TMI Tax Updates - e-Newsletter
February 15, 2017
Case Laws in this Newsletter:
Income Tax
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
TMI SMS
Highlights / Catch Notes
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Income Tax:
Exemption u/s 11 - The donations were pass-through donations with specific purposes for which the said voluntary donations can be utilized and the tax-payer has no choice but to spend these donations for specific purposes for which they were granted to the tax-payer trusts - AT
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Income Tax:
Exemption under sections 11 & 12 denied - earning interest income on RBI Bonds - the activity of depositing money in the bank and earning interest would not constitute trade, commerce or business within the meaning of section 2(15) r.w. proviso thereof. - AT
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Income Tax:
Exemption under sections 11 & 12 denied - income derived from transactions from non-members - mere charging of fee ipso-facto would not enable an activity to be governed by the proviso to section 2(15) of the Act without establishing any profit-motive in the charging of fees. - AT
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Income Tax:
TDS u/s 194C or 194I - Payment made towards studio hire charges - the studios would charge the hire charges for using the studios setup on hourly basis and provides their studios room with furniture and equipment on rent to the music directors - the question of TDS deduction u/s 194C does not arise - AT
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Income Tax:
Having regard to plain provisions of the statute, in the absence of non-adjudication of the ground by the Commissioner Income-tax (Appeals), the assessee can come only by way of appeal before the Tribunal, not by way of cross-objections - AT
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Income Tax:
ALP - brand promotion expenses - TPO has not been able to prove that the AMP expenses incurred was not for the benefit of the assessee - The payment made by the assessee under the head AMP to the domestic parties cannot be termed as international transaction. - AT
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Income Tax:
Penalty u/s 271(1)(c) - not offering correct MAT on the book profit u/s 115JB - assessee had not furnished any detail of MAT calculation and also had not filed form 29B - Levy of penalty @100% of deemed income confirmed - AT
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Income Tax:
Treatment of quantum capital loss as speculation loss in terms of provision of Explanation to Section 73 - The activities through Portfolio Management Scheme (PMS) cannot be regarded as business activities on standalone basis - AT
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Income Tax:
Addition on account of Short term capital gain u/s 50C - sale of Reservation Letter (Arakshan Patra) - assessee's case capital assets are neither land nor building. - the provisions of Section 50C are not applicable on the assessee - AT
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Income Tax:
TDS u/s 194C OR 194J - payment as SMS and short code charges - it cannot be held that the assessee is making any payment for use or right to use any equipment. Further, the concept of 'use' or 'right to use any equipment' alludes to the concept of 'leasing', which here in this case admittedly is not there - AT
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Income Tax:
Revenue or Capital expenditure - Hire charges paid for hiring equipment - assessee has brought on hire computers and peripherals from third parties - TDS was deducted u/s 194J - TDS certificate cannot be treated as additional evidence - AT
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Income Tax:
Validity of assessment order pursuant to order u/s 144C - there is no direction given by the ld. DRP to ld. Assessing Officer but the directions were only given to the ld. TPO. This has in our opinion resulted in a procedural defect and not a jurisdictional error that could invalidate the proceedings in toto. It is only a curable defect - AT
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Income Tax:
TDS u/s 194C - payment to sub-contractors - Merely because the Form No.15J was not filed before the concerned Authority, that too due to human mistake, the disallowance could not be denied to the assessee - HC
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Income Tax:
Additional depreciation allowed u/s.32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance - AT
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Service Tax:
Recovery of service tax dues - Extension of the period of provisional attachment - extension for a further period of one year - franchise agreement - natural justice - before passing order under section 73C, fullest opportunity have been given to the respective petitioners - order sustained - HC
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Service Tax:
Imposition of penalty u/s 76 of the FA, 1994 - delayed payment of tax - financial difficulty - invocation of section 80 - it is a fit case to waive the penalty - AT
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Service Tax:
Refund claim - works contract services and various other input services - denial on the ground of nexus of input service with the output services - the adjudicating authority also for a different period has allowed the refund in respect of the very same services - refund allowed - AT
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Central Excise:
Natural justice - Revenue unilaterally concluded that the goods manufactured by appellants were Gutkha/Pan Masala. Therefore, there has been violation of principle of natural justice and said SCN indicates the pre judging of the issue by the framers of the charge in the SCN - there has been miscarriage of justice - AT
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Central Excise:
Clandestine removal - Shortage of stock - Penalty - Rule 25 of CER, 2002 - stock valuation was by way of estimation basis - no case of clandestine removal and clandestine production have been made out against the assessee - AT
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Central Excise:
Cenvat credit - Capitalization of Input services - restriction on availing depreciation - Rule 4(4) of CCR - Since there is no explicit provisions to restrict the Cenvat credit on input services if the assessee claims depreciation, the cenvat credit cannot be denied - AT
Articles
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2017 (2) TMI 588
Addition on account of Short term capital gain u/s 50C - sale of Reservation Letter (Arakshan Patra) - considering the value adopted by Sub-Registrar - whether the value adopted by the registration authorities is in excess to fair market value of the property? - Held that:- The plain reading of Section 50C shows that this provision is applicable only for the capital assets being land or building or both. Taking into consideration all the facts and circumstances of the case, it is noted that in assessee's case capital assets are neither land nor building. Hence, in such a situation, the provisions of Section 50C are not applicable on the assessee. In view of the above deliberations, the additional ground raised in the appeal of the assessee is allowed.
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2017 (2) TMI 586
Unaccounted sales - difference in party wise details of receipts and TDS made vis a vis the receipts shown in the profit and loss account - Held that:- As could be seen from the assessment stage itself the assessee has tried to explain the difference between the receipts as per TDS certificate and as per profit and loss account by explaining that the difference was due to 4% VAT element. In fact, we have noticed from the facts and material placed before us,the assessee has submitted before the A.O a list containing party wise details of receipts as per TDS certificate and as per profit and loss account to demonstrate the fact that the difference is on account of VAT. We have noticed, the assessing officer in the assessment order has admitted the fact that the assessee has furnished the details. That being the case, in our view, the departmental authorities should have examined assessee’s claim by properly verifying the details submitted by the assessee. Thus we remit the issue back to the file of the assessing officer for fresh examination after carefully considering the materials brought on record by the assessee for reconciling the difference.
Addition u/s 40 A (2) (b) - Held that:- As could be seen out of five years for which payment of royalty was to be made by the assessee, except the impugned assessment year, in no other assessment year assessee’s claim has been disallowed, though, assessments have been completed u/s 143 (3) of the Act. Therefore, applying the rule of consistency no disallowance should have been made in the impugned assessment year. Further, on perusal of the assessment order we have noted that the assessing officer has not recorded any reason to demonstrate that the payment made by the assessee is unreasonable as mandated by Section 40 A (2)(b). That being the case disallowance of the expenditure claimed by invoking Section 40 A (2) of the Act, is not proper.
Hire charges paid for hiring equipment - revenue or capital expenditure - Held that:-Assessee has brought material on record to demonstrate that it has brought on hire computers and peripherals from third parties and deduction claimed was on account of payment made to those parties towards hire charges. This fact is demonstrated from the TDS certificate submitted by the assessee before the departmental authorities. It is also a fact on record that assessee has deducted tax at source on payment of hire charges in terms of Section 194J of Act. Thus, prima facie it is proved that the payment is towards hire charges and not for acquiring any capital assets. That being the case, the expenditure claimed is allowable. As far as the observation of the assessing officer that the amount is otherwise disallowable u/s 40 (a)(ia), we do not find any merit in the same considering the fact that the assessee has deducted tax at source on such payment u/s 194 J. As far as the allegation of the department that CIT (A) has admitted additional evidence in violation of rule 46A we are not convinced with the same. It is evident on record that the TDS certificate on the basis of which Ld. CIT (A) has come to his conclusion were available before the assessing officer and in any case of the matter the TDS certificate cannot be treated as additional evidence. No infirmity in the order of the CIT (A) on this issue. Accordingly, we uphold the same by dismissing the grounds raised by the department.
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2017 (2) TMI 584
Disallowance of foreign travel expenses - Held that:- CIT(A) has considered the details furnished by the assessee with regard to foreign travel expenses and after considering each and every expenditure, he arrived at the conclusion that the expenditure of ₹ 5,45,375/- was not for the purpose of business and accordingly, has disallowed the same. After considering the facts, we do not find any infirmity in the order of learned CIT(A). The same is upheld.
