TMI Tax Updates - e-Newsletter
December 7, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax Indian Laws

TMI SMS

• Valuation of taxable services - reimbursement of expenses can not be included in the value of taxable services - Rule 5(1) is ultra virus to section 67 - HC

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• Method of accounting - Chit Fund Company allowed to follow completed contract method when dividend to the foreman has to come only from out of the discount - HC

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Articles

1. AUDIT OF SERVICE TAX ASSESSEES

   By: Dr. Sanjiv Agarwal

2. REPORT OF DEPARTMENTAL VALUATION OFFICER IS BINDING ON ASSESSING OFFICER

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Impact of FDI on SMEs

2. Additional Capital Requirements of Indian Banks

3. Circulation of Fake Currency Notes

4. Committee on Direct Cash Transfers

5. Illegal Trading of Shares

6. Innovation Fund for Inclusive Economic Growth

7. Loan given to Farmers during 2007-12

8. Exchange Rate of Foreign Currency Relating to Imported and Export Goods Notified

9. Government takes Several Initiatives to attract Foreign Investment

10. GAP between WPI and CPI; Government and RBI takes Several Measures to Contain Inflation

11. Bilateral Convention on Avoidance of Double Taxation between India and UK

12. Muslim Employees in LIC and other Insurance Companies

13. SEBI for Stronger Recovery Powers

14. Core Investment Companies - Overseas Investment (Reserve Bank) Directions, 2012

15. Regulation on Pesky Calls

16. Effect of Cashew Import on Domestic Industry

17. Export of Sugar

18. Increase in Trade Deficit

19. Targets Set for Exports

20. Effect of MAT on SEZ on Investors

21. Policy Regarding Export of Food Products

22. Trade Deficit with China

23. Effect of Ban on Export of Poultry Products From India

24. Increase in Almond Imports

25. The Standards of Quality of Service for Wireless Data Services Regulations, 2012

26. FDI Proposal Worth Rs. 27 Crore Cleared

27. Shri Sachin Pilot Chairs Meeting on Corporate Social Responsibility Urges Corporates to Support Visible Social Interventions

28. Policy Document on Corporate Governance

29. Independent Regulator for Auditors

Notifications

Customs

1. 107/2012 - dated 4-12-2012 - Cus (NT)

Amends Notification No.12/97-Customs (N.T.) dated 2nd April, 1997 - Inland Container Depots for loading and unloading of goods

Income Tax

2. 53/2012 - dated 5-12-2012 - IT

Rajiv Gandhi Equity Savings Scheme, 2012 - Corrigendum

Circulars / Instructions / Orders

DGFT

1. 35 (RE: 2012)/2009-2014 - dated 6-12-2012

New SION added bearing number C-2056 - Lead Free Powder regarding

2. 34/RE 2012)/2009-14 - dated 5-12-2012

Amendment in SION A-1189 - Sodium Silicate - Regarding.

Highlights / Catch Notes

Income Tax

• Assessees can claim additional depreciation on leased assets u/s 32(1)(iia) of the Income Tax Act.

  Case-Laws - AT : Additional depreciation u/s 32(1)(iia) – assessee would be entitled to additional depreciation u/s 32(1)(ii a) on the leased assets. - AT
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• Strict Adherence Required for Deductions u/s 10A; Delays in Filing Cannot Be Excused Without Justification.

  Case-Laws - AT : Deduction u/s 10A - Condonation of Delay in filing Return u/s 139(1) - Provisions of the proviso to Section 10A(1A) is mandatory and not merely directory - AT
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• Supreme Court clarifies procedure for notices u/s 148 of Income Tax Act; details steps for recipients to follow.

  Case-Laws - HC : In GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Ors. [2002 (11) TMI 7 - SUPREME COURT], the Supreme Court clarified that “when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. - HC
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• High Court Clarifies Rental Income Tax Classification: Composite or Inseparable Letting? Impact on "Income from Other Sources.

  Case-Laws - HC : Rent received - whether the letting is a composite or inseparable letting - Income to be taxed under the head Income from other sources - HC
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• Charitable Society's Registration Revocation Overturned; Director of Income Tax (Exemptions) Deemed Unjustified in Action.

  Case-Laws - AT : Charitable Society - cancellation of registration on ground that Society is indulged in taking Forcible Donations - DIT (E) was not justified in cancelling the registration of the assessee society - AT
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• Section 43(6) Depreciation: Calculate on Original Cost, Not Reduced by Notional Depreciation, Due to No Prior Assessment.

  Case-Laws - AT : Depreciation - WDV u/s 43(6) - whether depreciation to be computed on original cost or cost reduced by notional depreciation for the earlier years - allowed on original cost since assessee was not assessed in earlier years - AT
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• Non-compete agreement income classified as commission under salary per Section 17 of the Income Tax Act.

  Case-Laws - HC : Income earned from non-Compete Agreement - nature of receipt of commission in addition to salary - the commission amount clearly was part of salary answering the description under the inclusive definition u/s 17 of the Act - HC
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• Chit Fund Company Allowed to Use Completed Contract Method for Accounting When Foreman's Dividend Comes from Discount.

  Case-Laws - HC : Method of accounting – Chit Fund Company allowed to follow completed contract method when dividend to the foreman has to come only from out of the discount - HC
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• Assessing Officer Must Consider Taxpayer's Historical Data in Best Judgment Assessment to Ensure Fair Evaluation.

  Case-Laws - AT : Best Judgement assessment - The AO while making the best judgment is not entitled to ignore the assessee’s own history as what better comparison then ones own past. - AT
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Customs

• CHA License Revocation Possible for Fraud by Power of Attorney Holder; Principal Held Equally Responsible.

  Case-Laws - HC : Revocation of CHA license – if a power of attorney holder of a Customs House Agent commits fraudulent activities then the principal is responsible to the same extent. - HC
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DGFT

• DGFT Introduces New SION C-2056 for Lead Free Powder, Detailing Key Regulatory Updates for Stakeholders.

  Circulars : New SION added bearing number C-2056 - Lead Free Powder regarding - Public Notice
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• DGFT Amends SION A-1189: Key Changes in Sodium Silicate Import/Export Norms Impacting Trade Regulations and Compliance.

  Circulars : Amendment in SION A-1189 - Sodium Silicate - Regarding. - Public Notice
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Service Tax

• Court Rules Service Tax Dues Cannot Offset Export Duty Rebate Owed to Petitioner; Adjustment Not Legally Permissible.

  Case-Laws - HC : Adjustment of service tax demand with refund / rebate against export of goods - The alleged service tax dues to be payable by the petitioner, from the amount to be due to the petitioner as export duty rebate, cannot be sustained in the eye of law. - HC
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• Court Declares Rule 5(1) Invalid: Reimbursements Excluded from Taxable Services' Gross Value for Tax Calculations.

  Case-Laws - HC : Valuation of taxable services - reimbursement of expenses can not be included in the value of taxable services as not forming part of gross value - Rule 5(1) of valuation rules is constitutionally invalid - HC
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Central Excise

• Tribunal's Legal Error: 'Soft Serve' Misclassified Under Tariff; Should Be 'Ice Cream' Per Common Parlance Test, Section 2105.00.

  Case-Laws - SC : Classification of ‘soft serve' - Common Parlance Test - Tribunal erred in law in classifying ‘soft-serve’ under tariff sub-heading 2108.91 - to be classified under tariff sub-heading 2105.00 as “ice-cream” - SC
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Case Laws:

• Income Tax

• 2012 (12) TMI 195
  Disallowance of commission payment – CIT u/s 263 held that the order of the AO is erroneous and prejudicial to the interest of revenue - the assessee had incurred expenditure in the form of commission paid to various parties for services rendered during the course of sale of iron ore - All the commission payments were made through account payee cheques and tax was duly deducted at source from commission payments – Held that:-As the CIT though said in his order that there is no proper enquiry by the AO, he, instead of directing the AO to carry on further enquiry from the point where he has stopped, disallowed the entire commission payments. This is not proper. The CIT is required to cause enquiry himself regarding the genuineness of payments of commission or got it done from the AO. AO is directed to examine the entire issue and if he finds the assessee has incurred any commission payments wholly and exclusively for the purpose of business commensurate with the services rendered by the respective parties. Remand back to AO

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• 2012 (12) TMI 194
  Additional depreciation u/s 32(1)(iia) – Whether assessee can claim additional depreciation u/s 32(1)(iia) on assets given on lease - Assessee engaged in providing P&M on lease - Installation of machines was in the factory of customers – AO argued that since assessee is not the actual user of machines therefore not entitled for additional depreciation – Held that:- There is no dispute that the assessee in this case satisfies both the above conditions of Section 32(1)(iia). The section does not stipulate that the assessee should use the P&M in the business of manufacture or production of any article. Following the decision in case of First Leasing Company Of India Ltd. (1998 (7) TMI 19 - MADRAS HIGH COURT) held that the assessee would be entitled to additional depreciation u/s 32(1)(ii a) on the leased assets. In favour of assessee Deduction u/s 80G – Exemption u/s 35(1)(ii) - Assessee has made donation to Auroville Foundation, under the Ministry of HRD - it claimed deduction u/s 35 (1)(ii) - application for renewal of exemption u/s. 35(1)(ii) made by Aravali foundation, was not disposed of by the CBDT - assessee was unable to produce the notification renewing the exemption – Assessee made an alternate claim for deduction u/s 80G - Held that:- Nevertheless there is violation of Rule 46A, as the CIT(A) has admitted a Certificate dt. 26th October,2010 given by the Foundation, without giving the AO an opportunity to examine the same. Issue remand back to AO Addition on account of excess interest paid u/s 40A(2)(b) - Assessee was paying interest @ 10% to two parties - Whereas it was paying interest at 8% to the Directors of the Company - The difference of 2% was disallowed – Held that:- AO has failed to make out a case that funds at a lower rate of interest than 10% were available in the market. assessee company has paid interest to banks @ 13%, which is indicative of the fact that the funds were not available in the market at a rate lower than 10%. Issue decides in favour of assessee

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• 2012 (12) TMI 193
  Deduction u/s 10A - Condonation of Delay in filing Return u/s 139(1) - held that:- Provisions of the proviso to Section 10A(1A) is mandatory and not merely directory - no deduction u/s 10A shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified u/s139(1) - Order of CIT(A) is just and in accordance with law and the ground raised by the assessee is liable to be dismissed.

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• 2012 (12) TMI 192
  Re-opening of Assessment - procedure - Notice u/s 148 - held that:- in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Ors. [2002 (11) TMI 7 - SUPREME COURT], the Supreme Court clarified that “when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. We are of the view that the procedure envisaged by the Supreme Court in the judgment cited supra should be adopted and followed in the present writ petitions as the judgment is based on fairness and transparency in the action of the assessing authority in reopening the assessment. We therefore, issue the following directions : The assessing officer shall furnish the reasons recorded for reopening the assessment in WP(C) 6310/2000 and 6320/2000. This shall be done within three weeks from today. On receipt of the reasons recorded, the petitioner shall file its objections to the same within 15 days thereafter. In respect of WP(C) 6308/2010, the petitioner shall file its objections to the reasons for reopening the assessment within 15 days from today. All the objections filed by the petitioner in the four writ petitions shall be disposed of by the assessing officer on or before 31st January, 2013 by appropriate orders passed in writing and those orders shall be served on the petitioner within reasonable time thereafter.

