefore, the sole petitioner who filed CP is not at all eligible to file this petition. Whether interveners can be permitted to implead as petitioners? - Held that:- It is settled law that petitioner must have the consent of the required members or the members having required percentage of shareholding as on the date of the filing of the petition and it must be there by the date the petition was filed. Subsequent consent by other members or subsequent adding of other members do not fulfil the eligibility criteria laid down in section 399 of the Companies Act, 1956. Therefore, application made by the interveners to implead themselves as petitioners and make the petitioner eligible to file petition under section 397 is nothing but an afterthought. If, really the interveners have got any cause to file a case of oppression and mismanagement, they would have joined hands with the petitioner before filing this petition. Section 399 says that as on the date of filing the petition, criteria prescribed in that section must be fulfilled. Therefore, there are no merits in the intervening application.
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2017 (11) TMI 1337
Power of Registrar to strike defunct company off register - non enhancement of paid capital by assessee private comoany as per section 3 - Held that:- It is evident from the perusal of sub-section 3 of Section 3 that every private company with a paid-up capital of less than one lakh rupees was required to enhance its paid-up capital to one lakh rupees within a period of two years from the commencement of Companies (Amendment) Act, 2000. The aforesaid amendment came into force w.e.f. 13.12.2000. The enhancement by the petitioner company to one lakh rupees or more was permissible upto 13.12.2002. There is no averment in the petition that any attempt was made for enhancement of its share capital which continues to be at ₹ 300 with 30 equity shares of ₹ 10 each. The consequence of not enhancing the paid-up capital are provided in sub section 5 of Section 3 namely, that such a company shall be deemed to be a ‘defunct company’ within the meaning of section 560 and the Registrar is under a legal obligation to struck off from its register the name of such company. The objection taken by the Registrar is well founded and deserves to be upheld. The order passed by the Registrar of Companies is thus sustainable in the eyes of law and the petitioner No. 1-company is deemed to be a defunct company. In no case the petitioner No. 1-company can secure the relief it has prayed for. Accordingly, the Registrar of Companies has passed a valid order which is beyond pale of challenge.
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Insolvency & Bankruptcy
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2017 (11) TMI 1339
Corporate Insolvency Resolution Process - proof of eligible debt - Held that:- The present claim does not fall within the definition of a financial debt nor is it an unsecured loan repayable on demand. There is no Demand Promissory Note executed, nor is there any agreement for payment of any interest. As submitted by the Corporate Debtor and not denied by the Operational Creditor, the amount given by him along with 6 others was for promoting and setting up a business. The terms for raising the Bank loan necessitated investment of the margin money. This was done by all the promoters and is reflected as unsecured loans, subordinate to the claim of the Bank. The Bank agreement corroborating this is on record. Though it is admitted by the Ld. Counsel for the Financial Creditor that this unsecured loan would be subordinate to the claim made by the Canara Bank, it appears that notwithstanding his agreement not to seek recovery of his unsecured loan till the liability of Canara Bank stands extinguished or his undertaking not to participate in Insolvency proceedings, it is his wish and desire that the Resolution Process be initiated and the entire project be dumped before it comes into operation, irrespective of whether he can realise any proceeds or not in the watershed for repayment should the assets of the Corporate Debtor be liquidated. It is being noted that Canara Bank is not an aggrieved party. The said attitude of the Financial Creditor is irreprehensible as the principal money lender i.e. Canara Bank has not made any claim. Insolvency Resolution Process of a corporate entity cannot be initiated on such grounds which reek of personal vendetta. The Financial Creditor seeks to scuttle the project even before it get into operation. Such arm twisting tactics cannot be the basis for initiation of Insolvency Process.