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2017 (2) TMI 580
Penalty u/s 271(1)(c) - Held that:- As per provisions of Section 271(l)(c) of the Income-tax Act, penalty can be imposed if the assessee has concealed the particulars of income or furnishing the inaccurate particulars of such income. In the case under consideration, there is no dispute with regard to the fact that the particulars of income are reflected in the Return of Income and it is not the case of the Revenue that the return of income filed was invalid, it was accepted by the AO. Even the assessee has accepted and disclosed the method of earning such income and paid the tax accordingly. Hence, it cannot be held that assessee had concealed the income or filed inaccurate particulars before the AO. - Decided in favour of assessee
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2017 (2) TMI 578
Disallowance u/s.14A - Held that:- As the suo motu disallowance made by the assessee is far more than the exempt income earned by it, so,in our opinion there was no justification for making any further disallowance. Reversing the order of the FAA,we decide first ground of appeal in favour of the assessee.
Disallowance of additional depreciation - Held that:- As decided in AY.2008-09 in assessee;s own case the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one AY., if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent AY.. The Tribunal, in our view, has rightly held, that additional depreciation allowed u/s.32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal.”. We hold that the assessee was entitled to claim 10% additional depreciation during the year under appeal. Reversing the order of the FAA, we decide the second ground of appeal in favour of the assessee.
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2017 (2) TMI 591
Penalty u/s 271(1)(c) - not offering correct MAT on the book profit u/s 115JB and non-submission of explanation for claiming expenditure claimed against exempt dividend income and income from house property - Held that:- The assessee has concealed particulars of income by allegedly not calculating MAT u/s 115JB which in the case of assessee was higher than the normal taxes; as the long term capital gain exempted u/s 10(38) of the Act is required to be added in the book profits for the purpose of calculating MAT. Assessee is also guilty for the fact that it was well aware of the provisions of section 115JB of the Act as it has been consistently furnishing details of the same in the previous Asstt. Years wherein normal tax was higher than the MAT but in the year under appeal wherein tax u/s 115JB of the Act was ₹ 1,10,85,350/- as against normal tax of ₹ 25,63,322/-, assessee had not furnished any detail of MAT calculation and also had not filed form 29B statutorily required under the Act to be furnished along with the return of income. We, therefore, uphold the order of ld. CIT(A) confirming the penalty u/s 271(1)(c) of the Act calculated on the tax to be evaded of ₹ 98,79,990/- calculated @ 100% of deemed income u/s 115JB of ₹ 98,79,990/-. - Decided against assessee
Disallowance of expenditure made in the computation of assessee’s total income - Held that:- The impugned expenses have already been disallowed and assessee has agreed to pay taxes thereon but certainly assessee should not be visited by penalty u/s 271(1)(c) of the Act. We further observe that penalty is not imposable on this impugned disallowance of expenses because for the year under appeal assessee’s tax liability under MAT is higher than the normal tax liability and even the disallowance of expenses will not affect the overall tax liability and in such situation penalty is not leviable u/s 271(1)(c) of the Act on the disallowed expenses. We, therefore, delete the penalty - Decided against revenue
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2017 (2) TMI 583
Section 40(a)(ia) disallowance - assessee’s failure in not remitting the TDS deducted as per the scheme of the Act - retrospectivity - Held that:- We find that the issue as to whether TDS deducted by an assessee and remitted before the end of the relevant previous year or paid before the due date of filing of return is no more res integra since hon’ble Calcutta high court in Virgin Creations case (2011 (11) TMI 348 - CALCUTTA HIGH COURT) has already settled the law that amendment to Section 40(a)(ia) made by the Finance Act, 2010 is retrospectively applicable w.e.f. 01.04.2005 thereby impliedly reversing this tribunal’s special bench decision in Bharti Shipyard Ltd. vs. DCIT (2011 (9) TMI 258 - ITAT MUMBAI ). DR fails to dispute this legal position. We thus find no reason to interfere with the CIT(A)’s findings deleting Section 40(a)(ia) disallowance in question. The Revenue’s sole substantive ground as well as its main appeal fails.
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2017 (2) TMI 600
Addition by applying GP rate of 34.71% on unaccounted sales - Held that:- The unaccounted sales of ₹ 2,31,400 relates to sale transaction with Shri Shyam Sunder to whom the assessee had sold goods worth ₹ 11,59,900/- out of which, goods worth ₹ 2,31,400/- were not approved by the buyer and were rejected during the same financial year. In this regard, Shri Shyam Sunder had executed an affidavit in confirmation of the above fact and his statement were also during remand proceedings by the AO. The AO in his remand proceedings as well as ld CIT(A) has not specified any reason for disbelieving the affidavit as well as statement of Shri Shyam Sunder. Moreso, when on basis of similar affidavits and statements, additions have been deleted in respect of other unaccounted sales alleged by the AO on the basis of loose papers. In light of above, it is clear that goods worth ₹ 231,400 were rejected resulting in no actual sales made by the assessee during the year under consideration and on this ground alone, addition of ₹ 78,005 on said unaccounted sales is hereby deleted. The question of applying gross profit on such non-existent sales therefore doesn’t arise and hence, not been examined.
Addition is on account of estimated rate adopted by AO for valuation of purchases as admitted in the remand report submitted by the AO. As far as quantity of purchases is concerned, there is no dispute between the assessee and the Assessing Officer. However, no valuation methodology/basis has been apparent on perusal of the record pursuant to which the valuation of the purchases has been done by the Assessing Officer. Therefore, being an adhoc addition, same is not sustainable in eye of law. Hence, the same is deleted.
Addition on account of gross profit @ 33.71% on stock found short during the course of survey - Held that:- The appellant has failed to furnish any documentary evidence in support of the stock valuation adopted by him during the course of assessment proceedings or even the course of appellate proceedings. Further, given that in the books of accounts, the stock was recorded at ₹ 37,88,130/- as against physical stock at ₹ 30,11,120/-, the shortage of stock has rightly been worked out at ₹ 7,77,010/- and which has rightly been held to have been sold outside the books of accounts. Regarding application of GP @ 33.71% by the ld. CIT(A) as against G.P rate of 26% applied by the AO, since the unaccounted sales belongs to the year under consideration, the rate of GP which is declared by the appellant itself in respect of its recorded sales @ 33.71% has been considered by the ld. CIT(A). We accordingly, do not see any infirmity in the order of the ld. CIT(A) which is hereby confirmed. - Decided against assessee.
Disallowance u/s 40A(3) - Held that:- AR has submitted that ₹ 1 lac has been paid to Khan Mahesh Seth and ₹ 23,500/- has been paid to Mr. Gulaiya who are material suppliers and they do not have any bank account maintained by any bank and such payments are covered under the exceptions stated in Rule 6DD of the Rules and in support, their affidavits have been filed which have not been considered in right perspective. However, the Assessing Officer, in his remand report submitted to the ld. CIT(A), has stated that no affidavits have been filed in respect of these two persons. Given the contradictory position and in absence of these affidavits in the paperbook submitted before us, we are left with no option but to set aside the matter to the file of the Assessing Officer to examine any such affidavit filed by the assessee and decide the issue afresh as per law. Therefore, this ground is allowed for statistical purposes.
Addition on account of lump sum disallowance out of various expenses claimed by the assessee - Held that:- On perusal of record, it is noted that originally 10% of the total expenses amounting to ₹ 1,31,563/- was disallowed by the Assessing Officer which has been restricted to ₹ 75,000/- by the ld. CIT(A). However, there is no basis which has been given by the Assessing Officer to make such disallowance. There is no finding that these expenses are either bogus or have not been incurred for the purpose of business. Being an adhoc disallowance, same is not sustainable in the eye of law. Hence, the same is deleted. - Decided in favour of assessee.
Telescoping benefit in respect of additions on account of unaccounted sale, unaccounted purchases and shortage of stock - Held that:- The additions on account of unaccounted sale, unaccounted purchases have already been deleted and it is only the addition on account of shortage of stock which has been sustained. Given that there is no question of telescoping which is available to the assessee. In the result, this ground is dismissed.
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2017 (2) TMI 595
Revision u/s 263 - Held that:- Non verification of direct expenses as the project got occupancy certificate on 21.9.2010, the assessee in response to specific query filed necessary details of direct expenses vide Annexure-III filed copies of which are at pages 25 to 28 of the paper book.
