TMI Tax Updates - e-Newsletter
February 17, 2017
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Highlights / Catch Notes
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Income Tax:
Non setting off carried forward business loss against the Capital Gain computed u/s 50 - sale of depreciable assets - legal fiction is to be deemed the capital gain as STCG and not to deemed asset as Short Term Capital Asset - assessee is entitled for setting off of carried forward business loss against the capital gain computed u/s 50 - AT
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Income Tax:
Once, the registration under section 12AA has been granted, the approval under section 80G should not be denied unless the case of the appellant falls under non-fulfillment of one or more of the conditions specified in section 80G(5). - AT
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Income Tax:
Transfer pricing adjustment - applicability of CUP to a single combined international transaction of Import of Crystal goods and Crystal components, cannot be considered as the most appropriate method - AT
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Income Tax:
It is too much to cast such a burden on the assessee to prove that a particular insurance policy taken by it for its employees from National Insurance Company Ltd. was approved by IRDA. Since the assessee paid premium in respect of insurance policy taken for the benefit of its employees, the deduction has to be allowed - AT
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Income Tax:
Revision u/s 263 - The order has been passed in undue haste and there is nothing on record to suggest the urgency in the matter except the fact that the limitation period to exercise powers under section 263 was expiring on the said date - revision set aside - AT
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Income Tax:
Penalty u/s 271(1)(c) - use of the term "unless" - disclosures made by the offering incomes in the returns u/s 153A - the aforesaid expression “to be furnished” has to be interpreted as “required to be furnished”. Only in that case the Section will make a meaning otherwise the Section does not make any meaning - HC
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Income Tax:
Deduction u/s 80IB(7) - While claiming deduction u/s 80 IB(7) in the return, sub-clause mentioned was (a) and not (b) - Sub-clause (a) talks of a larger degree of deduction and if that was not admissible a smaller degree of deduction, under same section but in another sub-clause could have been allowed - Section 80A has no application - HC
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Income Tax:
Deduction u/s 80IB(7) - For own lethargy or inaction on the part of an officer of Income Tax Department, a deduction which otherwise may be available to Assessee, cannot be denied since it is not a case where Assessee is disqualified being ineligible for such deduction but question of approval is pending before Competent Authority, who is a senior officer of Income Tax Department - HC
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Income Tax:
International Share Award Plan (ISAP) expenditure - The expenditure on ISAP awards incurred by the assessee is akin to salary paid to the employees for their services which cannot be treated as enduring benefit to the assessee - AT
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Customs:
Classification wrap Knitted Fabric - 'lace' falling under CTH 58042990 or as 'Fabric' - imported goods are for use as a decoration on readymade Garments - benefit of exemption allowed as 'lace' - AT
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Customs:
Classification under 74072110 as brass ingots, or under 74040022 as brass scrap - Looking to the shapes in which the goods are being cleared, the classification as a brass bar is more appropriate than the classification as brass scrap - AT
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Service Tax:
As per sub section 73 of Section 3 the FA, 1994 in case of non-levy or short levy of service tax, if the same is paid either by the appellants themselves or as ascertained by the central excise officers before the service and notice to him, no notice is required to be served - No penalty - AT
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Service Tax:
Commission paid to foreign based agents - there has been a bonafide mistake on the part of the appellant to treat the taxable services as exempted services - penalty u/s 78 cannot be imposed - AT
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Service Tax:
Invocation of extended period of imitation - section 73 (1) of the FA, 1994 - department took a view that even prior to the amendment, the assessee was liable to pay tax - When department has all the information on record, extended period of limitation cannot be invoked - HC
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Central Excise:
Manufacture - production of goods like tower parts, structures, GT Line, V cross arms, HT/LT line materials - The process of fabrication of columns, purlines etc. by cutting, drilling, punching and welding does not amount to manufacture - AT
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Central Excise:
Basmati rice is packed either with dal tadka or rajma masala with an intention of consuming the two together as a meal. Since the essential character of the meal arises out of basmati rice (the subji is eaten along with the rice) - the combo pack has to be classified under Heading 21.08 (2106 90 99 for subsequent period) - such products will not be eligible for the benefit of exemption - AT
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Central Excise:
The activity of creating a computer network from duty paid computers and peripherals would not amount to manufacture, since the network does not bring into existence goods with a distinct new name, character and use. - AT
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2017 (2) TMI 691
Transfer pricing adjustment - Whether CUP is the most appropriate method ? - the assessee imported Crystal goods as well as Crystal components from its AE - Held that:- It is an admitted position that the AE did not sell any Crystal goods to its customers in India directly and only Crystal components were sold in India by the AE, which are further not meant for domestic consumption, but, to be utilized for export by such parties. The international transaction reported by the assessee is a common pool of both the Crystal goods and Crystal components, without there being any separate identification for each of them. We have noticed above that Crystal goods and Crystal components are different in terms of utility and value etc. and it is evident that the range of comparables is restricted to Crystal components alone. In view of the fact that the assessee did not report any comparable uncontrolled transaction of Crystal goods, we fail to appreciate as to how such rates charged in transactions of Crystal components can be considered as a benchmark for Crystal goods as well. In such circumstances, applicability of CUP to a single combined international transaction of Import of Crystal goods and Crystal components, cannot be considered as the most appropriate method.We, therefore, countenance the view taken by the TPO in rejecting the CUP as the most appropriate method.
TNMM vs. RPM - Held that:- We find that the assessee purchased Crystal goods and Crystal components from its AE. No value addition was made to such imports. The goods were sold as such. In the given circumstances, the RPM is the most appropriate method for determining the ALP of the international transaction of `Import of Crystal goods and Crystal components’. We direct the AO/TPO to determine the ALP of the transaction of Import of Crystal goods and Crystal components, firstly, by applying the RPM. It is hereby clarified that the manner of application of RPM is open at large before the TPO who will decide it in the way he thinks expedient. Contention of the ld. AR that the comparables should be restricted to the ten companies which it cited before the ld. CIT(A) or twenty companies which the ld. CIT(A) suo motu chose for making TP adjustment on account of AMP expenses, cannot be accepted. We do not intend to eclipse the power of the TPO by restricting the exercise, which he has yet to undertake for the first time. It is further clarified that if due to one reason or the other as discussed above, such a method cannot be applied, then, resort should be made to the TNMM in the way enshrined in rule 10B(1)(e) of IT Rules, 1962, taking care of the infirmities discussed above in the earlier calculation made by the TPO.
TP addition of AMP Expenses - Held that:- It would be in the fitness of things if the impugned order is set aside and the matter is restored to the file of TPO/AO for a fresh determination of the question as to whether there exists an international transaction of AMP expenses. If the existence of such an international transaction is not proved, the matter would end there and then, calling for no transfer pricing addition. If, on the other hand, the international transaction is found to be existing, then the TPO will determine the ALP of such an international transaction in the light of the relevant judgments of the Hon’ble High Court, after allowing a reasonable opportunity of being heard to the assessee.
Addition on account of Provision for doubtful debts and Provision for doubtful advances - Held that:- The assessee is admittedly not a scheduled bank and the ld. AR was fair enough to candidly accept that the case is covered under clause (vii) and not clause (viia)of section 36(1). Going by the language of clause (vii) of section 36(1), as it stands for the relevant assessment year, there can be no deduction at the time of creating a provision for doubtful debts. The legislature has clarified this position beyond any shadow of doubt by retrospectively inserting Explanation 1 to clause (vii) w.e.f. 1.4.1989 that : `For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee’. This clinches the issue and clarifies the position beyond an iota of doubt that a mere provision for doubtful debts is not deductible in the case of a non-banking assessees. We are, therefore, persuaded to uphold the impugned order in so far as the disallowance of provision for doubtful debts is concerned. However, it is clarified that the amount of actual write off during the year should be allowed as deduction. The chart at page C-5 of the paper book shows such amount written off at ₹ 98,078/-. The AO is directed to verify if such amount has been actually written off in the books of account. If it is so, then, deduction should be allowed to that extent.