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PMLA
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2017 (11) TMI 1336
Constitutional validity of Section 45 of the Prevention of Money Laundering Act, 2002 - two conditions for grant of bail where an offence punishable for a term of imprisonment of more than 3 years under Part A of the Schedule to the Act is involved that the Public Prosecutor must be given an opportunity to oppose any application for release on bail and the Court must be satisfied, where the Public Prosecutor opposes the application, that there are reasonable grounds for believing that the accused is not guilty of such offence, and that he is not likely to commit any offence while on bail - Held that:- We must not forget that Section 45 is a drastic provision which turns on its head the presumption of innocence which is fundamental to a person accused of any offence. Before application of a section which makes drastic inroads into the fundamental right of personal liberty guaranteed by Article 21 of the Constitution of India, we must be doubly sure that such provision furthers a compelling State interest for tackling serious crime. Absent any such compelling State interest, the indiscriminate application of the provisions of Section 45 will certainly violate Article 21 of the Constitution. Provisions akin to Section 45 have only been upheld on the ground that there is a compelling State interest in tackling crimes of an extremely heinous nature. We declare Section 45(1) of the Prevention of Money Laundering Act, 2002, insofar as it imposes two further conditions for release on bail, to be unconstitutional as it violates Articles 14 and 21 of the Constitution of India. All the matters before us in which bail has been denied, because of the presence of the twin conditions contained in Section 45, will now go back to the respective Courts which denied bail. All such orders are set aside, and the cases remanded to the respective Courts to be heard on merits, without application of the twin conditions contained in Section 45 of the 2002 Act. Considering that persons are languishing in jail and that personal liberty is involved, all these matters are to be taken up at the earliest by the respective Courts for fresh decision. The writ petitions and the appeals are disposed of accordingly.
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Service Tax
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2017 (11) TMI 1335
Penalty - Reverse charge mechanism - Fees for Overseas Borrowing paid to several non-resident financial institutions - Held that: - Goodness and precocious conduct of the respondent Corporation in making payment has to be appreciated and not condemned - The respondent-Corporation, to show their bona fides, had paid service tax even for the period prior to 19th April, 2006. Non-contest in the proceedings under Section 73 cannot be used as a ground or reason to establish and show that requirements of Section 78 are satisfied - penalty set aside - appeal dismissed - decided against Revenue.
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2017 (11) TMI 1334
Composite Works Contract - case of Revenue is that the nature of contract has to be examined for a specific determination whether they are really falling under composite works contract - tax liability post 01/06/2007 under works contract service, eligibility of the appellant/assessee to pay tax after availing the composition scheme is under dispute - Held that: - the facts in respect of each one of the contracts now under contest requires verification with original documents - matter on remand for tax liability to be requantified for the period after 01/06/2007 on satisfactory verification of the documents regarding the claim of the appellant /assessee on classification of services under works contract service and with reference to eligibility of the appellant/assessee to pay service tax after availing the concessional rate under composition scheme for works contract service - appeal allowed by way of remand.
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2017 (11) TMI 1333
Valuation - includibility - finance charges - additional finance charges - Fleet Card issued by the appellant to the customer, who availed vehicle loan facilities from them, is for facilitating the customers to procure fuel from the outlets of petroleum companies, with whom the appellant-assessee had prior arrangement - claim of appellant is that these charges are nothing but interest - Held that: - We perused the account statement of the appellant-assessee of one of the months during the material time. In May, 2009, the statement shows the amount charged by the appellant-assessee is exclusive of interest and other charges. However, interest for the month is also shown separately. Hence, the claim that "finance charge" and "additional finance charge" are interest is not correct. Such transaction between the appellant-assessee and the customer being not one of lending loan, the question of exclusion of Interest on Loan in terms of Board's Circular dated 17.09.2004 does not arise. In terms of agreement between the oil companies and the appellant-assessee, it is clear that the Fleet Card holder enjoys various privileges - the "finance charge" and "additional finance charge" are to form part of taxable value for taxable service of BOFS/Credit Card Services during the material period. Extended period of limitation - penalty - Held that: - the case is of interpretation issue - The impugned order did not bring out sustainable reasons for invoking willful suppression, mis-statement etc., against the appellant-assessee - extended period cannot be invoked - penalty also set aside. Appeal allowed in part.