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• 2012 (12) TMI 191
  Rent received - Income from other sources vs Income from house property - whether the letting is a composite or inseparable letting - Was the Tribunal correct in holding that the rent received by the appellant was assessable as ‘income from other sources’? - held that:- tribunal has found that these three cases are of composite leases in which a consolidated rent has been fixed. Contention of the assessee that the fittings and fixtures and other installations in the let out premises were installed only at the desire of the lessee and in such circumstances, the income should properly be assessed under the head “income from house property” as mandated by Section 22 of the Act was rejected by the ITAT. Applicability of Judgements - held that:- The provisions of Section 56(2)(iii) were not required to be considered. The controversy before us is different namely, whether the rental income is to be assessed as property income or “income from other sources”. Therefore, it cannot be said that the judgment of the Calcutta High Court in CIT Vs. Shambhu Investment PVT Ltd. [2001 (3) TMI 77 - CALCUTTA HIGH COURT] or the judgment of the Supreme Court [2003 (1) TMI 99 - SUPREME COURT] which confirmed the judgment of the Calcutta High Court are authorities for the proposition that is being canvassed before us on behalf of the assessee. Here, the question that arises for decision is whether the letting was inseparable and therefore Section 56(2)(iii) was rightly invoked by the assessing officer. That question did not fall for decision either before the Calcutta High Court or before the Supreme Court in the judgments cited above. Income to be taxed under the head Income from other sources - substantial question of law has to be answered in the affirmative and against the assessee.

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• 2012 (12) TMI 190
  Validity of assessment passed u/s 147 when A.O. while completing re-opening assessment, did not make any addition on reasons recorded and made different addition - Held that:- Assessment was reopened on ground that assessee has obtained accommodation entries in the form of share application money/capital gains/gifts etc, which escaped assessment but while making addition, A.O. made addition on different transaction that of sale of shares. Admittedly the reasons recorded and additions made are different transactions. A.O. had jurisdiction to reassess income other than income in respect of which proceedings u/s 147 were initiated but he has no jurisdiction in doing so when the very reason for initiation for those proceedings cease to survive. The legislature can not be presumed to have intended to give blanket powers to the A.O. that on assuming jurisdiction u/s 147 regarding assessment or reassessment of escaped income, he would go on making scrutiny enquiry and thereby including different items of income not connected or related with the reasons to believe on the basis of which he assumed jurisdiction. Therefore, jurisdiction acquired by the A.O. u/s 147 is not in accordance with law. Therefore, the order of the A.O. is liable to be quashed - Decided in favor of assessee.

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• 2012 (12) TMI 189
  Dis-allowance u/s 14A - expenses attributable to exempt income - Held that:- Admittedly, assessee was having sufficient interest free funds to cover the investment made in shares of which income is exempt u/s 10. In case of CIT vs. Hero Cycles Limited (2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT ) it has been held that disallowance u/s 14A is not permissible where no nexus between the expenditure incurred and income generated has been established. If the investment is made out of the assessee’s own interest free funds, no disallowance can be made u/s 14A - Decided in favor of assessee Depreciation on trucks used for its own business for transportation of milk from collection centre to the processing plants of the assessee company - higher depreciation @ 30% as claimed by assessee or 15% - Held that:- Issue is squarely covered in favour of the Revenue by the judgment in the case of CIT vs. Anupchand & Co.(1999 (6) TMI 25 - MADHYA PRADESH HIGH COURT ) Dis-allowance of deduction u/s 80-IB - AO on observation that assessee was having two units (deduction is available u/s 80IB on Kosi unit) and and utilise common funds to earn income, apportioned income between two units on sale basis and dis-allowed deduction in respect of Dholpur unit - Held that:- CIT(A) rightly rejected the AO’s formula of apportion method of other income on the basis of sale between two units on observation that once the assessee is maintaining separate Profit & Loss account for the unit on which section 80-IB is available, deduction u/s 80-IB is to be calculated accordingly - Decided against Revenue Dis-allowance of deduction u/s 80-IB in respect of other income viz Insurance claim, other charges, interest received, miscellaneous receipts and scrap sales - Held that:- Insurance claim in respect of receipt/income on goods damaged in transit is eligible for deduction u/s 80-IB, however insurance claim of car is rightly disallowed. Deduction u/s 80-IB - Held that:- In respect of other charges it is observed that these are petty amounts on account of difference in sale bills which is pertaining to the assessee’s business and such petty receipts are income derived from Industrial Undertaking. Therefore, deduction u/s 80-IB is allowed. Deduction u/s 80-IB - Interest received - Held that:- Interest income accrued to the assessee, from investment in bank could not be treated as income derived from Industrial Undertaking merely because the original nucleus funds which had yielded the interest came from an Industrial Undertaking. Deduction u/s 80-IB - Miscellaneous receipts comprising of cancellation charges against supply order of SMP and income transfer from H.O v- Held that:- Cancellation charges against supply order is income derived from Industrial Undertaking. Therefore, the same is allowable u/s 80IB. Other petty amount of transfer from HO is treated to be same nature. Deduction u/s 80-IB - Scrap sales - Held that:- Scrap sale is income derived from Industrial Undertaking and allowable u/s 80IB Addition on account of interest attributable to the payment of Income Tax - increase in interest cost presumed to be towards payment of huge income tax - Held that:- Assessee was having sufficient own funds, therefore, such lump sum disallowance on presumption basis is not warranted. Therefore, the same is deleted. Addition towards capital work-in-progress - lump sum dis-allowance on presumption basis that the borrowed fund has been used for the purpose of capital work-in-progress - Held that:- Issue is squarely covered in favour of the assessee by the judgement of the Apex Court in the case of DCIT vs. Core Health Care Limited (2008 (2) TMI 8 - SUPREME COURT OF INDIA). Dis-allowance of deduction u/s 80IB on the ground that the assessee made purchase of finished goods and sold the same - Held that:- A.O. had disallowed the claim of the assessee u/s 80-IB on presumption basis without determining the exact amount of disallowance. It is not the case of the A.O. that the said amount is not from the Industrial Undertaking. Such disallowance of deduction u/s 80IB is not sustainable in law.

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• 2012 (12) TMI 188
  Shipping company - denial of benefit of presumptive taxation prescribed under Chapter XII-G in respect of ships chartered in by it under “slot charter” arrangement, for want of “valid certificate” defined in S115VX - Held that:- Section 115VA overrides the provisions of computation of business income prescribed in sec. 28 to 43C and the income computed as per Chapter XII-G on presumptive basis shall be deemed to be the profits and gains of the business of operating qualifying ships. It is noteworthy that benefit of Chapter XII-G is available to the tonnage tax company only in respect of the income from the business of operating qualifying ships and it is necessary to show that the ships chartered in under “Slot Charter” arrangement are also “Qualifying ships” by producing the “Valid certificate”? In view of aforesaid, it is held that CIT(A) was right in law in denying the benefit of presumptive taxation for want of valid certificate – Decided against assessee

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• 2012 (12) TMI 187
  Charitable Society - cancellation of registration on ground that Society is indulged in taking Forcible Donations - assessee, a registered society having one of the objects to establish and maintain the institutions for imparting education - donations collected from various persons including the parents of the students for the enhancement of the infrastructure on account of increase in the number of students - donations were also received from other members of the society under the head “building funds” - Held that:- In the case of assessee, schools were imparting education as per aims and objects of the society. Poor and needy children are also admitted and imparted free education. The amounts of donations were duly reflected in the books of assessee. Donations were received from various other persons other than parents of wards. These donations were received during the year not only during admission period. These amounts have been included in computation of income. Hence, DIT (E) was not justified in cancelling the registration of the assessee society - Decided in favor of assessee

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• 2012 (12) TMI 186
  Foreign company – engaged in supply of GSM Mobile Telecommunication system comprising of hardware and software to various cellular companies operation in India – Revenue contending assessee having business connection in India and has a permanent establishment in the form of a dependent agent establishment – income from licensing of software amounted to receipt of royalty – Held that:- It is observed that facts and circumstances of these years are the same as in the previous years. Issues are squarely covered in favour of the assessee by the judgement of the Jurisdictional High Court in the assessee’s own case for the earlier Assessment Years wherein it was held that since goods were manufactured outside India and even the sale has taken place outside India. Thereby, no part of the income accrued to the assessee in India. Payment received by the assessee was towards the title and GSM system of which software was an inseparable part incapable of independent use and it was a contract for supply of goods. Therefore, no part of the payment therefore can be classified as payment towards royalty. Because the installation contractor is a subsidiary of the assessee holding company would not, by itself, give rise to a business connection. Therefore, assessee did not have any business connection in India. In view of this, it is not necessary to go into the issue whether the assessee had any Permanent Establishment in India or not during the relevant period in India or not.- Decided in favor of assessee. Regarding levy of interest charged u/s 234B it is held that levy of interest was not justified, inasmuch as the assessee had no obligation to pay any advance tax as tax was deductible at source on its income that was chargeable to tax in India.

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• 2012 (12) TMI 185
  Admission of additional evidence on alleged violation of Rule 46A - addition made for amount representing loans received, for the absence of confirmations from the creditor parties of the assessee - matter remanded back to AO by CIT(A) on assessee's submission that AO had never required the assessee to file the confirmations - AO, during remand proceedings, invoking the provisions of section 133(6), directly required the creditor Companies to furnish the particulars of their transactions with the assessee, the same being complied by creditors - AO did not submit any remand report to the CIT(A) despite reminders - CIT(A) deleted the addition on the basis of the confirmations and other supporting documents, explanations - Revenue now contesting the same Held that:- It is worthy of note that whereas the confirmations filed by both the creditor Companies in compliance u/s 133(6) in the remand proceedings are dated 25.06.2010 and were also received by the ITI on 25.6.10 itself, the assessee Company’s written submissions and application for additional evidence before the CIT(A) are of 26.3.10. This shows that it was after the filing of the application for additional evidence before the CIT(A), that the evidence was filed before and considered by the AO three months thereafter. Thus, the Department cannot have any grievance against the CIT(A) having entertained additional evidence at the back of the AO, particularly when the AO was duly supplied with the confirmations and all connected material and the AO, having considered the same, did not furnish any remand report before the CIT(A) inspite of reminders. The CIT(A) never entertained any additional evidence at all and deleted the addition on the basis of the aforesaid material filed with the AO in the remand proceedings. On merits also it is seen that the assessee had duly discharged its onus u/s 68. In the result, the appeal filed by the Department is dismissed.