As in the show cause notice which is in respect of interest amount of ₹ 12.84 lakhs as direct expenses, we find from the paper book that third last item of expenses is interest on loan of ₹ 12,83,780/- which was also very much before the AO in the details of WIP of Kalamboli project as annexure-2.
On non verification of genuineness of advances received from the customers, the AO called upon the assessee vide para 12 of the questionnaire dated 17.6.2011 to furnish the details of booking advances in specified format which was replied vide letter dated 20.9.2011 vide para 12 forming part of the assessee’s paper book at pages 29 and 30. From the above facts on record it is abundantly clear that the revisionary powers were exercised by the CIT without examining the assessment record was not justified as every issue raised in the show cause notice was examined by the AO. The AO raised specific query and assessee has filed specific reply to each and every point with detailed annexure which are on assessment file. Under this circumstance, we are not in agreement with conclusions drawn by the Commissioner that the assessment order is erroneous and prejudicial to the interest of revenue. - Decided in favour of assessee
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2017 (2) TMI 589
Treatment of quantum capital loss as speculation loss in terms of provision of Explanation to Section 73 - Held that:- After considering the volume, frequency and quantum of transactions, Authorities Below presumed that assessee was carrying out the activity of business. Therefore the profit and loss on such transactions should be treated as under the head “business”. Admittedly, we find that that there is no dispute with regard to treatment of the aforesaid transactions in the books of account of assessee and aforesaid transactions were classified by assessee under the head “investment” and such practice was also followed by assessee in the earlier year also.
The activities through Portfolio Management Scheme (PMS) cannot be regarded as business activities on standalone basis. There are other factors which need to be considered. In the instant case the Revenue has been harping to treat the share transaction activity as business activity as the assessee has availed the services of PMS to maximize the profit. At the end we conclude that the assessee has been showing income under the head “capital gains” from the sale-purchase of securities which is held for a period more than 12 months consistently then the same has to be treated as income under the head “capital gains” only. Similarly, the transactions for the sale-purchase shares carried out through PMS cannot be regarded as business transactions for the reasons discussed above. Therefore, we are inclined to reverse the order of Authorities Below - Decided n favour of assessee
Disallowance u/s 14A r.w.s. 8D - Held that:- The assessee has claimed total expenditure of ₹ 4,14,08,065/-. Out of the same a sum of ₹ 2 crores was donated to charitable trust which in our considered view has no nexus with the dividend income. However the balance expenses of ₹ 2,14,08,065/- has been incurred and claimed by the assessee under the head administrative and other expenses. In the instant case the disallowance has been worked out to ₹ 60,53,495/- out of total administrative expenses of ₹ 2,14,08,065/-. Hence, the disallowance is not exceeding the total administrative expenses incurred by the assessee. Therefore the recent Notification issued by the CBDT No. SO 1949(E) dated 2.6.2016 and relied by the assessee where the disallowance was limited to the extent of total expenses will not be of any help.- Decided against assessee
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2017 (2) TMI 598
Exclusion of excise duty and sales tax from total turnover while computing deduction u/s. 80HHC after insertion of section 145A - Held that:- Identical issue was considered n the case of Dyntex Dyechem Ltd. [2014 (3) TMI 468 - GUJARAT HIGH COURT] wherein held that the learned Tribunal has not committed any error in holding that the components of sales tax and central excise do not form part of sale proceeds for the purpose of Section 80HHC of the Act despite insertion of Section 145A of the Act. - Decided in favour of the assessee
Deduction wrongly computed u/s. 80HHC on profits and turnover of company as a whole and not unit wise - Held that:- As decided in M/s. Meghmani Organics Ltd. Versus Asstt. Commissioner of Income-tax [ 2010 (3) TMI 1149 - ITAT AHMEDABAD] deduction under section 80HHC is to be allowed on unite-wise basis, this ground of Revenue is dismissed.
Adjustment of trading exports loss against manufacturing profit while computing deduction u/s. 80HHC - Held that:- This issue is squarely covered in favour of the revenue and against the assessee by the decision of the Hon’ble Supreme Court in the case of IPCA Laboratory Ltd. [2004 (3) TMI 9 - SUPREME Court] wherein held that arriving at the profits earned from export of both self manufactured goods and trading goods, the profits and losses in both the trades are required to be taken into consideration - If after such adjustments there is a positive profit the assessee would be entitled to deduction under section 80HHC(1)
Denial of granting deduction u/s. 80HHC on DEPB income ignoring that rules of duty draw back does not prescribe any allocation towards custom duty in its products - Held that:- As decided in Associated Dyestuff Pvt. Ltd., Ahmedabad Versus The ACIT Circle-1 Ahmedabad [2015 (7) TMI 724 - ITAT AHMEDABAD] in view of the judgement of Avani Exports [2015 (4) TMI 193 - SUPREME COURT ] has categorically ruled that having seen the twin conditions and since 80HHC benefit is not available after 1.4.05, the cases of exporters having a turnover below and those above 10 crores should be treated similarly, we are of the considered view that the ld.CIT(A) was not justified in confirming the action of the AO. Therefore, we hereby direct the AO to allow the deduction u/s.80HHC of the Act. - Decided in favour of assessee.
Gross interest income as against net interest for computing deduction u/s. 80HHC of the Act - Held that:- This issue is no more res integra as the same has been decided in favour of the assessee and against the revenue by the Hon’ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. in [2012 (2) TMI 101 - SUPREME COURT OF INDIA ] wherein held Ninety per cent of not the gross interest/rent but only the net interest/rent, which has been included in the profits of the business of the assessee as computed under the heads ‘PGBP’ is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. Matter remanded back to A.O. to work out the deductions – Decided in favor of assessee
Addition of accrued bonus under Keymen Insurance Policy - Held that:- A.O. found that the assessee has subscribed to Keymen Insurance Scheme of LIC and is paying annual premium on the same. The A.O. noticed that the assessee has not shown the bonus accrued under the scheme. Drawing support from the provisions of Section 28(vi) of the Act, the A.O. was of the firm belief that bonus of such policy will be taxable as profit and gains of business. The A.O. accordingly made an addition. As assessee could not bring any judicial decision in favour of the assessee nor could point out any fallacy/error in the factual findings of the A.O. considering the bonus accrued on the Keymen Insurance Policy in the light of the provisions of Section 28(vi) of the Act, we do not find any error or infirmity in the findings of the ld. CIT(A). - Decided against assessee
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2017 (2) TMI 592
Disallowance in respect of cost of improvement while arriving at Long Term Capital Gain - Held that:- The entire claim of the assessee is based on the various clauses in the sale deed and the copy of the ledger account of Rama Realty. As mentioned elsewhere, the sale deed was already executed without the assessee carrying out any work as mentioned in the sale deed. The assessee may have paid ₹ 45.90 lacs to the contractor in the subsequent year but then the payment is not supported by any actual work done by M/s. Rama Realty. To this extent, in our considered opinion, the same cannot be considered towards cost of improvement. We, accordingly, confirm the disallowance to the extent of ₹ 45.90 lacs.
So far as the balance of ₹ 99.10 lacs is concerned, a perusal of the paper book shows that the assessee has offered the same as remission/cessation of liability in A.Y. 2013-14 and has paid the taxes accordingly. Since, the assessee has offered this amount as its income in subsequent year if the disallowance is sustained during the year under consideration, it would amount to double taxation of the same amount. Therefore, in our understanding of the fact, this disallowance cannot be sustained. We, accordingly, modify the findings of the ld. CIT(A) and direct the A.O. to confirm the addition of ₹ 45.90 lacs and delete the addition of ₹ 99.10 lacs. - Decided in partly in favour of assessee
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2017 (2) TMI 590
Penalty u/s 271(1)(c) - exemption u/s 11&12 denied - CIT-A issued an alert to the Assessing Officer to take cognizance of the appellant entity losing its status of 'trust' and the income accruing thereof becoming the right of two individuals as a consequence of the decision of the Additional Civil Judge, Chandigarh and take necessary consequential actions/remedies, should it be considered appropriate - Held that:- We find that it is an undisputed fact that the above said orders passed by ld. CIT(A) relate to the penalties imposed by Assessing Officer u/s 271(1) (c) of the Act. It is also undisputed fact that the ld. CIT(A) has allowed relief and had deleted the penalties in these orders. The powers of CIT(A), while disposing of the appeals relating to penalties are contained in Sec.251(1)(b) of the Act.