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2017 (11) TMI 1332
Manpower Recruitment and Supply services - Short payment of service tax - case of Appellants is that they had failed to discharge service tax liability only because the customers failed to reimburse the service tax which resulted in heavy financial burden to the appellants - extended period of limitation - penalty - Held that: - taking into consideration of the fact that the 4 appellant was to discharge the service tax on the reimbursable amount also namely salaries etc., we are of the considered view that the penalty imposed is unwarranted - penalties set aside. The matter s remitted to the adjudicating authority for decision afresh - appeal allowed by way of remand.
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Central Excise
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2017 (11) TMI 1331
CENVAT credit - common inputs services that were used/utilized in or in relation to their trading activity - time limitation - Held that: - Department was well aware of the trading activity carried on by the appellant which is clear from the letter dated 03.03.2010 which is on record and the audit note dated 12.01.2010 - When all the facts were in the knowledge of the Department then the meaning of suppression and invoking the extended period of limitation is not sustainable in view of the judgment in the case of Commissioner of Central Excise Mumbai Vs. Essel Propack Ltd. [2015 (9) TMI 1084 - SUPREME COURT], where it was held that When all this material was made available to the department and the classification list have been approved and RT-12 returns assessed down the years, it is difficult to find any justification for upholding the allegation of misstatement or suppression of facts. During the relevant period there was no provision with regard to reversal of credit on common input services relating to trading activity. But vide amendment dated 01.03.2011 in Rule 2(e) providing the trading as an exempted service and a formula was incorporated in Rule 6 for reversal of credit - Therefore, the issue relates to interpretation of the said provision where it is applicable prospectively or retrospectively - longer period of limitation invoked by the Department is not legally sustainable. Appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1317
Redemption of gold - penalty - interest on the amount of redemption fine - 240 kilograms of gold (bars etc.) was seized by the appellant's father on the ground that the seized gold was held by the appellant in contravention of Rule 126-I - What is the law governing determination of the amount of fine that could be levied and collected from the appellant in lieu of the confiscation of gold seized from him? - Whether the High Court applied the correct law in recording the conclusion that the appellant is liable to pay an amount of ₹ 11.04 crores in lieu of the confiscation of the Gold if he so chooses? Held that: - The language of Section 73 is clear that it applies only to those cases wherein confiscation is one which is authorised “by this Act”. In our opinion, Section 73 would have no application to those cases of confiscation which are adjudged under the RULES. It would be applicable only for those cases where the confiscation is authorised by the GOLD ACT. Section 7130 authorises the confiscation of gold in respect of which “any provision of this Act or any rule or order made thereunder has been, or is being, or is attempted to be, contravened”. In other words, Section 71 authorises the confiscation of gold if there has been or is or is attempt to contravene the provisions of the GOLD ACT i.e. only such contravention occur after the commencement of the GOLD ACT but not contravention of law which existed anterior thereto - There is a distinction between acts done pursuant to the authorization of a statute and acts done pursuant to the authorization under a different statute or a statutory instrument but deemed to have been done under the earlier of the abovementioned two statutes. When a statute creates a fiction requiring certain events which took place prior to the commencement of such a statute to be deemed to have been done under the statute, such a fiction does not retrospectively authorise doing of such acts. It only takes note of the existence of certain state of affairs and creates putative state of affairs by declaring that such anterior events should be deemed to have taken place under the statute which came into existence later. Such fictions could only have limited consequences. One of the ancillary submissions made on behalf of the appellant is that in view of the fact that the order of the Collector dated 9.12.94 gave an option to the appellant to redeem the gold by paying a fine of ₹ 2.5 crores in lieu of confiscation which had become final in view of the dismissal of the appeal of the department on 23.5.1996 - The submission of the appellant is required to be rejected for the simple reason that the determination of the amount of fine made by the tribunal was without any basis. The conclusion of the Tribunal that the fine in lieu of confiscation must be equal to the value of the gold as on the date of its seizure is not based on any principle of law. The correctness of the said conclusion was the subject matter of the reference before the High Court. In view of the enormous delay which took place in the confiscation proceedings (50+ years), the appellant must be made to pay the interest on the amount of fine of ₹ 11.04 crores. Otherwise, it would have the effect of permitting the appellant to profit by litigation as according to the Attorney General if the appellant is permitted to take back the entire quantity of 240.040 kgs. of gold the current market value would be ₹ 72 crores (approx.) - we deem it proper to direct that the appellant would be entitled to redeem the gold by paying not only the fine of ₹ 11.04 crores but also the interest thereon calculated @ 10% p.a. Appeal allowed in part.