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• 2012 (12) TMI 184
  Addition made in respect of FDRs found at the assessee’s premises in the course of survey –question which was asked from one of the partners of the assessee at the time of survey and in reply, it was informed that the FDRs belonged to family members out of which some of them stated to be staying outside India. Since the funds of those relatives are managed by the assessee, therefore the FDRs were found in possession of the assessee - AO had not been able to conclusively prove that those FDRs were in fact the property of the firm - addition deleted – In favor of assessee Difference in the stock of tobacco – Held that:- It was explained that 3915 bags containing 1,09,620 Kgs. of tobacco belonged to one M/s.Pinak Pani Traders and that firm was yet to lift the material - Due to the absence of a confirmation from the said party, the AO had rejected the explanation - assessee has placed the correspondence with those parties and the response of the Accountant of the firm as per his statement recorded - enquiry was made in respect of the stock lying in the three go-downs belonging to the assessee-firm. It was stated that stock belonged to Ambica Trading Co. out of the total sales made. It has also been stated that goods were sold to Pinak Pani Traders and part of the bags were yet to be delivered - appellant’s claim of partial lifting of stock or partial delivery of stock was not contradicted by the AO - addition deleted – In favor of assessee Addition on account of excess tobacco dust of 68,638 KG, short kandi stock of 8905 KG and short pashari stock of 16,655 KG – Held that:- Reconciliation has been filed in respect of the shortage of stock and that reconciliation was confronted to the AO during the course of remand proceedings but that explanation was not controverted. The assessee has undisputedly maintained quantitative details of purchases and sales, as is evident from the correspondence placed on record addressed to the AO - assessee has furnished a reconciliation statement to the AO. The said reconciliation was duly considered by ld.CIT(A) and, therefore, held that the said apparent difference was duly reconciled. Since the Revenue Department has not expressed any reservation in respect of the reconciliation – addition deleted – In favor of assessee

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• 2012 (12) TMI 183
  Depreciation - WDV u/s 43(6) - whether depreciation to be computed on original cost or cost reduced by notional depreciation for the earlier years - held that:- It is not in dispute that the provisions do not envisage any notional allowance and the Assessing Officer thus cannot work out such notional allowance and reduce the same from the depreciation claimed. The words actually allowed means actually allowed in the course of assessment. The assessee was not liable to be taxed and hence, no assessments were framed for the earlier years - Decided in favor of assessee. Change in method of accounting - bonafide or not - change from cash basis to accrual basis - interest income - held that:- Once the fact is admitted that for the said period, the assessee was not liable to tax, to say that the assessee should not have changed the method of accounting for the said period is ignoring the obvious, namely, the change is based on the advice received from the Consultant to adopt the prescribed accounting standards. - Decided in favor of assessee.

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• 2012 (12) TMI 182
  Addition – net profit rate applied by the CIT(A) at 6.5 % as against net profit rate of 4.7 % shown by the assessee. – assessee is a Company doing work of construction - search - unaccounted money on purchase and sale of property – alleged that the assessee company had shown low gross profit by pointing out that the assessee has not furnished the required detailed – Held that:- The verifiable expenses which are to the extent of fixed in nature, also for element of variability as is clear from above table - CIT(A) has considered net profit rate of 6.5 % at constant and fixed rate for all the years, which is not correct. As per our considered view, the disallowance if at all has to be made, had to be made after considering the verifiability of these expenses year on year basis. - AO directed to disallow the expenses as per the calcuation sheet. Addition on account of sale of plot - held that:- Agreement to sale was found during search indicating sale consideration at Rs. 1,42,70,256 - property was sold for this much of consideration and Rs. 20 lakhs was also paid in advance - assessee had received Rs. 71 lakhs out of which Rs. 41 lakhs had been accounted for and the balance of Rs. 30 lakhs received in cash was not recorded in the books of account, which was also offered as income from undisclosed sources. Since the alleged cancellation deed was found during course of search accompanied by the statement recorded u/s 132(4) clearly indicate that there was no cancellation of plot. Accordingly, the Assessing Officer was justified in treating the difference in sale consideration actually disclosed in the return as compared to the sale consideration found recorded on the sale agreement, which was found during course of search - addition upheld

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• 2012 (12) TMI 170
  Reopening Assessment - bogus share application money - Undisclosed Income - assessee stating that documentary evidence regarding identity and creditworthiness of the share applicants and the genuineness of the transactions were produced - AO Concluded on the basis of enquiry report of Investigation wing - Held that:- Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators - Decided in favor of assessee.

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• 2012 (12) TMI 169
  Interest on Customs Duty Demand - held that:- Amount paid was not penal in nature as much as it was as per the declared policy of the government and occasioned by the failure of the assessee to meet its obligations. The amount being interest was compensatory and not penal according to the Tribunal - Assessing Officer has not pointed out which provision of law was violated by the assessee. Even if in any adjudicatory proceedings under Customs Act the word “penalty” is used, that cannot be determinative of the nature of the payment, nor can the Assessing Officer conclude that the assessee did something that was an offence or was prohibited by law. There is nothing brought on record by the Revenue to show that the payment was hit by the Explanation below Section 37(1) of the Act - in favor of Assessee. Disallowance of Interest paid u/s 43B - whether the amount of Rs.12,37,206/- constituted only interest paid on the directions of the DRT, towards the composite liability of the assessee or in respect of the bank guarantee liability - Held that:- Assessing Officer’s order should have been more specific, after taking into consideration the question whether the sum of Rs.12,37,206/- or any part of it was to be paid towards guarantee fee or interest. It is only the guarantee fee which would not attract Section 43B of the Act; if it is interest, then it would fall within its mischief. Consequently the matter is remitted to the Assessing Officer for a fresh determination in terms of the previous directions towards segregating the amount and ascertain the true nature and character of the sum of Rs.12,37,206/- in favour of the Revenue - appeal is partly allowed in the above terms.

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• 2012 (12) TMI 168
  Income earned from non-Compete Agreement - nature of receipt of commission in addition to salary - Income from salary vs Income from business - Contract of Service or Contract for Service - Agreement was entered into in dual capacity - salary in capacity as an employee of UC and non-compete fees for not taking away business of the firm - held that:- The mere fact that two agreements existed does not necessarily imply that the payment made under one agreement is not to be regarded as part of salary, when undisputably all the work done under the agreement was performed by the employee for the benefit of the employer. The fact that the employer utilised the same employee to perform different types of work under two separate agreements does not give to such payments a character other than that of "salary", having regard to the wide definition of the term in Section 17(1) of the Act - Contract is Contract of Service where Employer - Employee relationship exist - assessee, in this case, also continued his employment with the firm, and was given commission for doing what he was normally expected to do, i.e. work for the said firm in his area of expertise. He was given salary for that; in addition, he was also given commission for not competing with his employer, during his employment, in regard to the same line of business, in which he worked as an employee of the firm. Therefore, the commission amount clearly was part of salary answering the description under the inclusive definition u/s 17 of the Act - question of law is answered in favour of the revenue, and against the assessee.

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• 2012 (12) TMI 167
  Right to carry on any business - Capital gain or Business Receipt - Assessee concern was taken over by ICT-SD Engineering Consultants Pvt. Ltd. and assessee received Rs.1,20,00,000/- in terms of MOA and by subsequent agreement 45% shareholding - held that:- As decided by court in case of Commissioner of Income-tax Versus Mediworld Publications (P.) Ltd [2011 (4) TMI 503 - DELHI HIGH COURT] that the right to carry on any business has been recognized by the Legislature as a capital asset, taxable u/s 55 (2)(a) of the Act and not taxable u/s 28(va) thereof - no infirmity in the appellate order of the Tribunal. No substantial question of law therefore arises.

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• 2012 (12) TMI 166
  Deduction u/s 10B, 80I and 80HH - Apportionment of common head office expenses – Whether common HO expenses can be apportion to the various units on the basis of their respective turnover for the purpose of calculation of deduction u/s 10B, 80I and 80HHH - the accounts for these units were separately maintained – Assessee had taken the contention that the expenses incurred was for the overall management of the units as well as for providing finance - Held that:- No, Revenue had no grievance as regards the order passed by the Tribunal for preceding years 1984-85 onwards and that the expenses incurred were pure and simple administrative expenses, monitoring the requirements of finance and other action which are necessary in running of the business. In favour of assessee

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• 2012 (12) TMI 165
  Block Assessment - Protective assessment - Assessee being an individual filed return in capacity as Kartha of HUF - AO referred to the order of the assessment relating to 1982-83, rejected the claim that he was owning an extent of 20.88 acres of agricultural lands in the status of HUF – AO held that the property were held jointly and not as HUF property holding it as ancestral property - the property was Joint family property, the entire income from the lorries and the lands were assessed at the hands of the assessee in the status as individual. Assessee produce additional evidence in the form of Encumbrance certificate, that possession as belonging to HUF and partition deed dated 24.2.1981 which showed the family partition between the assessee and his brother and also providing maintenance for his father. Held that:- The nature of encumbrance therein and cannot spell on the holding of the property and right from 1952, 1980 to 1984 to 2000, the property had not been subjected to any encumbrance. The partition deed allotted an extent of 4.63 acres alone, there are no material to show that the balance extent of 16.25 acres, were, infact, joint family property and not an individual property. In respect of division of family property and not of joint property. It may be noted that the statement that the expression that parties henceforth would have only blood relationship and nothing beyond are found normally only in partition of HUF joint family and not in respect of division of property held jointly. Except to the extent of 4.63 acres of land found as HUF property, the assessment as regards other extent of 16.25 acres in the individual hands is confirmed. In favour of assessee

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• 2012 (12) TMI 164
  Validity of assessment made u/s 158BC - limitation period prescribed u/s 158BE - Revenue herein conducted search initiation operation on 12.12.2001 - A Prohibitory order was issued on 13.12.2001 and panchanama evidencing the seizure of materials was also drawn - On 08.02.2002 15.02.2002, further panchanamas were drawn evidencing issuing of prohibitory order without being in pursuance of any fresh authorisation Assessee contended that assessment order was passed on 27.02.2004, hence, beyond the period of limitation - Revenue took the view that the assessment made u/s 158BC on 27.02.2004 was within the limitation prescribed u/s 158BE read with Explanation 1 for passing the order u/s 158 BC. Held that:- Once the warrant of authorisation has been issued and the premises is searched and the search party leaves the premises, there is the end of the search and what could be postponed is only seizure of the articles and issuance of prohibitory order ; however, limitation for the completion of the block assessment begins on the conclusion of the search and issuance of panchanama and in case of single authorisation, the moment such party leaves the premises by drawing of the panchanama noting conclusion of the search, the limitation period begins As to the search completed on 13.12.2001 with drawing of the panchanama and the search party leaving the premises, the mere fact that the panchanama contain the observation that search continues per se would not enable the search party to keep the search in a suspended animation to carry on the search in future date to contend that the limitation has to be worked out on the last panchanama drawn ie. 15.02.2002, thus calculating the limitation from 15.02.2002. Accepting the case of the assessee that the limitation ends on 31.12.2003. In favour of assessee

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• 2012 (12) TMI 136
  Exemption u/s 11 - charitable activities - profit motive - Applicability of section 13(1)(bb) - whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. - held that:- the primary purpose of the Trust was to afford relief of poor, education and medical relief, the means employed by exploiting its assets to earn income to achieve the objects, cannot, in any manner, be applied to defeat the claim of the assessee under Section 11. Decision in the case of Additional CIT Vs. Surat Art Silk Cloth Manufacturers Association [1979 (11) TMI 1 - SUPREME COURT] followed.

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• 2012 (12) TMI 135
  Manufacture and sale of paper caps and rental income u/s 11 - educational and charitable purposes - held that:- With the finding of fact arrived at by the Officer that the primary purpose of the Trust was charitable in nature, in the face of Section 2(15) and Section 11(4A) read with Section 13(1)(bb) of the Income Tax Act, we have no hesitation in confirming the order of the Tribunal. Even though the Tribunal had not considered the issue as a final fact finding authority, with no disputes raised by the Revenue on the facts and on the facts admitted by the Assessing Officer, decided in favor of assessee.