While dealing with the penalty matters, the ld. CIT(A) has limited powers by which he may confirm or cancel such penalties or may reduce or enhance such penalty. No other power has been mentioned in the said section. The Hon'ble High Court of Allahabad in Commissioner Of Income-Tax, Uttar Pradesh Versus Rameshwardas Ram Narain [1974 (12) TMI 12 - ALLAHABAD High Court ] has considered the similar issue and has held that appellate Assistant Commissioner had no jurisdiction to make the direction of the kind that he made in the appellate order. - Decided in favour of assessee
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2017 (2) TMI 582
Invalid notice under Section 143(2) - scrutiny assessment - Held that:- The impugned order of the Tribunal renders a finding of fact that the notice under Section 143(2) has not been served at the correct address on or before 30th November, 2007 which is not shown to be incorrect. It follows that Assessment proceedings concluded on the basis of such invalid notice is void.
In the above view, as the position is self evident on a plain reading of Section 143(2) of the Act read with Section 127 of the General Clauses Act, thus no substantial question of law arises for our consideration.
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2017 (2) TMI 594
Addition made on account of determination of arm's length price of transaction relating to AMP expenses - Held that:- The issue in the present case, we find ,is identical to that in Bausch & Laumb [2015 (12) TMI 1332 - DELHI HIGH COURT]. In the present case, the AMP spend has been treated as an international transaction since it was found to be benefitting the AE only as the brand was owned by the AE. There is no finding of any clause in the agreement entered into between the two parties requiring the assessee to undertake brand promotion expenses on behalf of the AE.The existence of some sort of arrangement between the assessee and the AE obliging the assessee to undertake AMP expenditure on behalf of the AE, has not been demonstrated. On the contrary the obligation to incur the expenditure has been presumed to exist only on the basis of the quantum of expenditure ,and the fact that since the brand was owned by the AE the expenditure was for its benefit only. This basis has already been rejected by the Delhi High Court as we have pointed out above in the case of Bausch and Laumb(supra). Further the TPO has not been able to prove that the AMP expenses incurred was not for the benefit of the assessee. Therefore, in view of the aforestated decision of the Delhi High Court ,international transaction in such circumstances cannot be presumed to exist .No imaginary price can be attributed to it, as held by the Delhi High Court ,in the aforestated case, by allocating costs incurred on AMP expense and then adjusting the same by applying the TP provisions.
In view of the above we hold that the payment made by the assessee under the head AMP to the domestic parties cannot be termed as international transaction. Since we have held that there did not exist any international transaction qua AMP spend made by the assessee we are of the opinion that the TPO has wrongly invoked the provisions of Chapter X of the Act for the said AMP spend. Addition made of ₹ 4,59,11,663/- is, therefore, directed to be deleted. Further since the addition made has been deleted for the aforestated reason we do not consider it necessary to deal with the other arguments raised by the Ld.Counsel for the assessee. - Decided in favour of assessee.
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2017 (2) TMI 593
Disallowance under section 14A - disallowance has been worked out with reference to Rule 8D(2)(iii) being administrative and general expenses estimated at 0.5% of the average value of investment - Held that:- As per financial data before us, the substantive part of expenditure incurred obviously has proximate connection with the earning of dividend income. The expenditure incurred is towards all business activities including investment activities and remains undivisible. Hence, we are unable to guage the rationale for not applying Rule 8D for apportionment of expenditure in relation to dividend income. The proposition towards reasonable estimated expenditure with reference to dividend income as propounded on behalf of assessee cannot be ordinarily accepted in derogation of the statutory frame work provided by the statue. No tangible cause has been shown by the assessee for doing so. Thus, in the given set of facts, in our considered opinion, the formula provided under Rule 8D would come into play.
Indication of prima facie presence of satisfaction can be deemed to be substantial compliance of the provisions without there being any explicit assertion about the same. As noted, the affirmative steps by way of SCN on the issue in the first instance tantamount to subsistence of ‘satisfaction’ in the instant case. Hence, in our view, S. 14A as presently codified does not provide impetus on explicit recording of satisfaction per se. The requirement of section would stand addressed when the satisfaction is otherwise discernible in the action of the AO. Applying the aforesaid view in the context, we are of the opinion that requisite satisfaction was subsisting for invoking section 14A and Rule 8D. Consequently, we hold that the objection of the assessee on this score is not sound. - Decided against assessee.
Sale of shares and securities which are held for less than 30 days - Short Term Capital Gain(STCGs) OR business income - Held that:- The issue is thus required to be decided as per the facts and the circumstances of the individual case and not having regard to the smaller period of holding alone. As pointed out by the assessee before the CIT(A), the assessee has sold the shares held for less than thirty days in only six instances which in our view does not give any indication of systematic and organized business activity. The loss declared on similar transactions as capital loss which is detrimental to assessee was duly accepted by the revenue in the past. No aspersions have cast on LTCG either. Therefore, in the totality of the facts, it is difficult to agree with the view rendered by the CIT(A). While one set of transaction have been treated as capital assets, there is no reason to treat other set of transactions similar nature as trading assets merely owing to lesser period of holding. In the circumstances, the plea of the assessee deserves acceptance. The action of revenue is accordingly liable to be struck down.
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2017 (2) TMI 599
TDS u/s 194C or 194J or 194I - addition made on account of studio hire charges u/sec 40(a)(ia) - submissions of the Assessee in explanation to the payment on account of Studio Hire Charges that it is a practice of a Music Director to call musician at the hired studios for recording from different parties and sources as per his requirement and planning to play under his instruction - Held that:- A music director having no set up to record music at his home and he has to arrange everything required by hire on rent and no contractual agreement is required for hiring the studios and musical instruments. Further the assesse submitted that the studios would charge the hire charges for using the studios setup on hourly basis and provides their studios room with furniture and equipment on rent to the music directors and pleaded the question of TDS deduction under section 194C does not arise. We find force in the submissions of the Ld.AR in this regard. The impugned addition as made by the AO is admittedly below the prescribed monetary limit as required u/section 194I of the Act, therefore, we hold that the addition made for violation of Section 194C is not maintainable and as such it is deleted, accordingly, ground no-3 is allowed.
TDS liability on Instrument Hire Charges - Held that:- The assessee was an individual and the AO made disallowance for not deducting tax in respect of payments made towards labour and advertisement charges and the Coordinate Bench held the said disallowance is not maintainable in view of the order dt:11-03-2011 of Tribunal in the case of Smt.Keya Seth. [2011 (3) TMI 1135 - ITAT KOLKATA]. We find that the said Coordinate Bench discussed the relevant provisions of Section 194C(1) and 2 as existed in A.Y’s.2006-07 and 2007-08 together with the Circular No-3/2008 dated 12-03-2008 in detail and held that the Assessee being an Individual is under no obligation to deduct tax and provisions under section 194C(1) is not applicable to A.Y’s.2006-07 and 2007-08 for an individual. In the present case, the year under consideration is 2006-07, therefore, we find that the facts and the law laid down by the Coordinate Bench supra is applicable to the issue on hand. Thus, we hold that the disallowance as made for violation of section 194C and the addition therein by invoking Section 40(a)(ia) of the Act is not maintainable - Decided in favour of assessee
Payments to Artists - addition made thereon for violation U/Section 194C of the Act by invoking Section 40(a)(ia) - Held that:- If the concerned payee(s) has taken into account the relevant sum as received from Assessee for computing income in their returns of income furnished u/s. 139 of the Act and has paid tax due on the income declared in such return, We, therefore, set aside the impugned order of CIT(A) to the extent confirming the disallowance made by the AO u/s. 40(a)(ia) and restore the matter to the file of the AO for deciding the same afresh in the light of the submissions of the assessee. The assessee shall be at liberty to file requisite evidences, if any, to substantiate its claim. This ground of assessee’s appeal is allowed for statistical purpose.