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2017 (11) TMI 1330
Clandestine removal - excesses and shortage of stock - Whether the First Appellate Authority was correct in confirming the demands raised by the show cause notice along with interest and consequent penalties or otherwise? - Whether the First Appellate Authority was correct in dropping the demands raised by the Lower Authority or otherwise? Held that: - the appellant had no explanation to offer for the excess goods found as also shortage of the goods. The challenge put up by the said M/S. NIBI Steel Ltd., in the grounds of appeals is not controverting the detailed reasoning recorded by the First Appellate Authority - the appeal filed by the M/S. NIBI Steel Ltd. is devoid of merits and needs to the rejected. The evidences which revenue wants to rely upon are considered in detail and on an correct appreciation, a conclusion has been arrived. I concur with the said findings - appeal filed by Revenue also dismissed. Penalty on M/S. NIBI Steels - Held that: - It is settled law that once there are findings of clandestine removal and confirmation of the demand of the duty is on said findings, equivalent amount of penalty needs to be imposed under section 11 AC of the Central Excise Act 1944 - penalty imposed on M/S NIBI Steel Ltd. is enhanced to ₹ 2,28,451/- from ₹ 50,000/-. Appeals disposed off.
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2017 (11) TMI 1329
CENVAT credit - inputs - various structural items which have been used either in the making of parts and components of plant and machinery or used for repair of such plant and machinery - Held that: - all the impugned structural steel items have been used in the factory of the assessee Consequently, it is covered within the main definition of inputs - the adjudicating authority has proceeded step by step and discussed the various relevant exclusion, which proved the correctness of credit availed - credit remains allowed. CENVAT credit - steel items used for the construction of storage tanks in the form of clinker silos - denial on the ground that such steel structures have been issued by the civil department of the assessee for construction of clinker storage tank which is a civil construction work which is covered in the exclusion part of the definition of input under Rule 2(k) - Held that: - The clinker storage tank is used in the nature of capital goods. Since such capital goods cannot be suspended in mid air and for effective operation, the same needs to be kept on suitable support which became part of the storage tank i.e. capital goods - There is no doubt that such clinker storage tank is used in the manufacture of their final products - It has been consistently held by the Tribunal that such support structures are to be considered as part of the capital goods and goods used in the fabrication of such structures will be covered as inputs - credit allowed. CENVAT credit - certain quantity of steel structures which have been procured by the assessee during the period prior to 01.04.2011 (date of amendment of definition of inputs) - credit for such items have been availed in the subsequent years when the new definition was in place - Held that: - This Tribunal has been consistently holding that cenvat credit is admissible in respect of such steel structures used in the manufacture of capital goods - even for the period prior to 01.04.2011 cenvat credit was admissible. Appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1328
Benefit of N/N. 12/2012-CE dated 17-03-2012 - It was alleged that the items which were supplied for the Mega Power Projects were not covered within the description given in Sl. No. 338 of the said notification - Held that: - the goods supplied for the two Mega Power Projects can be considered as components which are used for manufacture of other goods used for the power project - Under similar circumstances, the Tribunal in the case of GANGES INTERNATIONAL [2014 (8) TMI 498 - CESTAT NEW DELHI] has extended the benefit of notification 6/2006 as well as 12/2012. N/N. 12/2012-CE dated 17-03-2012 - international competitive Bidding - adjudicating authority has denied the benefit by taking the view that the Custom Duty exemption under the above notification will not be available to the appellant for the reason that the same is applicable only to goods covered under Project Imports under CTH 9801. Since there is no corresponding entry in the Excise Tariff, he denied the Central Excise exemption under Sl. No. 336 of notification 12/2012 - Held that: - the same set of facts came before the Tribunal and was decided in favour of the assessee in many cases - In the case of CORDS CABLE INDUSTRIES PVT. LTD Vs COMMISSIONER OF C.EX., JAIPUR [2016 (9) TMI 1126 - CESTAT NEW DELHI], it was held that the denial of exemption on the ground of classification shown under Customs Notification is 9801 is not sustainable - the denial of the benefit of notification for good supplied against International Competitive Bidding is not justifiable. Appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1327