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• 2012 (12) TMI 134
  Method of accounting Chit Fund Company - completed contract method - Commission income - discount and dividend Held that:- Looked at from the angle of the subscriber, while there may be a certainty as to the dividend received every month for considering the same for assessment on accrual basis, as far as a company running the chit business is concerned, the dividend and the discount can properly be ascertained only at the completion of the transaction and not in the midway. Given the significant nature of the service yet to be performed in relation to the chit series, till the series come to an end, it is difficult to assess with any certainty, the amount that would be properly called as income for the purpose of assessment. Discount as defined under Section 2(g) of the Chit Funds Act, means the money set apart under the chit agreement to meet the expenses of running the chit or for distribution among the subscribers or for both. Dividend is the share of the subscriber in the amount of discount available for reasonable distribution among the subscribers at each instalment of the chit. Given the rights of the subscriber, when Section 21 provides for 5% chit amount to be given to the foreman, the same is stated therein as commission, remuneration or for meeting the expenses of running the chits. Thus, going by these provisions, when dividend to the foreman has to come only from out of the discount, we do not find any justifiable ground to agree with the Revenue that the assessee cannot claim completed contract method for income recognition. As far as the expenditure of the company is concerned, it is seen that the same related both to the administrative costs as well as to the advertisement costs. Taking note of the business of the assessee, we agree with the assessee s contention that the expenses cannot be viewed as relatable to the particular series alone, but as relating to the running of the business. Thus it has to be revenue expenditure to be considered in the year in which the same is incurred. Assessee is justified in following the mercantile system of accounting and adopting the completed contract method, to arrive at the real income. - Decided in favour of assessee

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• 2012 (12) TMI 133
  Deemed income u/s 41(1) - transfer of Rs. 1,32,88,530/- from the share application account to the capital reserve account - Assessee is an investment company mainly into the business of purchase and sale of shares. It is also engaged into taking business loans and further financing done to the parties. - held that:- The share application amount was treated as a capital receipt; and likewise the amount of Rs. 45,41,542/- was shown as liability towards purchase of capital assets. Having regard to the law declared in HHEC, consequently it never changed its character when it was eventually transferred to the capital reserve in 2006-07 when the conversion took place 6-7 years later. The period of time when the amounts were held by the assessee in its books also factually eliminated the suspicion that the amounts were given as grants or aid. Whether the assessee claimed any depreciation in respect of the second amount i.e. Rs. 45,41,542/-. There is no observation or finding on the part of the assessing officer. If such is actually the position those amounts allowed as depreciation are liable to be added back. For these reasons the matter is remanded, restricted to the second question, for determination as to whether any amount was allowed as depreciation by the assessee towards goods it imported from its holding company - appeal is partly allowed in the above terms in terms.

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• 2012 (12) TMI 132
  Claim of Depreciation on goodwill - Scheme of Amalgamation - Held that:- Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other business or commercial right of a similar nature' as per decision of court in Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] Disallowance of prior period expenses - held that:- An estimated income or liability, which is yet to be crystallized, can only be adjusted as a contingency item but not as an accrued income or liability of that year - restore the issue to CIT(A) for further adjudication.decision in Saurashtra Cement & Chemical Industries Ltd. vs. CIT, [1994 (10) TMI 30 - GUJARAT HIGH COURT] is followed. Disallowance u/s 14A - held that:- following the decision of court in case of Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - DELHI HIGH COURT] it is fair and appropriate to set aside the order of CIT(A) and restore the matter to his file for deciding the issue, afresh in accordance with law in the light of aforesaid judicial pronouncements, after allowing sufficient opportunity to both the parties - In result, appeal for the AY 2004-05 is allowed but appeal for the AY 2005-06 is allowed partly for statistical purposes.

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• 2012 (12) TMI 131
  Disallowance u/s 14A - Held that:- sec 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, AO is required to verify the correctness of such claim. In case, the AO is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. There is nothing in the assessment order or impugned order as to whether the assessee placed the relevant details & accounts before AO nor CIT(A) seems to have undertaken any exercise to ascertain the details of expenditure objectively in managing and supervising the aforesaid huge investments - it is fair and appropriate to set aside the order of CIT(A) and restore the matter to the file of AO for deciding the issue, afresh in accordance with law , after allowing sufficient opportunity to the assessee - Matter remanded back - Decided in favor of revenue. Decision in Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - DELHI HIGH COURT] followed.

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• 2012 (12) TMI 130
  Disallowance on account of expenses other than interest u/s 14A in relation to exempt income i.e. dividends - Held that:- Assessing Officer must in the first instance determine whether the claim of the assessee is correct and determination must be made having regard to the accounts of the assessee. The legislature directs him to follow rule 8D only where the Assessing Officer is not satisfied with the claim of assessee - Assessing Officer has not fulfilled his onus of recording his findings - disallowance under section 14A of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions – disallowance deleted – in favor of assessee.

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• 2012 (12) TMI 129
  Disallowance of deduction under section 80IB(10) – on the ground that housing project should commence on or after 1/10/1998, whereas the assessee's project named "Gold Coast" started much earlier and built up area of some residential units exceed 1500 sft – Held that:- Explanation brought in statute, the same was not applicable to the projects approved prior to 01-04- 05 - plans which are approved on which the basis for construction of the present building was approved in 2002 and accordingly they are within the provisions of Section 80-IB(10) - As seen from the nature of expenditure, they cannot be considered as evidencing that the project has commenced before 1st October 1998 as only cost of land, construction of compound wall and Municipal taxes and various expenditures for plan approvals were incurred. There is no expenditure on construction activity on the project - assessee has sold adjoining flats of more than 1500 sft, the measurements were taken again and post survey even Departmental Valuation Officer has certified that even the combined flat was less than 1500 sft - Revenue appeals are dismissed

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• 2012 (12) TMI 128
  Re-opening of Assessment - application of his mind by the AO before issuance of notice u/s 148 - Held that:- a precise and definite information was received by the AO regarding receipt of accommodation entries in respect of capital from various persons aggregating to Rs. 14.45 lakh. He compared the information with the information available in the return of the assessee. As the information could not be matched, he recorded definite reasons in clear terms that income escaped assessment. - AO rightly reopened the assessment by adhering to the relevant provision and following the right procedure provided under the rule. - Decided against the assessee. Defect in issuance of notice u/s 143(2) for the purpose of reassessment - held that:- The only missing words are "any evidence on which the assessee may rely in support of the return". Absence of these words may lead to prima facie view that the notice does not conform to the statutory language. However, section 292B provides that no notice etc. issued or purported to have been issued in pursuance of any of the provisions of the Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in the notice provided that such notice is in substance and effect in conformity with or according to the intent and purpose of this Act. - Decided against the assessee. Addition u/s 68 - accommodation entries - held that:- latest decision [COMMISSIONER OF INCOME TAX VERSUS NOVA PROMOTERS & FINLEASE (P) LTD (2012 (2) TMI 194 - DELHI HIGH COURT)] covers plethora of cases on the subject. It does appear to us that this case makes a distinction between credits simplicitor and credits received through hawala operators, the bank accounts of which are spurious in the sense that most of the entries are in respect of debits and credits of the same amount with very little balance staying in the account at any other point of time. - Decided against the assessee.

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• 2012 (12) TMI 127
  Deduction u/s. 10A – Receipt of foreign exchange - Held that:- Section 10A(3) of the Act provides that the sale proceeds in convertible foreign exchange has to be brought into India within the period of six months from the end of the previous year or within the such further period as the competent authority may allow for availing the deduction under section 10A of the Act - Explanation 1 provides that the competent authority means the RBI - assessee has produced a Circular from the RBI allowing extension of time for bringing the sale proceeds in convertible foreign exchange - assessing officer directed to verify the FIRCs and recompute the deduction u/s. 10A after considering the amounts realised within 12 month from the date of respective exports – In favor of assessee

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• 2012 (12) TMI 126
  Income accrues/arises or is deemed to accrue/arise in India – assessee-company is receiving the remittances of tickets sold by the Indian company outside India – Held that:- Assessee was not having any ‘business connection’ in India within the meaning of section 9(1)(i) of the Act, and hence, no income has been accrued to the assessee in India in respect of booking or sale of tickets for ‘tour packages’ of the cruises in India. No income accrues or arises to the assessee in India on the sale of tickets/booking of ‘Cruise tour packages’ which was done through Star Cruises (India) Travel Services Pvt. Ltd. (SCITC) - In favor of assessee

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• 2012 (12) TMI 125
  Addition under Section 68 - additional evidence – alleged that addition made under Section 68 without affording an opportunity to the assessing officer of being heard as envisaged in sub-Rule (3) of Rule 46A – Held that:- CIT (A) forwarded the additional evidences to the Assessing Officer for calling the remand report. In the remand report, the Assessing Officer objected for admission of additional evidences and CIT (A) admitted these evidences and granted the relief to the assessee without giving an opportunity to the Assessing Officer regarding the merits of the additional evidences. - matter restored to the file of AO for fresh decision.

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• 2012 (12) TMI 124
  Addition made under sec. 14A of the Act - chain of Chinese food restaurants - assessee received dividend - it was submitted by the assessee that dividend income has been earned by it from mutual funds the investment – Held that:- Disallowance under sec. 14A can be made if the expenditure incurred has nexus with the exempt income. Since the Assessing Officer had not examined the issue relating to nexus between the expenditure incurred and exempt income earned, we set aside the matter to the file of the Assessing Officer with the directions to examine whether any administrative expenditure was incurred for earning the exempt income - Assessing Officer will provide opportunity of being heard to the assessee. Disallowance on ad hoc basis - AO during the course of assessment proceedings asked the details of packing material – Held that:- Complete details of expenditure were furnished before the AO and no defect has been pointed out by the Assessing Officer. No specific query regarding packing material expenses or other expenses has been raised by the AO. It is a settled law that ad hoc disallowance without pointing out any mistake is not justified – addition deleted - appeals filed by the assessee is partly allowed and by the Revenue is allowed for statistical purposes.

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• 2012 (12) TMI 123
  Penalty u/s 271D of Income-tax Act – deposit or loan - adjustments through book entries - alleged that loan is not taken/accepted by the assessee through account payee cheques or account payee bank draft, in violation of the provisions of section 269SS of Income-tax Act - Held that:- Assessee executed a development agreement with M/s Duce for development of a residential township - In terms of the agreement, M/s Duce agreed to provide finance for purchase of land by the assessee company - M/S Duce made payments to vendors(land owners) on behalf of the assessee by account payee cheques towards purchase of land - penalty could not be levied in bonafide transactions - when by making the book entries the assessee has made the adjustment bona fide without having the knowledge that such book entries may render the assessee liable to penalty under section 271D of the Act on account of violation of the provisions of section 269SS of the Act - Bona fide belief coupled with the genuineness of the transactions will constitute reasonable cause for not invoking the provisions of section 271D of the Act – In favor of assessee

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• 2012 (12) TMI 122
  Accrual of interest on FDR - Revocation of bank Guarantee - held that:- The argument that FDRs were under lien against the Bank Guarantee does not help the assessee, the assessee could offer it for lien only because the assessee’s ownership was unfettered.- Assets whose ownership is questionable cannot be offered as lien. Even after offering them as lien the ownership is not transferred and assessee’s ownership continues to be undisturbed till the occurring of the event by virtue of which the ownership passes to the party who has a lien in its favour which event has occurred on 16.12.2000 when the bank guarantee was invoked. The arguments that assessee was under a bonafide belief that maintaining FDRs from these funds and holding them as lien for the State of Bihar in terms of the requirements of the Agreement does not impact the taxability of the amount; Ignorance of law in tax matters cannot be accepted. Application of income - condonation of delay - appellant’s plea for deemed application of funds u/s 11(2) for accumulation of Rs. 3.60 crores - held that:- delay is condonable in certain circumstances - However on facts it is seen that no such application has been filed by the assessee for condoning the delay before the Commissioner. As such the occasion to consider and thereafter accept/reject the same did not arise. Decided against the assessee.