Assistant Fees - non deduction of TDS - Held that:- It is observed from the assessment order that the AO did not specify the charging section as required to be made any disallowance under the Act, but, however, mentioned the only the chapter VIIB of the Finance Act where the deduction at source commences to start from section 192. As rightly pointed by the Ld.AR in the absence of any charging section the disallowance thereon is not permissible. Ld.AR argued that the disallowance cannot be under sections 192, 194C and 194J of the Act as no such evidence brought on record to show that the said Assistant is an employee or carrying out any work under contract or rendered any professional or technical services to the Assessee as required under said charging sections. Therefore, we find force in the arguments of the Ld.AR and we hold that the addition made account of payment to Assistant to an extent of ₹ 29,700/- in the absence of any evidence is not maintainable - Decided in favour of assessee
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2017 (2) TMI 602
Revision u/s 263 - exemption u/s 11 wrongly allowed - Corpus Donation received - Registration of the trust u/s 12A - whether Corpus Fund which cannot be used by the trust and only income derived from this corpus fund thereon can be used for the benefit of the members? - Held that:- The donations were pass-through donations with specific purposes for which the said voluntary donations can be utilized and the tax-payer has no choice but to spend these donations for specific purposes for which they were granted to the tax-payer trusts. We are of the considered view that the assessment order of the A.O. dated 12-12-2013 passed u/s 143(3) of the Act in the instant appeal is erroneous so far as it is prejudicial to the interest of Revenue which cannot be sustained in law as it is against the provisions of law as discussed above .
Thus, we do not find any merit in contention of learned counsel for the assessee and hold that the assessment order dated 12-12-2013 passed by the A.O. u/s 143(3) of the Act is erroneous so far as is prejudicial to the interest of Revenue, hence, we have no hesitation in up-holding the said order dated 16-02-2016 passed by the learned CIT(E) u/s 263 of the Act as the assessment order dated 12-12-2013 passed by the AO u/s 143(3) of the Act is erroneous as far as being prejudicial to the interest of Revenue, and accordingly we uphold the order dated 16.02.2016 passed by the ld. CIT(E) u/s 263 of the Act. - Decided against assessee
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2017 (2) TMI 581
Additions on account of gifts - proceedings commenced under Section 153C - Held that:- Admittedly, the Revenue has not produced any evidence either before the Assessing Officer, or before this Court to show that any incriminating evidence was discovered against the assessee during the search on 25.03.2008. In the absence of any incriminating evidence, the Assessing Officer was not justified in invoking his power under Section 153C of the Act. The learned Tribunal has also noticed that this opinion has been expressed by other courts. Therefore, a mere passing observation made by the learned Tribunal that the said power could not be invoked, for regular assessment that had already been completed under Section 143(3) of the Act, would not give rise to a substantial question of law. The issue is not with regard to the scope and ambit of Section 143(3) of the Act; it is specifically with regard to the power prescribed under Section 153C of the Act. To the limited issue of the ambit and scope of Section 153A of the Act, the learned Tribunal has correctly expressed its opinion. - Decided against revenue
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2017 (2) TMI 579
TDS u/s 194C - whether the assessee is not required to deduct the tax if the sub-contractors produces the necessary declaration in the prescribed Form and the sub-contractor does not own more than two goods carriages during the previous year? - - Held that:- Admittedly, the sub-contractors in the present case did not own more than two goods carriages during the previous year. Thus, the assessee was not required to deduct the tax at source. Merely because the Form No.15J was not filed before the concerned Authority, that too due to human mistake, the disallowance could not be denied to the assessee. The present case is clearly covered by the decision of the High Court of Gujarat in the case of Gurvinder Transport (2013 (7) TMI 141 - GUJARAT HIGH COURT )
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2017 (2) TMI 561
Addition of bogus purchases - addition u/s 69C - Held that:- We find that the assessee had purchased goods from three parties that the sales tax authorities had made a reference to the Investigating Wing of the department, the AO had invoked the provisions of section 69C of the Act and had made an addition of ₹ 39.17 lakhs to the total income of the assessee. We find that the assessee had made a request to the AO to afford an opportunity to cross examine the persons whose statements had been relied upon to make the addition. Not giving a chance of cross examining the witnesses was violation of principles of natural justice.
Addition made by the AO could be deleted only on that account. However even on merits, additions made is not sustainable. He had invoked the provisions of section 69C and the said section deals with unexplained expenditure. In our opinion, the FAA had rightly held that section 69C could not be used for making additions for unaccounted purchases as alleged by the AO - Decided in favour of assessee
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2017 (2) TMI 601
Exemption under sections 11 & 12 denied - income derived from transactions from non-members - assessee has earned interest income on RBI Bonds - can the activity of keeping funds deposited in the manner mandated by the statute i.e. section 11(5) of the Act can be construed as an activity in the nature of trade, commerce or business so as to fall within the meaning of the proviso to section 2(15) of the Act? - Held that:- The answer is quite obvious because once an entity, which is governed by the regime of sections 11 to 13 of the Act is mandated to keep its funds in a prescribed manner, the earnings therefrom cannot be viewed as an activity of in the nature of trade, commerce or business within the meaning of the proviso to section 2(15) of the Act. Notably, in the present case, there is no charge made against the assessee at any stage that such earnings have not been spent towards the objects of the assessee i.e. promotion of sports, games and recreation facilities to the general public at large and physical development and healthy life style. Thus the activity of depositing money in the bank and earning interest would not constitute trade, commerce or business within the meaning of section 2(15) r.w. proviso thereof. Thus, in so far as interest income is concerned, we find no merit in the stand of the lower authorities.
For the other three categories of income namely, compensation from the Caterer(restaurant), compensation from Decorator for gymkhana functions and Miscellaneous income are concerned, herein also it cannot be said that the same involve carrying on of any activity in the nature of trade, commerce or business. It is quite clear that the scope and ambit of the exemption envisaged in sections 11 & 12 of the Act relate to the receipt of income derived from the property held under trust for charitable or religious purposes to the extent to which such income is applied to such purposes in India. Before proceeding further, we may reiterate that there is no charge against the assessee at any stage that there is an application of income for any purpose other than the objects of the assessee trust. Much has been made out by the lower authorities to the fact that assessee has charged a fee for allowing use of its sports grounds, and therefore, it is asserted that such an activity is hit by the disability contained in the proviso to section 2 (15) of the Act. In our considered opinion, mere charging of fee ipso-facto would not enable an activity to be governed by the proviso to section 2(15) of the Act without establishing any profit-motive in the charging of fees.
Objects of the assessee are undoubtedly the promotion of sports, games and recreation facilities to the public at large and such like receipts on account of compensation from the Decorator against gymkhana function, miscellaneous income and compensation from caterer(restaurant) cannot be construed as activity in the nature of trade, commerce or business for the purposes of the proviso to section 2(15) of the Act. Therefore, having regard to the facts and circumstances of the case, in our view, the CIT(A) erred in departing from his stand in earlier years by wrongly relying on the proviso to section 2(15) of the Act in the instant year because the activities in question cannot be construed to be in the nature of trade, commerce or business so as to fall within the purview of the proviso to section 2(15) of the Act. Thus, on this aspect assessee succeeds. - Decided in favour of assessee
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2017 (2) TMI 585
Validity of order beyond time mentioned u/s.144C(13) - whether Revenue cannot rely on Sec.153 of the Act for extending period of limitation set out in Sec. 144C(13)? - Held that:- We cannot say that in the instant case the proceedings had reached the stage where Sec. 144C(13) of the Act could be applied. This is because, as mentioned by us at para 6 above, ld. DRP had never issued any direction to ld. Assessing Officer under Sub-section (5) of Sec. 144C of the Act. That directions issued by the ld. DRP were to the ld. TPO, is clear from the notings of the ld. TPO himself in his order dated 10.02.2015.
Coming to the contention of the ld. Authorised Representative that ld. TPO is having all the powers of an Assessing Officer and hence directions given by DRP to TPO had to be construed as given to the ld. Assessing Officer, it is necessary to have a look at Explanation to Sec. 92CA relied on by the ld. Departmental Representative which clearly indicate that ld. TPO is not the same as Assessing Officer. No authorization from the Board has been placed on record which equates that the powers vested on TPO as similar to that of an Assessing Officer. Section 92CA of the Act clearly sets out the powers of TPO. He has to determine the Arms Length Price in relation to the international transactions. However, power of making the assessment remains with the Assessing Officer only.
Considering argument of DR that by virtue of Sub-Sec. (3) of Sec. 153 of the Act, no fetters on time can be placed on an Assessing Officer for passing a giving effect order by the ld. Assessing Officer cannot be accepted, as for the purpose of a proceedings which come under the ambit Sec.144C of the Act, there can be no application of Sec.153 of the Act.
In the case before us, there is no direction given by the ld. DRP to ld. Assessing Officer but the directions were only given to the ld. TPO. This has in our opinion resulted in a procedural defect and not a jurisdictional error that could invalidate the proceedings in toto. It is only a curable defect and when the curing takes place, it puts back the proceedings to the original stage. Viz to a stage when the correct directions are issued by the ld. DRP. We are therefore constrained to setaside the order of the ld.DRP and remit the case back to it for issuing proper directions in accordance with law.