SSI Exemption - dummy units - clubbing of clearances - clandestine removal - use of kacchha parchis - Revenue finally concluded that other than JSW all units were dummy and hence, the clearances by all units are to be considered as clearance from M/s JSW - use of brand name of others - Held that: - After appreciation of overall evidences–both documentary as well as oral-picture that emerges is that none of the companies had the full infrastructure to manufacture the goods they were shown to make. The final assembly of goods said to be manufactured in different units. For moving the goods from one unit to another unit, some times, kachhi parchies were used. There is no clear evidence of flow back of funds among the units. All these evidences lead to an escapable conclusion that all the units were having separate existence in record by taking separate registrations under sales tax/ income tax etc. They were also filing separate declarations every year to Central Excise authorities claiming that their turnover was below the SSI limit. However, the investigation has established that all units though were shown to have separate de jure existence but the de fecto contract was with Sh. Ram Niwas Jindal - in the eye of law, it alone cannot be ground to deny the benefit of SSI exemption - the turnover of all the units need not be clubbed. Use of brand name - allegation of clearance of goods by JSW bearing the brand name belonging to HSW - Held that: - the allegation that the goods cleared to HSW were bearing the brand names of the later is not substantiated by corroborated evidence - appellants were not marking the finished goods supplied to HSW with the brand names, “Hindware” or Rassi”. They were initially mentioning the model number of the products manufactured for supply of HSW. Such marks such as “BTT”, “BTJ”, etc. cannot be considered as brand names in the absence of any investigation to prove the name mentioned on such labels was brand name or name of another person - there is no justification for denying the SSI benefit to appellant companies. Appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1326
Clandestine removal - penalty - manufacture of tobacco - whether the packing machine found in the appellant’s premises was operational or not? - Held that: - The panchnama drawn by the officers on the date of their visit clearly reveals that the machine was in running condition and the appellant was engaged in the production of unmanufactured tobacco - there is nothing in the said panchnama to suggest that packing machine in question was sealed at different points - On 15.07.2011, the single machine in the appellant’s factory was found not sealed and operational. As per the provisions of the Rules, duty is required to be paid on quantity of pouches deemed to be produced on the basis of the number of operational packing machines installed in factory. As per these rules, the actual quantity of goods manufactured is immaterial. As on 15.07.2011, one packing machine was found to be operational. Consequently duty is liable to be paid as prescribed for one packing machine. Appeal dismissed - decided against appellant.
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2017 (11) TMI 1325
Valuation - appellant is engaged in manufacturing Tippers and Truck body and mounted the tippers and truck body on the chassis supplied by M/s. Tata Motors Ltd. - CENVAT credit availed on duty paid chassis - case of Revenue is that valuation will have to be done under Rule 10A of the Central Excise Valuation Rules, 2000 - Held that: - an identical issue has came up before the Tribunal as M/s. Audi Automobiles vs. CCE, Indore [2009 (5) TMI 426 - CESTAT, NEW DELHI], where it was held that the said firms had cleared the goods in relation to the body fabricating and mounting on the chassis which were supplied to the said firms free of cost by the manufacturer of chassis. Being so, the activity for the purpose of valuation would squarely fall under Rule 10A and not under Rule 6 - duty upheld - penalty set aside - appeal allowed in part.
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2017 (11) TMI 1324
Valuation - PSC Poles for electricity distribution - includibility - charges shown under the headings safe handling, loading, transportation, unloading, stacking of PSC poles - Held that: - though the basic price of PSC poles at the appellant's yard as well as transportation, loading, unloading, stacking charges are shown separately, the terms of the contract clearly indicate that the appellant has to safely deliver/stake-up these goods at the intended destination as informed by the client. Even, insurance for safe delivery is the responsibility of the appellant - the transportation charges including loading, unloading, stacking charges will necessarily form part of the assessable value in terms of section 4 of CEA, 1944 - demand upheld. Extended period of limitation - penalty - Held that: - the valuation of PSC Poles manufactured and cleared by the appellants have been the subject-matter of dispute on earlier occasions. Admittedly, in such situations, there is no scope for including suppression of fact, intention to evade payment of duty against the appellant - extended period and penalty set aside. Appeal allowed in part.