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• 2012 (12) TMI 121
  Rebate under sec. 88E(1) of the Income tax Act, 1961 – alleged that the assessee earned income on scrips which were not listed on the stock exchange or traded in securities before those were listed thereby implying that no STT was paid on such transactions - contention of the assessee is that the assessee has not claimed the rebate in respect of transactions which have not been made through Stock Exchange – Held that:- According to the AO, the assessee had earned income on scrips which were not listed on Stock Exchange or traded in securities before those were listed. Therefore, the contention of the assessee has to be verified whether the assessee has claimed the rebate in respect of any transaction on which no STT was paid. Subject to verification, the AO is directed to allow rebate in respect of Income-tax payable on the income from taxable securities transactions reckoned at average rate of tax payable or securities transaction tax, whichever is lower Disallowance made under sec. 14A of the Act – Held that:- AO can make disallowance under sec. 14A if there is a direct nexus between the expenditure incurred and the exempt income - AO has made disallowance under Rule 8D which is not applicable for the year under consideration - AO was not justified in invoking the provisions of Rule 8D of the Income-tax Rules. As regards estimation of disallowance @ 10% of exempt income, learned CIT(A) has estimated disallowance on ad hoc basis without establishing any nexus between the expenditure incurred and the exempt income - neither the AO nor the ld. CIT(A) has examined any nexus between the exempt income and expenditure incurred – matter remanded to AO

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• 2012 (12) TMI 120
  Best Judgement assessment - comparison - held that:- if comparisons are to be made then the best comparison is of the assessee’s performance itself as stated is universally accepted and in the eventuality comparisons are to be made with outsiders then the parties with whom comparison are being made the relevant facts applicable to them have to be disclosed to the assessee so as to enable the assessee to give an effective representation. To make a comparison with a business concern whose particulars are not known to the assesee cannot be upheld as merely confronting the names cannot be said to be affording a genuine and effective opportunity of being heard as relevant facts have not been disclosed. The AO must take into consideration the local practices and also refer to previous record of the assessee and consider comparables after confronting these facts of the assessee so as to arrive at a fair and proper estimate if best judgment has to be resorted to. The AO while making the best judgment is not entitled to ignore the assessee’s own history as what better comparison then ones own past. Thus, the assessee’s own case can be considered and if still need be felt judicially to make comparisons with comparables, then it can be done only after confronting their facts to the assessee. Rejection of books of accounts – Held that:- Contended that in the timber business it is not possible to maintain item wise details as after sawing in different sizes it is recognized as timber like wise as in the trade of marble purchased and sold it is described as marble the day to day stock register is maintained - failure on the part of the assessee in not maintaining stock register it was stated can be a ground for suspicion however, if explanation of the assessee that it is not practical or feasible in the line of business is to be considered - issue is restored back to the file of the AO

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• 2012 (12) TMI 119
  Reopening of assessment and issuance of notice after the expiry of period of four years from the end of the relevant assessment year - Held that:- There is no failure on the part of the assessee to make a return u/s 139 or to disclose fully and truly all material facts necessary for assessment - assessment was completed u/s 143(3) of the Act and as per sub-section (iii) of section 148 there was no failure on the part of the assessee in computing the book profit for the purposes of section 115JB of the Income-tax Act, 1961 - there is no whisper that there was failure on the part of the assessee to disclose fully and truly all material facts for the calculation of book profit u/s 115JB. In view of these facts, reopening of assessment after the expiry of four years is not justified as notice u/s 148 was issued on 9.4.2007, consequently, the assumption of jurisdiction u/s 147/148 is also unjustified – In favor of assessee

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• 2012 (12) TMI 118
  Validity of reassessment proceeding on the basis of change of opinion - Held that:- If the entire material had been placed by the assessee before the AO at the time when the original assessment was made and the AO applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened - facts were before the AO at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the AO or his successor to reopen the assessment of the assessee - initiation of reassessment proceeding is based merely on “change of opinion” - initiation of reassessment proceeding was bad also on account of applicability of proviso to sec. 147 – in favor of assessee

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• 2012 (12) TMI 117
  Penalty u/s 271(1)(c ) – alleged that assessee was indulging in suppressing the information from theme wedding parties which includes design and layout for the functions, implementation and coordination of weddings etc. - alleged that for various events the assessee as per the diary has shown that certain amounts were received which are not correctly reflected in the books of accounts the issue qua the non-reliability and non-reconciliation of the figures is already concluded in the quantum proceedings – Held that:- Consistently the assessee has not been able offer any explanation as to how the amounts can be reconciled and has merely chosen to take a general argument that the entries as per the books are higher than as per the diary whereas consistently the A.O.’s finding has been upheld that the assessee has been in the habit of suppressing the receipts - appeals of the assessee are dismissed

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• 2012 (12) TMI 116
  Foreign exchange fluctuation loss - restatement of debtors and a further loss on account of revaluation of foreign currency – Held that:- Assessee company by revaluing the foreign currency assets at the closing rate and by recognizing the exchange difference arising as expenses ensured adherence to the mandatory requirement laid under accounting standard AS11 of the ICAI. It has further been claimed that the assessee maintained its accounts as per the accrual system of accounting and has been following this accounting and the same is also in line with the Standard Accounting policies and practices being followed by the industry at large - loss suffered by the assessee on account of foreign exchange difference as on the date of balance sheet is an item of expenditure u/s. 37(1) - in favour of the assessee Addition - expenses incurred on birthday and anniversary gifts given to Directors and other managerial persons – alleged that these expenses were of personal nature – Held that:- Expenses were incurred by the assessee on birthday and anniversary gift given to the Director and other managerial persons. These expenditure can certainly be categorized as expenditure for the purpose of business as the same amount was to boost the moral of the employees - expenditure in this regard is duly allowable - in favour of the assessee. Addition on account of commission paid to Directors – alleged that in this regard the two employee director also happen to be share holder of the company holding 19.80% and 12.40% of shares of the company – Held that:- Compensation for both the directors were structured in such a way that apart from getting a fixed remuneration for their services rendered, they would also be entitled to receive commission based on the profitability of the company - assessee has paid taxes at maximum marginal rate. Both the Directors have admitted the payment of commission received and offered the same in their income tax returns and had paid at a maximum marginal rate. This clearly establishes the fact that there has been no tax avoidance motive behind the payment of commission to the directors by the assessee company - payment of commission was justified and not disallowable u/s 36(1)(ii) of the IT Act - in favour of assessee.

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• Customs

• 2012 (12) TMI 181
  Whether software imported by the respondent-assessee is exempt being computer software – appeal against the order of the tribunal [2010 (6) TMI 374 - CESTAT, NEW DELHI] - Held that:- prior to notification dated 11th February, 1998, in several decisions it was held that software imported by telecom operators was covered by the term “computer software” and these decisions were not upset and set aside by the Supreme Court. It was in these circumstances that the Revenue decided to interpret and has issued amending Notification No. 3/1998 dated 11th February, 1998. The Larger Bench of the Tribunal after examining the controversy came to the conclusion that the amending notification should not be given retrospective effect. - Decided against the revenue.

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• 2012 (12) TMI 163
  Service of Notice - held that:- dservice on the address shown as per the record is a service of the order in terms of Section 153 of the Customs Act. No other method is permissible. The department has shown by the original file to show despatch on 08.03.2012 by speed post acknowledgement due. Therefore, the service is in order. Violation of principles of natural justice - held that:- It is incumbent on the counsel to have verified the address when he received the appellate authority's order and intimated it to the authorities in the de novo proceedings so as to change the address -The counsel states that he had intimated so. But no proof has been shown or filed to support it. - said plea is also rejected - Hence, considering all these aspects, this Court opines that the petitioner is not diligently prosecuting the matter. Since there is lack of bona fides, petitioner is not entitled to any relief and accordingly, the writ petition is dismissed.

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• 2012 (12) TMI 162
  Revocation of CHA license – alleged that CHA sublet his licence by signing blank papers – Tribunal had found that those persons to whom the appellant had given blank signed papers had cheated the Government and it was not surprising that bulk of the amount was recovered after the fraud was detected. The appellant handed over signed blank documents to others and allowed them to operate in his name. After the commission of fraud by such persons, the appellant put forward the plea of alibi. Tribunal further recording findings in categorical terms that the license given to the Customs House Agents is not an instrument to seek rental income for putting signatures on blank documents. It has also been found that during the period in question the appellant was not doing any active job of Customs House Agent and was busy only signing the documents and that there was no reason to give any opportunity to the appellant to seek such income exposing the revenue to huge risk. Held that:- there is no error in the order passed by the Tribunal. - if a power of attorney holder of a Customs House Agent commits fraudulent activities then the principal is responsible to the same extent. Decision in the case of Sri Kamakshi Agency v. Commissioner of Customs, Madras (2000 (11) TMI 144 - HIGH COURT OF JUDICATURE AT MADRAS) followed.

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• 2012 (12) TMI 161
  Import of diamond without payment of duty - shortage of 72095.55 Carats of diamonds - value addition - Notification No. 177/94-Cus., dated 21-10-1994 - maintenance of proper account of import, consumption, utilization of the imported diamonds - redemption fine – initially CESTAT decided the case in favor of assessee but decided the appeal against the assessee after remanding the matter back to the CESTAT by the Apex Court - Held that:- No documents supporting the import of the above diamonds - Respondents found a shortage of cut and polished diamonds on stock taking as well as excess of cut and polished diamonds - Respondent have been able to establish the illicit procurement of cut and polished diamonds by the Appellant - in favour of revenue

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• 2012 (12) TMI 153
  Re-quantification of short levy of customs duty - appeal against the order of tribunal remanding back the order for re-quantification - held that:- The grievance of the appellants is the Adjudicating Authority is required to re-quantify the short levy of customs duty on the basis of prices quoted by M/s Export Management Service Group ( EMSG ) to M/s Kemtech , but, at no point of time, the appellants were confronted with the said information. The appellants prays that the Adjudicating Authority may be directed to supply copies of all the documents which are likely to be relied upon for the purpose of fresh adjudication in terms of the impugned order, to enable to the appellants to meet revenue's case. The prayer made is reasonable - Adjudicating Authority shall supply all the documents, on which it proposes to place reliance, to the appellants.