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2017 (2) TMI 587
TDS u/s 194C OR 194J - payment as SMS and short code charges - assessee in default u/s 201(1) - TDS on connectivity charges - Held that:- It is a kind of a standard connectivity facility which has been provided by the Telecom operator, nothing else. The agreement is more in the nature of works contract with the Telecom Operator for which the assessee has rightly deducted the TDS under section 194C. Even, the assessee from its customers, like Income-tax department for providing such services has received the payment which has been subjected" to TDS under section 194C. Thus, it cannot be held that the assessee is making any payment for use or right to use any equipment. Further, the concept of 'use' or 'right to use any equipment' alludes to the concept of 'leasing', which here in this case admittedly is not there.
Much emphasis has been laid by the ld DR as well as by the CIT (A) that, it is a kind of a 'process' and, therefore, in view of Explanation 6 brought with retrospective effect by the Finance Act, 2012 whereby the 'process' includes transmission by satellite, cable, optic fiber or by any other similar technology whether or not such process is not secret. Even if such a contention of the Department is to be accepted, then whether at the time of making the payment where no such amendment was brought in the statute, can assessee be accepted to deduct the TDS? Here, the maxim of "lex non cogit ad impossplia, that is, the law of the possibly compelling a person to do something which is impossible, that is, when there is no provision for taxing an amount in India then how it can be expected that a tax should be deducted on such a payment.
This view has-been upheld by in catena of decisions including the ITAT Mumbai Benches in the case of Channel Guide India Ltd, v. Asstt. CIT [2012 (9) TMI 95 - ITAT MUMBAI] wherein, it has been held that, assessee cannot held to be liable for deducting TDS in view of the retrospective amendment which has come at a much later date. Thus, we hold that assessee was not liable to deduct TDS by treating the payment in the nature of 'Royalty' in terms of section 194J or in terms of retrospective amendment brought from subsequent date. Accordingly, assessee cannot be treated as assessee in default within section 201(1). - Decided in favour of assessee
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2017 (2) TMI 597
Addition under section 41(1) - Held that:- In the present case, the assessee has not forfeited the advances, as it had been declaring the liabilities in its balance-sheet. The assessee though in various letters had been threatening the prospective buyers that their security deposits will be forfeited but did not actually forfeit the same, as it continued to declare such advances in the balance-sheet.
Hon'ble Delhi High Court in the case of CIT v. Jain Exports Pvt. Ltd. (2013 (5) TMI 690 - DELHI HIGH COURT ), under similar facts and circumstances has held that the liability on account of creditors, which were being declared by the assessee for the last more than 25 years in favour of the assessee, by holding that the liability had not ceased to exist.
We further find that the assessee during the subsequent years had adjusted the advances against sale of plots as is apparent from the paper book 2, where against Sl. Nos. 4, 6, 11, 17 and 18 the plots were sold and the amount of deposit was adjusted. The fact of part of advances having been adjusted in subsequent years itself proves that the liability had not ceased and, therefore, also, the addition under section 41(1) of the Act was not justified and the learned Commissioner of Income-tax (Appeals) has rightly deleted the same. - Decided in favour of assessee
Addition of commission received - Held that:- We find that the assessee had filed complete details of names and addresses of the persons from whom it had received commission at 1 per cent. of the sales consideration. The Assessing Officer assumed commission to be 2 per cent. in a few cases and 1 per cent. in a few cases and arbitrarily made an addition of ₹ 4,55,768. The Assessing Officer did not bother to examine any of the persons from whom the commission was received to find out the rate of commission. Therefore, the learned Commissioner of Income-tax (Appeals) has rightly deleted the addition. - Decided in favour of assessee
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2017 (2) TMI 596
Validity of reopening of assessment - whether the notice under section 143(2) was issued before completion of the assessment pursuant to issue of notice under section 148 of the Act? - Held that:- The decision in the case of V. R. A. Cotton Mills P. Ltd. v. Union of India [2011 (9) TMI 611 - PUNJAB AND HARYANA HIGH COURT] is a latest one and considered all the precedents on the issue and therefore, in our considered opinion, this decision has no more persuasive value and reasoned one and the ratio of the decision should be applied to the instant case also. Accordingly, we hold that the jurisdiction of the Assessing Officer is not affected for non-issue of notice or non-service of notice, if otherwise reasonable opportunity of heard was given to the assessee-company.
Further, the law applicable to service of notice is equally applicable to the issue of notice in view of section 27 of the General Clauses Act, 1897, and the decision in the case of Banarsi Debi v. ITO reported in [1964 (3) TMI 11 - SUPREME Court] and the decision in the case of V. R. A. Cotton Mills (P) Ltd. v. Union of India [2011 (9) TMI 611 - PUNJAB AND HARYANA HIGH COURT ]. We hold that there was proper service of notice after taking into consideration the provisions of section 292BB of the Act. In view of the legal position narrated above, the same legal position is to be applied even for issuance of notice under section 143(2). Accordingly, we hold that there is a valid issue of notice and service under section 143(2) as well as service of notice on the assessee-company. - Decided in favour of revenue
Maintainability of cross objections - Held that:- Legislature has chosen to use the expression "against such order or any part thereof" which means that cross-objections can be filed with reference to the same ground of appeal which is adversely decided against the respondent in appeal. If, there has been no adjudication on any of the grounds of appeal raised before the Commissioner Income-tax (Appeals), the cross-objections cannot be filed on such a ground though raised but not decided specifically. If the assessee is aggrieved by non-adjudication per se, the assessee can come before the Tribunal only by way of an appeal only. Thus, having regard to plain provisions of the statute, in the absence of non-adjudication of the ground by the Commissioner Income-tax (Appeals), the assessee can come only by way of appeal before the Tribunal, not by way of cross-objections. In the present case, the Commissioner Income-tax (Appeals) had not adjudicated the grounds relating to validity of the reassessment proceedings for non-furnishing of reasons and merits of the additions involved. We hold that the cross-objections are not maintainable and dismissed as such.
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Corporate Laws
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2017 (2) TMI 563
Winding up petitions - Held that:- There has been no opposition as such to the present winding up petition and such of other winding up petitions against the respondent-company. The alleged defences of pendency of civil suit filed by holding company against the manufacturers but not against petitioner- Aerotron Ltd., locus standi of petitioner company to file this winding up petition, there being chance of revival of the business etc., are all, moonshine and sham defences raised without any material basis for them.
On the basis of summary of the aforesaid Financial Reports and constant increase in the losses and complete erosion of net worth and reticent refusal of the Respondent – Company, UBHL to square up its Guarantee obligations and raising sham and moonshine defences to avoid winding up of the Respondent Company, this Court comes to a fair, reasonable and firm conclusion that the Respondent – Company, UBHL is a commercially insolvent Company and is unable to meet its admitted financial obligations and square up its admitted liability towards the petitioning creditors.
The petitioners are not seeking execution of any decree passed by English Courts or other Foreign jurisdiction against the Respondent – Company. They have invoked the winding up of Respondent- Company before this Court under Section 433 read with Sections 434 and 439 of the Companies Act, 1956 and have been able to satisfy this Court with the relevant and cogent material that the specified amounts of debts are due to be recovered by them from the Respondent – Company and the Respondent - UBHL under its contractual Guarantee obligations incurred by it for the financial obligations of the KFAL, which it has failed to discharge, despite due notice without any cogent reasons. It is neither a question of treating these winding up petitions as civil Suits for recovery of monies but it is a matter of forming a reasonable and fair opinion that whether from the facts and figures, contentions and defences, this Court can form a reasonable opinion about the commercial insolvency and erosion of its net worth and inability of the Respondent Company, UBHL, to pay-off its admitted dues or not. This Court does hold this opinion against the Respondent - Company, UBHL. Therefore, the contention that the applicability of the English law was required to be pleaded and proved as a fact, as if in the realm of trial of a Civil Suit, does not merit acceptance of such a contention by this Court.