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2017 (11) TMI 1323
Liability of interest - delayed payment of interest on the refund sanctioned - Held that: - Any claim of amount from the Government can be disbursed only based on a statutory provision - in Gujarat Fluoro Chemicals [2013 (10) TMI 117 - SUPREME COURT], the Hon’ble Supreme Court, examining similar provisions under the Income Tax, held that the payment ordered in Sandvik case [2006 (1) TMI 55 - SUPREME Court] cannot be considered as interest on interest and it was ordered in special circumstances as a compensation for unduly long delay in sanctioning the refund / interest - appeal dismissed - decided against appellant.
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2017 (11) TMI 1322
Benefit of N/N. 6/2002-CE dated 01.03.2002 - denial on the ground that in the project for which the pipes are supplied there is no water treatment plant - deposit as per Section 11 D of the CEA, 1944 - Held that: - identical issue decided in appellant own case M/s. The Indian Hume Pipe Co. Ltd., V. Karunakaran, C. Sridharan, S. Rajendran Versus Commissioner of Central Excise, Tirunelveli [2017 (9) TMI 695 - CESTAT CHENNAI], where relying in the case of Jain Irrigation Systems Ltd Versus Commissioner of Central Excise & Customs-Nashik [2017 (3) TMI 990 - CESTAT MUMBAI], where it was held that where certificates are the qualification for exemption, it is not open to the central excise authority to overrule that certification, the exemption was allowed - benefit of exemption allowed. Demand u/s 11D - Revenue held that since the contracted amount is inclusive of excise duty, when the appellant enjoyed exemption from excise duty, the amount collected should be construed as inclusive of excise duty and the said amount should have been deposited to the Govt. under Section 11D - Held that: - in appellant own case as mentioned above, it was held that there is no evidence that the sales document namely invoices etc. indicated any excise duty separately so that the buyer has paid any money representing excise duty to the appellant. In the absence of such situation, the provisions of Section 11D cannot be attracted and the impugned order is without merit - demand set aside. Appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1321
Refund of the excise duty paid on steel and cement used in construction of houses, as per N/N. 32/2005-CE dated 17.8.2005 - time limitation - denial on the ground that the refund claim for the period 01.10.2005 to 31.12.2005 was filed beyond the period of 120 days - Held that: - Apex court in the case of GIRDHARI LAL AND SONS Versus BALBIR NATH MATHUR AND OTHERS [1986 (2) TMI 253 - Supreme Court of India], held that in order to avoid patent injustice or invalidation of law, strict adhering to the time limit for filing refund claims stipulated in a notification would only adversely affect the public interest and thereby defeat the very purpose of issuing N/N. 32/2005 - since the refund claim for the quarter 01.10.2005 to 31.12.2005 is beyond the time limit of one year prescribed under section 11B, refund for the period October 2005 to December 2005, rightly rejected - other refunds, being in time, is allowed - appeal allowed in part.