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• 2012 (12) TMI 152
  Conversion of free Shipping Bill into DEPB Shipping Bill - appellants exported Losartan Potassium Tablets under free Shipping Bill – Held that:- Circulars issued by the Board do not permit conversion of free Shipping Bill into any export promotion Shipping Bill like DFIA, DEPB etc. Para (iv) of the circular dated 23-9-2010 states that free Shipping Bills are subject to nil examination norms. Conversion of free Shipping Bill into export promotion scheme Shipping Bill should not be allowed - circular does put conditions and limitations in regard to substitution of Shipping Bills and the same can be construed as limiting exercise of the powers of the proper officer under Section 149 - order passed by the adjudicating Commissioner following those circulars cannot be faulted with - appeal is dismissed.

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• 2012 (12) TMI 151
  Classification – appellants imported 594 MT of Bakery Shortening and classified the goods under Chapter heading 1516209, claiming exemption from additional duty of excise under Notification No. 4/2005 - department reclassified the goods under CTH 15.17 and also denied the benefit of exemption – Held that:- Classifying the goods under Chapter heading 1517, it would be necessary to show that the same had been further prepared by a processes like emulsification, churning, texturation etc., to change the basic character of the same from being a product classifiable under Chapter heading 1516 to that of Chapter heading 1517 - when the goods were removed no samples were taken nor any tests were conducted to ascertain the chemical nature or character of the goods imported - Revenue could not produce any such evidence in support of their case - classifying the goods under Chapter Heading 15162091, allowing exemptions from additional duty of excise under Notification No. 4/2005 - Appeal is allowed

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• Corporate Laws

• 2012 (12) TMI 160
  Quashing Impugned notice u/s 13(4) of SARFAESI Act - admitted liability for the principal amount and interest - held that:- Petitioners committed default in payment of dues even after he is granted flexible time schedule to carry out his commitment - benefit of this interim order shall not ensure to them and the respondents shall be at liberty to dispossess the petitioners forthwith - Dismissed as withdrawn - open to the petitioners to take recourse to the remedies available to them in accordance with law.

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• 2012 (12) TMI 159
  Leave to defend filed by defendant no.2 - Non maintainability of suit - principal borrower is a sick company - Held that:- As decided in Raheja Universal Ltd. Versus NRC Ltd. [2012 (10) TMI 233 - SUPREME COURT] unless the suit proceedings are in the nature of 'execution, distress or the like', the suit can continue - scheme for rehabilitation or restructuring of a sick industrial company undertaken by a specialized body like the BIFR/AAIFR should, as far as legally permissible, remain obstruction free and the events should take place as pre-ordained, during consideration and successful implementation of the formulated scheme - suit has to continue and no permission is required under Section 22 of the SICA. No denial of the merits of the matter as stated in the plaint that the defendant no.1 executed the agreement dated 17.11.1998, and which binds the defendant no.1 to pay the amount of Rs. 65,00,000 plus interest. Since the debt is an unsecured debt, interest at 12 ½ % will be payable. Plaintiff cannot therefore be allowed interest at 25% per annum simple in view of Usurious Loans Act as that plaintiff is not a banking company or other notified company as per the Usurious Loans Act hence not exempted from application of the provisions of Usurious Loans Act as applicable to Delhi and therefore the contractual rate of interest cannot prevail in the face of the statute. No doubt arises that for the liability of the defendant no.1 company, who was the principal borrower, the defendant no.2 stood as a guarantor for payment of the principal amount of the loan of Rs. 65 lacs. - The triable issues in law which entitle leave to defend are only bona fide triable issues. On every disputed question of fact an issue has to be framed, but, it is only a bona fide triable issue which entitles leave to defend. In my opinion, mere technical defences, and which of course are also without any basis in view of the categorical language of the agreement dated 17.11.1998, read with the averments in the plaint, shows that there does not arise a triable issue entitling leave to defend. The issues raised in the leave to defend application are only moonshine and do not entitle the defendant no.2 for leave to defend.

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• 2012 (12) TMI 155
  Scheme of Amalgamation – Dispensation of requirement of Meetings - Publication in newspaper is sufficient - held that:- In view of the approval accorded by the Shareholders and Creditors of the petitioner Companies, representations/ reports filed by the Regional Director, Northern Region and the official liquidator, attached with this court to the proposed scheme of Amalgamation, there appears to be no impediment to the grant of sanction to the Scheme of Amalgamation and is hereby sanctioned. The petitioner companies will comply with the statutory requirements in accordance with law. Certified copy of the order be filed with the Registrar of Companies within 30 days from receipt of the same. In terms of the provisions of Section 391 and 394 of the Companies Act, 1956 and in terms of the Scheme, the whole or part of the undertaking, the property, rights and powers of the Transferor Company be transferred to and vest in the Transferee Company without any further act or deed. Similarly, in terms of the Scheme, all the liabilities and duties of the Transferor Company be transferred to the Transferee Company without any further act or deed. Upon the Scheme coming into effect, the Transferor Company shall stand dissolved without winding up. It is, however, clarified that this order will not be construed as an order granting exemption from payment of stamp duty or taxes or any other charges, if payable in accordance with any law; or permission/ compliance with any other requirement which may be specifically required under any law - petitioner Companies would voluntarily deposit a sum of Rs. 1,00,000/- in the Common Pool Fund of the Official Liquidator within three weeks from today. The statement is accepted.

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• 2012 (12) TMI 154
  Complaint u/s 138 of Negotiable Instruments Act, 1881 - complaint without signature when subsequently verified by the complainant - maintainability - period of limitation - held that:- Writing as defined by General Clauses Act requires that the same is representation or reproduction of “words” in a visible form and does not require signature. - “Signature” within the meaning of “writing” would be adding words to the section which the legislature did not contemplate. Requirements of Section 142(a) of the Act is that the complaint must necessarily be in writing and the complaint can be presented by the payee or holder in due course of the cheque and it need not be signed by the complainant. correct interpretation would be that the complaint under Section 142(a) of the Act requires to be in writing as at the time of taking cognizance, the Magistrate will examine the complainant on oath and the verification statement will be signed by the complainant. In Japani Sahoo vs. Chandra Sekhar Mohanty,[2007 (7) TMI 572 - SUPREME COURT] held that “so far as the complainant is concerned, as soon as he files a complaint in a competent court of law, he has done everything which is required to be done by him at that stage. Thereafter, it is for the Magistrate to consider the matter to apply his mind and to take an appropriate decision of taking cognizance, issuing process or any other action which the law contemplates”. This Court further held that “the complainant has no control over those proceedings”. Taking note of Sections 468 and 473 of the Code, in para 52, this Court held that “for the purpose of computing the period of limitation, the relevant date must be considered as the date of filing of the complaint or initiating criminal proceedings and not the date of taking cognizance by a Magistrate or issuance of process by a Court”. Period of Limitation - held that:- Crucial date for computing the period of limitation is the date of filing of the complaint or initiating criminal proceedings and not the date of taking cognizance by the Magistrate. In the present case complaint was filed on June 3, 1998 which is well within the time and on the direction of the Magistrate, verification was recorded by solemn affirmation by authorized representatives of the complainant and after recording the statement and securing his signature, the learned Magistrate passed an order issuing summons against the accused u/s 138/142 of the Act. Complaint u/s 138 of the Act without signature is maintainable when such complaint is verified by the complainant and the process is issued by the Magistrate after due verification. The prosecution of such complaint is maintainable and we agree with the conclusion arrived at by the Division Bench of the High Court. Consequently, both the appeals fail and are dismissed.

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• Service Tax

• 2012 (12) TMI 197
  Admissibility of Cenvat credit - Outdoor Catering Service availed by the appellant in their premises for providing canteen facility to their employees - held that:- If any amount is recovered from the employees, credit of service tax on such amounts cannot be taken as Cenvat credit - matter cannot be decided finally in favour of either party for the reason that the criteria laid down by high Court was not examined by lower authorities. Therefore, Revenue will be right to make verification and make demand to the extent consideration for service is recovered from employees - appeal filed by Revenue is rejected.

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• 2012 (12) TMI 178
  Demand of service tax - allegation that the appellant was promoting banking and financial services for funding loan by the lending bank to enable the potential customer to purchase vehicles and such service attracts service tax under the category of “business auxiliary service” – Held that:- Appellant was in receipt of Rs. 50,00,000/- for the service of aforesaid description provided while it was dealer of Hyundai Cars - appellant deliberately withheld the taxes due and liability to pay was not postponed by circular issued - circular was issued 10 months after due date of discharge of tax liability with interest as stated by the appellant - When the appellant discharged tax liability 10 months before the circular was issued, this clearly demonstrates that the intention of the appellant was to use public money due to state, undue benefit was enjoyed and no good reason exists for waiver of penalty - law was introduced in July, 2003, it shall be proper to penalise the appellant to the extent of 25% of the service tax demand - penalty levied under section 76 is waived. Appeal is partly allowed

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• 2012 (12) TMI 157
  Rebate claim under rule 18 - Duty paid on export of goods - Assessee is engaged in manufacturing yarns for domestic as well as export market - Assessee had filed the appeal before the Tribunal during the year 2010, no order of stay had been obtained against the respondents, with regard to the recovery of the amounts due from the petitioner. Rebate earned by the petitioner, by way of refund of excise duty paid by it, had been adjusted towards the amount of service tax due to the government, under the power conferred by Sec. 87(a) of the Finance Act, 1994, read with Sec. 11 of the Central Excise Act, 1944. Held that:- The alleged service tax dues to be payable by the petitioner, from the amount to be due to the petitioner as export duty rebate, cannot be sustained in the eye of law. The stay petition filed by the petitioner along with the appeal, in Appeal No.ST/217/2010, had been dismissed by the Tribunal, as infructuous, only due to the fact that the amount said to be due from the petitioner had been appropriated by the second respondent. Therefore it is appropriate to set aside the appropriation by the second respondent, towards the alleged liability of the petitioner, from the amount refundable to it, as export duty rebate. Appeal remand back to Tribunal

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• 2012 (12) TMI 150
  Service Tax (Determination of Value) Rules, 2006 - Constitutional validity of Rule 5 Re-imbursement of expenses in the value of taxable services for the purposes of levy of service tax - Company providing consulting engineering services - Petitioner receives payments not only for its service but is also reimbursed expenses incurred by it such as air travel, hotel stay, etc - It was not paying any service tax in respect of the expenses incurred by it, which was reimbursed by the clients Section 67 states that ‘Service tax was to be charged on the gross value including reimbursable and out of pocket expenses’ – Charging Section 66 states that ‘the charge of service tax is on the value of taxable services’ - Section 67 (1) makes the provisions of the section subject to the provisions of Chapter V, which includes Section 66 - This is a clear mandate that the value of taxable services for charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else - Rule 5 (1) which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Section 66 and 67 Rule 5 may also result in double taxation - If the expenses on air travel tickets are already subject to service tax and is included in the bill, to charge service tax again on the expense would certainly amount to double taxation. It is true that there can be double taxation, but it is equally true that it should be clearly provided for and intended; at any rate, double taxation cannot be enforced by implication Even if the rule has been made under Section 94 of the Act which provides for delegated legislation and authorises the Central Government to make rules by notification in the official gazette, such rules can only be made “for carrying out the provisions of this Chapter” i.e. Chapter V of the Act which provides for the levy, quantification and collection of the service tax. The power to make rules can never exceed or go beyond the section which provides for the charge or collection of the service tax. “The Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect.” as decided in case of Taj Mahal Hotel (1971 (8) TMI 2 - SUPREME COURT) Rule 5 (1) of the Rules runs counter and is repugnant to Sections 66 and 67 of the Act and to that extent it is ultra vires. It purports to tax not what is due from the service provider under the charging Section, but it seeks to extract something more from him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider “in the course of providing taxable service”. What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld. Sub-ordinate legislation - The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of the Act. Quash the show-cause notice and allow the writ petition in favour of assessee.