As regards the Provision for doubtful advances unlike section 36(1)(vii) which provides for deduction on account of simple write off of bad debt subject to the fulfillment of conditions laid down in section 36(2), a write off of advances, falls in a separate compartment. In order to be eligible for such a deduction, the assessee is particularly required to prove the event of occurrence of loss. Unless the loss is proved to have been occurred, there can be no question of any deduction. Here is a case in which the assessee is claiming write off of an amount due from Customs Department. It goes without saying that no amount from a Government Department can be considered as irrecoverable under any circumstance so as to characterize it as a loss. We, therefore, following the view taken by the Tribunal in its order for the A.Y. 2002-03, uphold the disallowance. It is also clarified that a reversal of such a provision should not attract any tax as has been discussed qua the Provision for doubtful debts. In the like manner, it should also be ensured that there is no double deduction in view of the decision allowing deduction at the time of creation of a similar provision in relation to the A.Y. 2003-04.
Disallowance of Mediclaim personal accidental insurance policy taken for the benefit of staff members - Held that:- We are unable to concur with the view adopted by the ld. CIT(A) in sustaining the disallowance. Admittedly, insurance policy was taken by paying premium to National Insurance Company Ltd. We fail to appreciate as to how the assessee can bring material on record to demonstrate that the insurance policy taken from National Insurance Company Ltd. was approved by IRDA. There is an underlying presumption that all the nationalized insurance companies follow guidelines of IRDA. It is too much to cast such a burden on the assessee to prove that a particular insurance policy taken by it for its employees from National Insurance Company Ltd. was approved by IRDA. Since the assessee paid premium in respect of insurance policy taken for the benefit of its employees, the deduction has to be allowed. We, therefore, allow this ground of appeal.
Disallowance of depreciation on foreign exchange loss capitalized in the block of ‘Buildings.’ - Held that:- Block of assets increases with the actual cost of any asset falling within that block, acquired during the previous year. Forex gain or loss effects the cost of an asset only u/s 43A and that too w.r.t. the translation of foreign currency at the time of making payment. This section applies only when the assessee acquires any asset in any previous year from a country outside India. Section 43A is not applicable when an asset is acquired from India, albeit with a loan obtained in foreign currency. Thus it is overt that forex loss in respect of assets acquired in India cannot be treated as cost of acquisition so as to increase the value of block of assets for entitling the assessee to depreciation. If the contention of the ld. AR is accepted that such increase due to forex loss is contemplated u/s 43(1) itself and there is no need to approach section 43A, then the very existence of section 43A becomes meaningless. Placement of a separate section 43A shows that increase in the actual cost due to forex loss, and that too at the time of making payment, is not permissible but for this provision, which applies only to an asset acquired from a country outside India only. As the assessee acquired Building in India, neither section 43 nor section 43A can apply and consequently no capitalization of such forex loss can be allowed. We, therefore, hold that the authorities below were justified in denying depreciation on increase in the cost of `Buildings’ effected by the assessee due to translation of foreign currency loan at the end of the year. This ground fails.
Disallowance of advertisement and publicity expenses - CIT(A) deleted this disallowance - Held that:- This issue is no more res integra in view of the judgment in CIT vs. Citi Financial Consumer Fin. Ltd. (2011 (3) TMI 622 - Delhi High Court) in which it has been held that the entire expenditure on publicity and advertisement is allowable fully in the year in which it is incurred. We, therefore, uphold the impugned order on this score. Similar view has been taken by the Tribunal in the assessee’s own case for the A.Y. 2002- 03. It is however, made clear that no further deduction for the remaining 2/3rd of the total expenditure, directed to be allowed by the AO in subsequent two years, be granted as the same will lead to double deduction. If such a deduction has been allowed, then the same be accordingly reversed pro tanto. This ground of the Revenue is not allowed.