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2017 (11) TMI 1314
Benefit of N/N. 50/2003-CE dated 10.06.2003 - Area Based Exemption - The main appellant obtained Central Excise registration in respect of Unit-I and filed a declaration on 21.04.2008 for availing area based exemption under Notification No.50/2003-CE dated 10.06.2003 in respect of Unit-II - Held that: - identical issue decided in appellant own case M/s Victoria Automotive Inc., Sh Daleep Suneja, Unit Head, Sh. HS Banga, Partner, Sh. Naveen Kumar Maheshwari, Hod, And Sh. Baljeet Singh Rawat Versus CCE, Dehradun [2017 (9) TMI 934 - CESTAT NEW DELHI], where it was held that All such units are necessary part of a factory, if located in the contagious area. Each division of a factory manufacturing different identifiable items or undertaking different identifiable processes will have to be considered as a unit of the factory and exemption to be allowed - appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1320
Classification of goods - ice-cream mix - classified under CETH 2108.91 or under CETH 1901.99? - Held that: - the product is to be classified under Chapter 4 only - appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1319
Classification of goods - whether the classification for the products namely, HDPE strips, HDPE knitted fabrics and HDPE knitted bags are classifiable under sub-heading 39201092, 39269090 and 39232990 of CETA, 1985 or 54049020, 54072090, 63053300 of CETA, 1985? - Held that: - the said issue has been decided by this Tribunal in appellant's own case Vijay A Polymers Versus Commissioner of Central Excise, Tiruchirapalli [2017 (4) TMI 1164 - CESTAT CHENNAI], where it was held that the width of the tape is of 1.5 mm and the goods manufactured by the appellants are classifiable as textile fabrics and articles of fabrics rightly classifiable under chapter heading 60059000 and the strips (HDPE) not exceeding 5mm is classifiable under 54049020 - appeal allowed - decided in favor of appellant.
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2017 (11) TMI 1318
Clandestine removal - Job-work - demand on the ground that appellant, who is a job worker cleared goods without payment of duty under N/N. 214/86 to traders - Held that: - On bare perusal of letter, we do not find any such admission made in the letter - In fact, appellant has furnished the sales tax assessment of one such party viz., M/s. Intech Enterprises, who is described in the document as both manufacturer and trader - The allegation raised in the show-cause notice should be supported by documents to show that the alleged parties are merely traders. The department has denied the benefit of notification and demanded duty without any factual basis - demand set aside - appeal allowed - decided in favor of appellant.
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CST, VAT & Sales Tax
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2017 (11) TMI 1315
Rate of tax - confectionery items produced and packed in covers containing the name V.R.S. Confectionery, Rasipuram - whether taxable at 12% under residuary entry or 4% as unbranded confectionery? - Whether the items can be said to have Brand names? - Held that: - the mentioning of the name of the petitioner being the producer of those goods in the packing materials cannot be construed as a brand or a brand name or a trade mark or a trade name. At best, it can be taken to indicate the name of the producer of goods, which are contained in the packs. The confectionery items have been specifically mentioned in entry item-4 (iii) of Part-B of first schedule of the TNGST Act taxable at 4%. This being a specific entry the general entry or residuary entry, could be invoked only when a product can be dealt with in any of the entries. Even assuming the respondents construe the products produced by the petitioner as a bakery product, even then, regardless of the product with a brand name or without a brand name registered under the Trade and Merchandise Marks Act, 1958, it would fall under entry Item-11 (ii) of Part-B of first schedule of the TNGST Act. So far as the clarification is concerned, admittedly, the petitioner did not have an opportunity of personal hearing before the clarification was issued. Though, the petitioner sought for revision of the clarification, the same was rejected by letter dated 31.07.2006 - the clarification issued by the Commissioner dated 29.08.2005 is clearly unsustainable. The petitioner is liable to the taxed only at 4% - petition allowed - decided in favor of petitioner.
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2017 (11) TMI 1316
Principles of natural justice - jurisdiction under Section 32(2) of the Act - revisional powers of Commissioner - Held that: - the revisional power can be exercised by the competent authority in order to examine the record of any order passed or proceeding recorded by any authority, officer or person subordinate to him, under the provisions of the Act - It is evident from the impugned order that respondent No.1 has exercised her revisional power with reference to the final assessment proceedings dated 29-3-2014, which, as noted hereinbefore was set-aside by this Court in the Writ Petition and consequently it was no longer in existence when she has passed the impugned order in purported exercise of her revisional power. Respondent No.1 being a functionary occupying a reasonably high position and exercising her quasi-judicial power is expected to be vigilant and responsible while dealing with the rights of the assessees. We are not able to appreciate the callous and casual and negligent manner in which respondent No.1 has initiated the proceedings and passed the impugned order disregarding the fact of the assessment under revision not being in existence, as brought out by the petitioner in its objections filed before her. Impugned order is without jurisdiction and is quashed - petition allowed - decided in favor of petitioner.
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