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• 2012 (12) TMI 139
  Refund claim - Documentation charges - Held that:- Service tax liability having been discharged on the documentation charges under the category of Clearing and Forwarding Agency as shown in Suppliers invoice submitted by the appellant. - Following the decision in case of [Sarvesh Refractories (P) Ltd vs.CCE, 2007 (11) TMI 23 - SUPREME COURT OF INDIA] decided in favour of assessee Denial of refund claim of the service tax paid on account of documentation charges to the appellant is not sustainable in law - appeal allowed with consequential relief.

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• 2012 (12) TMI 138
  Demand of service tax from the main service provider and subcontractor - double taxation on same service - Held that:- Same service for which the contractor has procured an order, does not stand actually provided by him but is passed on to sub-contractor, who provided the actual service, it cannot be said that the contractor is liable to pay duty on the same. Service definitely stands provided only once. As such by no stretch of imagination service tax in respect of the same service can be paid for the second time. It Is not a case where the service provided by sub-contractor is further used by him for providing services to his buyers. As such, the example of inputs being used in the final product and both leviable to excise duty is not apt - issue remanded back to the adjudicating authority in respect of the contract which has been awarded by M/s. Reliance Industries to M/s. Viral Builders - appeal has to be allowed by way of remand to the adjudicating authority to reconsider the issue afresh along with the issue of M/s. Viral Builders to reconsider the issue after following the principles of natural justice - appeal is allowed by way of remand.

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• 2012 (12) TMI 137
  Business auxiliary services - Held that:- goodwill for transfer of fly ash business has been fixed at Rs. 4,21,34,400/- and the consideration is paid to SSE therefore,no merit in the Revenue's appeal - Accordingly, the appeal is dismissed as devoid of merits - cross objection is also disposed of.

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• Central Excise

• 2012 (12) TMI 180
  Valuation of wast and scrap - cost + 15% - CAS 4 - Rules 8 and 9 - Respondent cleared to other units of theirs - waste and scrap of cast iron generated in the course of manufacture of textile manufacture on payment of duty on assessable value of Rs.3/- per kg - Revenue demanding differential duty of Rs.1,35,718/- and interest thereon and also proposing a penalty as respondent should have paid duty on assessable value estimated at 115% of the cost of production of the goods - held that:- As respondent has paid an amount of Rs.1,59,900/- as differential duty on the waste and scrap in question after the impugned order was passed - respondent further submits thus without verifying any of these facts the department now has gone on appeal demanding a lower amount than what is accepted by the appellants - no valuation issue survives for a decision on the particular facts of this case - appeal is therefore dismissed.

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• 2012 (12) TMI 179
  Waiver of pre-deposit - SSI Exemption - whether the applicant is required to reverse the CENVAT credit in respect of inputs lying in stock – Held that:- Show-cause notice was issued under Rule 14 of the CENVAT Credit Rules 2004 read with Section 11A of CEA, 1944 and show-cause notice was confirmed by the Original Authority under Rule 14 of the CCR 2004 - Commissioner (Appeals) in para 11 of the Order-in-Appeal has given a finding that Rule 14 is not applicable in the present case - assessee while opting for SSI exemption is not required to reverse the CENVAT credit - pre-depoist is waived

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• 2012 (12) TMI 177
  GTA service on outward transportation - admissibility of Cenvat Credit – Held that:- Cenvat credit on GTA service from the factory to the port of export would be available - appellants are rightly entitled for the Cenvat credit of the service tax paid on GTA service utilised for transportation of the export goods from the factory to the port of shipment

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• 2012 (12) TMI 176
  Demand of Duty and penalty - clandestine removal – shortage and excess stock – Submission of the appellants that they have now improved their accounting system by adopting computerized accounting and the matter under consideration occurred was just before such computerized accounting was put in place - Held that:- Large number of final products the appellants were manufacturing and the difficulty in maintaining proper accounts of such variety of goods both in packed condition and in bulk - errors are on account of errors in accounting rather than due to clandestine removal because of the fact that discrepancies have been noticed involving both excesses and shortages - this is a case of improper accounting rather than a case of clandestine removal of inputs and finished goods - appellants are required to maintain proper accounts of inputs and finished goods available with them as per Central Excise Rules - duty demanded and penalty set aside

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• 2012 (12) TMI 175
  Refund - manufacture of various photographic chemicals - assessees were clearing empty MS. Drums/HDPE/PP/LDPE bags/PVC drums and cans, in which the raw materials were received by them without payment of duty – alleged that duty was required to be paid by them on the sold empty containers - duty was being paid by them under protest – Held that:- Empty containers of modvatable raw materials do not attract duty at the time of their sale - show cause notice having not been issued, the deposits made by the appellant cannot take the colour of the ‘duty’ so as to invite the limitation provisions - appellants were admittedly not required to pay the said duty and the refund claim does not pertain to the routine payment of duty in the ordinary course of the business where such refund claim requires scrutiny from the angle of limitation as also from unjust enrichment angle – refund allowed

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• 2012 (12) TMI 174
  Application for modification of stay order - SSI Exempted - Extended period of limitation - Whether the brand name RIAT can be said to be owned by the appellant company – limitation – Held that:-In that order, the merits of the case and also the question of time bar, had been considered and it had been found that in respect of the same, the appellant have not been able to establish prima facie case. As discussed above, on the question as to whether the brand name RIAT can be said to be owned by the appellant company and on which the bulk of the duty demand of Rs. 59,49,884/- is based, the judgment of the Apex Court in the case of Prince Valves Industries v. CCE, Chandigarh (2006 (2) TMI 172 - SUPREME COURT OF INDIA) appears to be against the appellant. Even the appellant’s plea that there is an assignment deed dated 17-6-2006 assigning the brand name RIAT to M/s. Riat Tools Pvt. Ltd. and, hence, for the period w.e.f. 17-6-2006 the SSI exemption cannot be denied to them also does not help them in view of the Tribunal’s judgment in the case of VEE GEE Faucets P. Ltd. v. CC, Gurgaon (2010 (3) TMI 710 - CESTAT, NEW DELHI) cited by the learned DR. The appellant’s plea with regard to limitation had also been considered in the stay order dated 21-4-2011 and had not been found acceptable in the background of the fact that they had not intimated the department that the brand name RIAT being used on their goods does not belong to them and the same is still registered in the name of M/s. Riat Machine Tools. Miscellaneous application dismissed.

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• 2012 (12) TMI 173
  Levy of excise duty followed by penalty and interest – Held that:- Colour of the sugar is lost with the passage of time - It is quite common when reprocessing is done some loss is bound to take place - That has been rightly appreciated by the appellate authority - preponderance of probability is in favour of the respondent to hold that the order of the Commissioner (Appeals) does not suffer from legal infirmity - Revenue’s appeal is dismissed

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• 2012 (12) TMI 172
  Classification of the product Bio-Control Agents - under Heading No. 30029030 based upon the precedent decision or under Heading No. 38.089910 – Held that:- Appellant have placed strong reliance on the precedent decisions of the Tribunal, the Adjudicating Authority has chosen to ignore the same and have decided the issue independently, without taking note of the earlier judgments - fair process of adjudication requires the adjudicating authority to deal with each and every plea raised by an assessee and specifically the decisions, which apparently covers this issue - matter remanded to the Commissioner for de novo decision

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• 2012 (12) TMI 171
  Penalty on broker dealing the goods liable to confiscation - appellant acted as a broker only and was not concerned with issuance of invoices without supply of goods - prior to 1-3-07, the provisions of Rule 26(2)(ii) were not available - Hon’ble High Court has held that in spite of non-applicability of Rule 26(2) penalty could be levied as the appellant in that case was concerned in selling or dealing with the goods which were liable to confiscation - Rule 25(1)(d) and Rule 26(1) were also applicable – Held that:- Said observations were made in respect of the persons concerned with the selling of the goods and issuance of the invoices - appellant neither sold the goods nor issued the invoices and has acted only as a broker on commission basis - penalty has been imposed upon on him under Rule 26 without mentioning any sub-rule - appellant is entitled to unconditional stay from the condition of pre-deposit as also from recovery

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• 2012 (12) TMI 158
  Determined the annual production capacity - Extended Period of limitation - Assessee is manufacturer of the rerolled product of non-alloy steel - Duty of the Excise is leviable in terms of the provisions of Section 3A of the Central Excise Act, 1944 - Based on the capacity of production of their factory - the annual capacity determined by the assessee under Sub Rule 3 of Rule 3 of the Rules of 1997 was 3044.531 for F.Y 1996-97 metric ton against which the actual production of the Revenue was 6095.795 metric ton F.Y 1996-97 – Commissioner review his own order retrospectively, for the determination of the annual production capacity - SCN was issued on the basis of annual capacity of production of assessee's unit under Rules of 1997 w.e.f. 01.09.1997 will be as per actual production of the year 1996-97 and demanded differential duty for the year 1997-98 and 1998-99. Held that:- The duty leviable for the produce of the mill in excess to the annual capacity of production determined by the formula under sub-Rule 3 of Rule 3 will be the quantity leviable for the duty. In Rule 5, even after declaring that actual production of the mill will be the annual capacity of the production shall be determined by the formula under sub-Rule 3 of Rule 3, but it has been restricted to apply for only financial year 1996-97. In view of the Rule 5 also, even actual production of previous year i.e. for the F.Y 1996-97, by application of the deeming Clause under Rule 5, that is not the basis annual capacity of production for the subsequent years. Therefore said notice was barred by the period of limitation of six months. In favour of assessee

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• 2012 (12) TMI 149
  Classification of ‘soft serve' - Common Parlance Test - Whether classifiable under heading 21.05 (as claimed by the revenue) or under heading 04.04 or 2108.91 (as claimed by the assessee) of the Central Excise and Tariff Act, 1985 - held that:- in the absence of a statutory definition in precise terms; words, entries and items in taxing statutes must be construed in terms of their commercial or trade understanding, or according to their popular meaning. In other words they have to be constructed in the sense that the people conversant with the subject-matter of the statute, would attribute to it. Resort to rigid interpretation in terms of scientific and technical meanings should be avoided in such circumstances. This, however, is by no means an absolute rule. When the legislature has expressed a contrary intention, such as by providing a statutory definition of the particular entry, word or item in specific, scientific or technical terms, then, interpretation ought to be in accordance with the scientific and technical meaning and not according to common parlance understanding. Tribunal erred in law in classifying ‘soft-serve’ under tariff sub-heading 2108.91, as “Edible preparations not elsewhere specified or included”, “not bearing a brand name”. We hold that ‘soft serve’ marketed by the assessee, during the relevant period, is to be classified under tariff sub-heading 2105.00 as “ice-cream”. Regarding alternate plea - assessee contended that in the event ‘soft serve’ was classifiable under heading 21.05, the assessee was entitled to the benefit under Notification No. 16/2003-CE (NT) dated 12th March 2003. - held that:- We are afraid we are unable to take this argument into account since such a plea was not urged before the Tribunal in the first place. Given that this is a statutory appeal under Section 35L of the Act, it is not open to either party, at this stage of the appeal, to raise a new ground which was never argued before the Tribunal. Even if we assume that this ground had been urged before the Tribunal, in our view, learned counsel’s reliance on this notification is misplaced. Upon a reading of the notification it is clear that the exemption in the notification is granted for the whole of excise duty which was payable on such softy ice cream and non alcoholic beverages dispensed through vending machines, but was not being levied during the relevant period, which is not the case here. In the present case, as aforenoted, three show cause notices had been issued to the assessee alleging that ‘soft serve’ was classifiable under heading 21.05 and attracted duty @ 16%. The show cause notices issued by the revenue also indicated that the assessee was liable to pay additional duty under Section 11A of the Act. - This clearly shows that the excise duty was payable by the assessee and was being levied by the revenue. - Decided against the assessee.