Another contention about the petitioning Companies other than the secured creditors like SBI and consortium of Banks and others that such Foreign Companies ought to have obtained due permissions from Registrar of Companies (ROC) or Reserve Bank of India (RBI) in terms of Sections 592 and 599 of the companies Act, 1956, also is equally devoid of merit. If the Respondent – Company wanted to challenge the locus standi of the petitioners, it was for them to establish before the Court that such Companies had a ‘permanent establishment’ of business in India so as to fall within the definition of a Foreign Company, requiring registration and permissions in terms of Sections 592 and 599 of the Act. No such material has been placed by them before this Court to question the locus standi of the petitioning creditors. Mere presence of some sales representatives while undertaking business of supply of Aero Engines and Allied Equipments does not establish in any manner that such Companies had their permanent establishment in India so as to attract rigor of Sections 592 and 599 of the Companies Act. The said contention also is therefore liable to be rejected and is accordingly hereby rejected.
The contentions raised against locus standi of petitioner, BNP Paribas are also equally devoid of any merit. The assignment of debt by KF Aero in favour of BNP Paribas has never been questioned by KF Aero itself. The Deed of Assignment and its due Notice to UBHL are on record. The RBI approval for Corporate Guarantee in favour of KF Aero will be equally good for BNP Paribas also. RBI has never objected to the execution of Corporate Guartntee by UBHL in favour of BNP Paribas. No additional approval could be insisted upon by the Respondent, UBHL itself.
The contention that multiplicity of the proceedings has been initiated by the petitioning creditors and therefore the winding up petitions should not be entertained, is also equally devoid of any merit. The petitioning creditors are entitled in law to take all suitable measures and remedies for not only to recover their just debts but if on the basis of that material they can establish the commercial insolvency of the Respondent- Company in terms of the provisions of the Companies Act for winding up, there is no legal bar in the institution and pursuing of two or more remedies against the Respondent – Company, UBHL, while the effect of the relief granted upon such institution of legal proceedings is bound to be different.
The deposits of ₹ 1280.00 crores made in the Court under Interim Orders of the Court will of course be utilized for distribution, if the Respondent – Company, UBHL is to be wound up. The argument that such deposit being in excess of claims of unsecured creditors or suppliers and therefore the Respondent –Company does not deserve winding up ignores the much larger claim of Secured Creditors, Banks led by SBI, whose dues are far in excess of said deposits and their preferential claim cannot be ignored. It is that huge gap which renders the Respondent – Company, UBHL commercially insolvent and a mere skeleton of some assets and liquidity. The presentation of the same as a Going Concern in Annual Reports by skewed, distorted and misleading presentation of facts and figures in Balanace Sheets leads one to draw an adverse inference against the Respondent – Company, UBHL rather than being swayed by false picture sought to be projected by Company itself and its Supporting Creditors. All these contentions are, not bona fide and are therefore rejected.
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Service Tax
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2017 (2) TMI 576
Waiver of pre-deposit - failure to comply with the interim stay order - Natural justice - Whether in the facts and circumstances of this case and in law, was the Tribunal justified in passing the initial as also the further orders without hearing the Appellant-Assessee and ex-parte? - Held that: - Since the order in-original passed by the Commissioner would gain finality and the Appellant's valuable right of Appeal would be lost, the interest of justice would be served if the Appellant deposits a sum of ₹ 60 lakhs within three months and report compliance to the Tribunal's registry, for reviving its Appeal before the Tribunal - appeal disposed off - decided partly in favor of appellant.
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2017 (2) TMI 577
Recovery of service tax dues - Extension of the period of provisional attachment - extension for a further period of one year - franchise agreement - natural justice - Held that: - section 73(2) of the Finance Act, 1994 permits the Chief Commissioner to extend the period of provisional attachment. Under the statute, no hearing is provided before passing the order of extension of provisional attachment under section 73(C)(2) of the Finance Act, 1994, like while passing original order of provisional attachment by the Commissioner under section 73(C)(1) of the Finance Act, 1994 - Under the circumstances, on the ground that before passing the impugned orders of extension of provisional attachment by the Chief Commissioner, no opportunity of being heard were given to the respective petitioners, and therefore, the impugned orders of extension of provisional attachment are not required to be quashed and set aside, has no substance and cannot be accepted, more particularly considering the fact that before passing order under section 73(C)(1), fullest opportunity have been given to the respective petitioners and thereafter the orders under section 73(C)(1) have been passed.
It cannot be said that the orders of extension of provisional attachment for a further period of one year, are non-speaking order - petition dismissed - decided against petitioner.
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2017 (2) TMI 575
Imposition of penalty u/s 76 of the FA, 1994 - delayed payment of tax - financial difficulty - invocation of section 80 - Held that: - with effect from 01.04.2011 the appellant has been discharging the service tax liability on accrual basis and before that it was on receipt basis - it is a fit case to invoke Section 80 and grant the waiver of penalty imposed u/s 76 of FA, 1994, looking at the financial difficulty of appellant - penalty set aside - appeal allowed - decided in favor of appellant.
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2017 (2) TMI 574
Refund claim - works contract services and various other input services - denial on the ground of nexus of input service with the output services - Held that: - It is brought out from the records placed that the said services have been considered and analysed by the Tribunal in the appellant's own case M/s Alliance Global Services IT India Pvt. Ltd. Versus The Commissioner C.C.E & ST, Hyderabad [2016 (6) TMI 720 - CESTAT HYDERABAD], where the refund was allowed - Further the adjudicating authority also for a different period has allowed the refund in respect of the very same services - refund allowed - appeal allowed - decided in favor of appellant.
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Central Excise
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2017 (2) TMI 566
Whether the CESTAT is empowered not to impose penalty u/r 173Q of CER, 1944 read with Section 11AC of Central Excise Act, 1944 on the assessee who evaded Central Excise Duty by suppression of facts and in contravention of Rules under Central Excise Law?
Held that: - on considering section 11AC of the Act, 1944 and Rule 173Q of the Rules, 1944, both operates in different fields and the penalty leviable under both the provisions are different. The penalty u/s 11AC of the Act, 1944 is leviable on the person who is liable to pay duty as determined under subsection (2) of Section 11 of the Act, 1944. However, the penalty u/r 173Q of the Rules, 1944 is imposable / leviable on the manufacturer, producer, registered person of a warehouse or a registered dealer. Therefore, in a given case the penalty u/s 11AC of the Act, 1944 as well as u/r 173Q of the Rules, 1944 i.e. under both the provisions shall be leviable / imposable.
In a case where a composite penalty is levied under both the provisions i.e. u/r 173Q of the Rules, 1944 and section 11AC of the Act, 1944 and if it is found that it is not possible to bifurcate the penalty imposable u/s 11AC of the Act, 1944 and Rule 173Q of the Rules, 1944 and/or it is not possible to apportion quantum of penalty imposable u/r 173Q of the Rules, 1944 and/or section 11AC of the Act, 1944, in such a case the matter may be remanded to the appropriate Adjudicating Authority to redetermine the quantum of penalty either u/r 173Q of the Rules, 1944 and/or section 11AC of the Act, 1944, as the case may be.
However, to set aside the penalty imposed on the ground that a composite penalty has been imposed under Rule 173Q of the Rules, 1944 and section 11AC of the Act, 1944, shall be giving a premium to the person who has committed the wrong and/or has evaded the duty and/or has contravened the Rules. The consequences in such a case would be that there shall not be any penalty imposed under any of the provisions i.e. either under Rule 173Q of the Rules, 1944 or under Section 11AC of the Act, 1944.
The learned CESTAT has materially erred in quashing and setting aside the order of penalty imposed upon the assessee, imposed u/r 173Q of the Rules, 1944 and Section 11AC of the Act, 1944 - appeal allowed - decided in favor of appellant-Revenue.
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2017 (2) TMI 568
Cenvat credit - Shortage of stock - Penalty - Held that: - While calculating the demand on shortages, it is noticed that officers had considered the average weight of a barrel as 25 Kgs., while factually weight ranged between 20.5 to 23 kgs. If the factual weight is taken for calculation there is marginal shortage, which is included in the amount already reversed by the main appellant.
As regards the penalties imposed on the director of the company, I find that they have accepted that there were errors in the records hence I find that adjudicating authority was correct in imposing penalties on them - Decided against the assessee
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2017 (2) TMI 569
Refund of cenvat credit - 100% EOU - Business Auxiliary Service and/or Business Support Services - Held that: - the Ruling of Hon’ble Karnataka High Court in the case of mPortal India Wireless Solutions Private Ltd. Vs C.S.T. Bangalore 2012 (27) S.T.R. 134 (Kar.). The issue before the Hon’ble High Court was whether revenue was justified in refusing to grant refund of Cenvat credit, to which the assessee was legally entitled to, on the ground that he is not registered with the Department the Hon’ble High Court held that the assessee is 100% EOU and exported software at the relevant point of time, which was not a taxable service. However, the assessee had paid input tax on various services - Decided in favor of the assessee.