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• 2012 (12) TMI 148
  Cenvat credit - waiver of pre deposit - duty paid inputs like steel plates for fabrication of various machinery, tanks etc. - held that:- there is no dispute as regards the receipt of the plates and consumption thereof for fabrication of the storage tanks in the refinery. It is also seen that the said show cause notice is only on the ground that the appellant could not have availed the cenvat credit of the inputs which were received prior to 10.09.04. This adjudication order has attained the finality as department has not filed any appeal. Extending the same logic, prima-facie we find that there cannot be any dispute regarding the availment of cenvat credit by the appellant in this case as we have already recorded that there is no dispute as to receipt of the plates and the duty paid nature of the same and consumption thereof for the fabrication of storage tanks in the appellant's factory premises. - prima facie case in favor of assessee - stay granted.

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• 2012 (12) TMI 147
  Cenvat credit - Import of capital goods availing the benefit of Notification No. 25/2002-Cus., by paying concessional rate of duty – importer has two units – capital goods transferred from DTA unit to 100% EOU as such – Held that:- DTA unit having taken the credit on the capital goods, are required to reverse the credit in terms of Rule 3 (5) of CENVAT Credit Rules - E.O. unit though belonging to the same legal entity operates under different provisions on tenability and benefits. Whether the credit taken by them on capital goods could be utilised by them depends upon whether there are any domestic clearances by them are payment of duty. Therefore, the plea of revenue neutrality cannot be accepted unconditionally - DTA unit directed to reverse the CENVAT credit taken by them on the capital goods removed as such or to pay equivalent amount in cash

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• 2012 (12) TMI 146
  Exemption to pipes needed for delivery of water from its sources to the plant and from there to the storage facility. – PSCC Pipes manufactured by the appellant were laid to make pipeline from Junia to Bhinay to carry untreated water. - Notification No. 6/2002-C.E., dated 1-3-02 as amended vide Notification No. 47/2002-C.E., dated 6-9-2003 - Held that:- the Notification has to be interpreted to cover the pipes which were needed to deliver water not only up to the first storage point but also to the second and subsequent storage points such as elevated storage reservoir where water was further treated for chlorinisation. If the intention of the Govt. was to restrict the exemption for pipes upto first storage point, the Notification should have been accordingly worded from the beginning. Assessee can avail the benefit of Notification as the notification is not worded about the various storage points properly - in favour of assessee.

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• 2012 (12) TMI 145
  CENVAT Credit - Service Tax paid by him as a recipient of services from foreign national for the purpose of obtaining the orders from the foreign countries – denial on the ground that the appellant is not eligible for availing credit under the provision of Rule 2(l) of CENVAT Credit Rules, 2004 - period involved in this case is prior to 31.03.2008, on which day the definition under Rule 2(l) of CENVAT Credit Rules, 2004 has undergone change - commission paid by the appellant is for procuring the orders for goods manufactured by him - Service Tax liability on the appellants made under Section 66A, is a liability which should have been discharged by commission receiver, in which case, the appellant would have been eligible to avail CENVAT Credit of Service Tax so paid - activity of payment of commission during the relevant period is in respect of the business activity of appellant – cenvat credit allowed – in favor of assessee

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• 2012 (12) TMI 144
  Adjustment of excess payment of duty against short-payment of duty upon finalisation of provisional assessments - Held that:- Adjustment of the excess payment of duty against the short-payment of duty for the period covered by the same return is what is impliedly permitted - Such claim shall be considered on monthly basis. In other words, the amount of duty paid in excess for a month covered by a return may be adjusted against the amount of duty short-paid (if any) for the same month. For such adjustment of duty burden of duty has to be borne by the assessee as per Doctrine Of Unjust Enrichment and not the Consumer. - Matter remanded back for fresh decision.

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• 2012 (12) TMI 143
  Waiver of pre-deposit – cenvat credit - revenue submitted that credit of Education Cess is permissible only for two times whereas the applicants in the present case have availed the benefit of credit at third time. - Held that:- Applicability of Rule 3(7) of the Cenvat Credit Rules and in the present case major portion of the dispute is after the amendment of Cenvat Credit Rules i.e. 7-9-2009 - Education Cess and Secondary Education Cess as referred to in Part B of the proviso to the Cenvat Credit Rules, prima facie, credit is available to the applicants - Stay petition is allowed.

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• 2012 (12) TMI 142
  CENVAT credit - Denial of credit in respect of the capital goods - Depreciation claimed under the Income Tax Act - Held That:- As Documents were not available to the original authority and that authority was therefore handicapped in taking a decision on the dispute. Appellate Authority did not properly examine the documents produced by the assessee - The matter was remanded back to the original authority.

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• 2012 (12) TMI 141
  Cenvat credit - CENVAT credit in respect of Service Tax paid on services namely clearing charges, commission on export sales, material handling charges, terminal handling charges, Bank Commission charges and Aviation charges have been availed by the appellant as input service – CENVAT credit has been denied to the appellant on the ground that the above stated services do not qualify within the definition of input services as per Rule 2(I) of CENVAT Credit Rules, 2004 - Held that:- Assessee is entitled to avail input service credit on the services availed by them in the course of their business of manufacturing - appellant has availed all the above services in the course of business of manufacturing - appellant is entitled to avail input service credit on the services

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• 2012 (12) TMI 140
  Waiver of pre-deposit - 100% Export Oriented Unit - demand of SAD on DTA clearances – manufacturers of fatty acids, alcohol and soap noodles - stock transfer to their Sion unit – Held that:- There is merely stock transfer to their Sion unit which finally has paid ST/VAT on their clearance - applicant has paid VAT/ST on the clearance made to other than their Sion unit. Therefore, the applicant has correctly availed the exemption under Notification 23/03 which provides exemption to DTA clearance on the goods produced by EOU and as per condition on the goods which are cleared in DTA are not exempt by state government from payment of ST/VAT - pre-deposit waived

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• CST, VAT & Sales Tax

• 2012 (12) TMI 198
  Kerala Value Added Tax Act - Evasion of tax – alleged that appellant/petitioners are in arrears of tax for which goods can be detained as provided under section 47(4) of the Kerala Value Added Tax Act, 2003 - appellant/petitioner submits that section 47(4) does not authorize recovery of arrears of tax by detaining goods under transport at the check-post – Held that:- There is no provision in section 47(4) to detain the goods until full arrears are paid. However, section 47(4) does not bar the Department from exercising right of attachment and sale of the detained goods under transport under other provisions of the Act or under the Revenue Recovery Act for recovery of arrears if the dealer does not clear arrears or at least makes arrangement for payment of arrears as a condition for release of goods - commodity brought is not for sale but is capital goods for installation in the factory which is a matter which the assessing officer/ check-post authorities or departmental officials can verify after release of goods - appellant will furnish a post dated cheque drawn on a local branch of a nationalized bank for Rs. 10 lakhs in favour of their assessing officer towards arrears of tax

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• 2012 (12) TMI 156
  Classification of steel tubes - exemption from CST - inter-state sales - constitutional validity of the notification No.F 10/11/2005/CT/V (20) - steel strips are manufactured in the integrated plant same is used for manufacture of steel tubes – Held that:- Classification as allegedly introduced by notification No. F 10/16/2002/CT/V (17) dated 12-2-2002 has been rescinded by the impugned notification No. F 10/11/2005/CT/V (20) - Notification No. F 10/16/2002/CT/V (17) dated 12-2-2002 deals with tax payable under sub section (1) of section 8, if the same is rescinded by the impugned notification, the steel tubes may come under section 8(2) of the CST and the rate has been reduced from 2% to 1% by notification No. F- 10/11/2005/CT/V (31) dated 31-5-2005. Thus, the facts which are necessary for adjudication is that whether the petitioner is liable to be taxed under section 8(2) or section 8(1) that cannot be ascertained without proper assessment by the Assessing Authority on the basis of return submitted by the dealer - petition cannot be entertained at this stage on the ground that the entire facts are not available, as the petitioner ought to have filed the return before the Assessing Authority, and thereafter the decision taken thereon would be appellable before the appellate authority - writ petition dismissed

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• Indian Laws

• 2012 (12) TMI 196
  Validity of Appointments - crieteria for seniority - appeal barred by limitation - appeal seeking removal of the special batch recruits being in violation of the rules - held that:- Fixation of seniority in the backdrop of ad hoc initial appointment - respondents therein were neither appointed by the competent authority on the recommendations made by the Board which was constituted by the Governor of Haryana nor were they placed on probation as required under the rules and, therefore, their ad hoc period could not be counted for the purpose of fixation of seniority. Thus, emphasis was laid that when appointment is made without following the procedure prescribed under the rules, the appointees are not entitled to have the seniority fixed on the basis of the total length of service. In essence, it has been ruled that when the appointment is made de hors the rules, the appointee cannot claim seniority even if his appointment is later on regularized - there is violation of the recruitment rules, the recruitment is unsustainable. State is a model employer and it is required to act fairly giving due regard and respect to the rules framed by it. But in the present case, the State has atrophied the rules. Hence, the need for hammering the concept. Secretary, State Of Karnataka And vs. Umadevi And Others [2006 (4) TMI 456 - SUPREME COURT], the Constitution Bench, while discussing the role of state in recruitment procedure, stated that if rules have been made under Article 309 of the Constitution, then the Government can make appointments only in accordance with the rules, for the State is meant to be a model employer. further, In Mehar Chand Polytechnic & Anr. vs. Anu Lamba & Ors.[2006 (8) TMI 514 - SUPREME COURT], Court observed that public employment is a facet of right to equality envisaged under Article 16 of the Constitution of India and that the recruitment rules are framed with a view to give equal opportunity to all the citizens of India entitled for being considered for recruitment in the vacant posts. Thus, role of the State as a model employer with the fond hope that in future a deliberate disregard is not taken recourse to and deviancy of such magnitude is not adopted to frustrate the claims of the employees. It should always be borne in mind that legitimate aspirations of the employees are not guillotined and a situation is not created where hopes end in despair. Hope for everyone is gloriously precious and a model employer should not convert it to be deceitful and treacherous by playing a game of chess with their seniority. A sense of calm sensibility and concerned sincerity should be reflected in every step. An atmosphere of trust has to prevail and when the employees are absolutely sure that their trust shall not be betrayed and they shall be treated with dignified fairness then only the concept of good governance can be concretized - all the appeals are dismissed leaving the parties to bear their respective costs.

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