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2017 (2) TMI 572
Whether disallowance of cash discount vide the impugned order is just and proper - Availment of partial exemption - Notification No. 5/2007 - Held that: - in the remand Orders-in-Original No.54 56/2013/AC/Division-I/LKO dated 31/05/2013 the Assistant Commissioner have allowed the discounts as deductible pursuant to verification that the discounts in question have been passed on by the appellant to their buyers - Appeal allowed - decided in favor of the assessee.
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2017 (2) TMI 567
Cenvat credit - Capitalization of Input services - restriction on availing depreciation - Rule 4(4) of CCR - Held that: - it is clear that restriction in availing credit if the depreciation availed, is only in respect of capital goods and not on services. Admittedly the Cenvat credit involved in the present case is of service tax paid on the services even though it is related to erection and installation of capital goods. Since there is no explicit provisions to restrict the Cenvat credit on input services if the assessee claims depreciation, the cenvat credit cannot be denied, therefore the impugned order is set aside - Appeal allowed.
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2017 (2) TMI 570
Clandestine removal - Shortage of stock - Penalty - Rule 25 of CER, 2002 - stock valuation was by way of estimation basis - Held that: - I find that save and except the presumption of clandestine removal no corroborative evidence have been brought on record by the Revenue either in the Show Cause Notice or in the Order-in Original. The only case of the Revenue is that it is not disputed by the respondent-assessee regarding valuation of stock verification made by the Revenue. Accordingly, I hold that no case of clandestine removal and clandestine production have been made out against the respondent-assessee in the facts and circumstances of this case - Decided in favor of the assessee.
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2017 (2) TMI 573
Natural justice - Whether the goods manufactured by the appellants were branded Chewing Tobacco or Gutkha/Pan Masala? - Held that: - the date of search, every statements indicates that appellants were manufacturing branded Chewing Tobacco and none of the statements indicated that the goods manufactured by the appellant as on 27.02.2010 were Gutkha or Pan Masala - also, the Officers on visit never raised any doubt about the nature of the goods manufactured them to be Gutkha or Pan Masala.
The SCN at the beginning discusses about the branded Chewing Tobacco being manufactured by the appellants and suddenly the said SCN started making allegations that the goods manufactured by appellants were Gutkha/Pan Masala. The SCN indicates that it was within the knowledge of the Revenue that the goods manufactured by the appellants was branded Chewing Tobacco. If on the basis of test report submitted by the Shriram Institute for Industrial Research, Delhi, Revenue had a reason to believe that the goods manufactured by appellants were Gutkha/Pan Masala, then under Law it was necessary for Revenue to issue SCN to the appellant calling upon them to show cause as to why the goods manufactured by them should not be treated as Gutkha/Pan Masala classifiable under Tariff Item No. 2403 9990. Instead Revenue unilaterally concluded that the goods manufactured by appellants were Gutkha/Pan Masala. Therefore, there has been violation of principle of natural justice and said SCN indicates the pre judging of the issue by the framers of the charge in the SCN - there has been miscarriage of justice.
Appeal allowed - decided in favor of appellant.
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2017 (2) TMI 571
Challenge of amendment to Rule 57S - Unutilised Cenvat credit - The learned DR submitted that both the authorities below have wrongly applied the principles of res judicata and that inasmuch as the Notifications 33/1997 and 34/1997-C.E. (N.T.) both dated 1-8-1997, were in force and has never been quashed or declared ultra vires by any Court, the orders of the authorities below deserve to be quashed - Held that: - After the amendment, the capital goods were to be used in the manufacture of final products for which the duty was to be paid as per the provisions of Section 3A for which Cenvat credit on capital goods were not allowed - A straight forward reading of the Notifications 33/1997 and 34/1997-C.E. (N.T.) both dated 1-8-1997 and application of the same would result in the Cenvat credit available in the capital goods account of the respondent on 31-7-1997 to lapse.
We also note this Tribunal is a creation of the statute and its mandate is to decide disputes arising in the implementation of the statute within its purview. This Tribunal cannot arrogate to itself any of the extraordinary powers bestowed upon the Hon’ble High Courts and the Supreme Court by the Constitution - Appeal allowed - decided against the assessee.
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CST, VAT & Sales Tax
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2017 (2) TMI 565
Recovery of tax - the petitioner's stand is that, 25% of the disputed tax has already been deposited with the concerned authority - Held that: - I am inclined to agree with the learned counsel for the petitioner. Accordingly, the first respondent/the Joint Commissioner (CT) Appeals, is directed to dispose of the two appeals, pending consideration before him - Pending disposal of the appeals, it is directed that the impugned demand notice shall not be enforced against the petitioner - petition allowed - decided in favor of petitioner.
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2017 (2) TMI 564
Filing of necessary declarations and documents prior to the date of assessment - Held that: - the necessary power vests in the respondent/Assessing Officer to accept the C-Forms, upon sufficient cause being shown for delay in filing the same - with regard to consideration of the C-Forms by the respondent/Assessing Officer, even at this stage, would have to be accepted.
No difficulty in the respondent/AO considering the export sales documents, once the assessment is re-opened for considering the C-Forms.
The respondent/Assessing Officer shall redo the assessment, after considering the documents and declarations placed - petition allowed by way of remand.
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Indian Laws
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2017 (2) TMI 562
Proceedings initiated by the Bank against the schedule property under the SARFAESI Act - whether no notice was given to the writ petitioner, under the SARFAESI Act, 2002, including the offer given to other owners, and release of the property, etc. - Contentions that the property was purchased for valuable consideration from Mr.V.Sampath, Managing Director of M/s.Blue Jaggers Estates Ltd, has been made -
Held that:- The main condition to be satisfied for preferring an application, under Section 17(1) of the SARFAESI Act, 2002, is that the applicant must be an aggrieved person. Expression "any person" employed in Section 17(1) of the Act and Rule 13(2) of the Security Interest (Enforcement) Rules, 2002, can have reference, only to the borrower or guarantor or any person aggrieved or affected by any action taken under Section 13(4) of the SARFAESI Act, 2002 and that law is not designed, enabling all the persons to challenge the proceedings of the SARFAESI Act, 2002. Therefore, with due respect, we are of the considered view that the interpretation that any person, not being a borrower, but owner of the property, totally unconnected with the debt, but his property at peril, would fall within the residuary clause (e) of Rule 13(2)(1) of the Rules, relatable to any other person, would not be a proper interpretation to the words, "any person", occurring in Rule 13(2)(1)(e) of the Rules.
Indisputably, the writ petitioner has filed an application, under Section 17 of the SARFAESI Act, 2002, challenging sale certificate and vide order, dated 14.03.2013, DRT-III, Chennai, has dismissed the same. As stated supra, the contention of the Bank that while preferring an application under Section 17(1) of the SARFAESI Act, 2002, the writ petitioner has paid the requisite court fee, has not been disputed.
We have also extracted the heading, under which, the writ petitioner has pursued his further remedy, under Section 18 of the SARFAESI Act, which is an appeal. As per Rule 13 of the Rules, 2002, the amount of fee payable to an appeal to the appellate authority, against any order, passed by the DRT, the same has to be accompanied with the fees, provided at Clauses (a) to (d) to Rule 13(2)(1). In the light of the decisions and discussion, case of the writ petitioner would squarely falls under Rule 13(2)(1)(c) and (d) of the Rules, 2002. The writ petitioner is required to pay the prescribed Court fee.
According to the 3rd respondent-Bank, the writ petitioner has to pay the maximum fee of ₹ 50,000/-, for entertaining the appeal, under Section 18 of the SARFAESI Act, 2002. As observed, the writ petitioner seemed to have paid deficit court fee and therefore, vide order, dated 10.09.2014, the DRAT, Chennai, has directed the writ petitioner to pay the balance court fee. At this juncture, the reasoning of the DRAT that waiver application has not been filed, may not arise. First, the petitioner has to pay the required court fee. The question, whether he is entitled to seek for waiver, is another issue, if any application is filed. But payment of court fee cannot be avoided by the writ petitioner, who claims to be the owner of the property and aggrieved by the action, under Section 13(4) of the SARFAESI Act, 2002. In the light of the discussion and decisions, we find no force in the contention of the petitioner.
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