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2017 (2) TMI 694
Penalty u/s 271(1)(c) - Unexplained expenditure u/s 69 - Held that:- It is admitted fact that it is based upon seized document and explanation of the assessee was not found sastisfactory. The assessee explained that it is rotating capital investment by Shri J.C.Bansal which had already been declared before Settlement Commission in the amount of ₹ 30,70,000/-. However, when break-up of the same was given, amount of ₹ 94,500/- did not find mention in the same declaration. The assessee did not press this ground of appeal before the Tribunal and as such, it was dismissed and addition was confirmed. On the face of it, it is clear that assessee failed to explain this issue and whatever explanation was offered, was not substantiated through any evidence or material on record. Therefore, Explanation-1 to Section 271(1)(c) of the Act is clearly attracted in the case of the assessee. The authorities below were, therefore, justified in levying the penalty under section 271(1)(c) of the Act against the assessee on this addition.
Addition on account of undisclosed income - Held that:- Receipts produced on record clearly show that almost all the payments which were due upon Shri Rahul Chhabra have been received by assessee in subsequent years. Therefore, there is no question of any amount of ₹ 5 lcs paid by Shri Rahul Chhabra in cash. Thus, the assessee is able to explain at this stage that no amount of ₹ 5 lacs was paid in cash by Shri Rahul Chhabra, otherwise there was no reason to make balance payment in subsequent assessment years. It would, therefore, clearly make out that assessee offered explanation which is supported by evidences and material on record that no cash of ₹ 5 lacs have been paid and that explanation of the assessee has been substantiated through evidence and material on record. The explanation of the assessee appears to be bonafide. Therefore, it is not a fit case of levy of penalty on this addition.
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2017 (2) TMI 690
Penalty uls 271(1)(c) - unexplained cash deposits - Held that:- It has been examined in detail by the Ld. CIT(A) that from the statements recorded of Shri Rajesh Sharma as well as the assessee it was clear that assessee was operating several business concerns in the name of other persons including assessee’s employees and close associates and was maintaining various bogus bank accounts, through which unaccounted income was generated regularly. We find that findings have been recorded by the Ld. CIT(A) on the basis of facts and material held on record. Nothing has been brought before us to controvert or negate these factual findings. Under these circumstances, we find it appropriate to uphold the order of the Ld. CIT(A).
Whether no penalty was exigible u/s 271(1)(c) since provisions of sections 271AA(2) & (3) would apply as the search was carried out after 1st day of June, 2007 and statement was made u/s 132(4)? - Held that:- The provisions of subsection 2 and 3 of section 27IAAA will not be applicable to the appellant as the assessment year 2005.06 is not the specified previous year. The said provisions are applicable only for the specified previous year. The search in this case was conducted on 20.2.2008. Since the XY.2005-(163 is not the specified previous year, the provisions of sect' (2) & 3) of the Act will not be applicable in the case of the Appellant.
Reducing the quantum of penalty from 200% to 100% by CIT(A) - Held that:- No justification was given before us as to why the penalty should be levied at 200%. Nothing could be shown from the order of the AO wherein any justification was given by AO for levy of penalty at 200%. Under these circumstances, we find that no interference is called for in the order of Ld. CIT(A).
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2017 (2) TMI 682
Revision u/s 263 - deferred revenue income showed by changing the method of accounting as per Accounting Standard (AS) -7, and it has resulted in lowering of profit - Held ITAT concluded that the invocation of Section 263 was not warranted in the circumstances of the case - that:- Ruling of the ITAT is largely based upon the recognition of AS-7 in the given facts and circumstances of the case and that in fact the matter had received scrutiny by the A.O. at the stage of the original assessment. Besides, this Court in Paras Buildtech India Pvt. Ltd. v. Commissioner of Income Tax (2015 (11) TMI 1217 - DELHI HIGH COURT ) had noted that this method is a known and recognised method of accounting, and was approved as a proper one. The Court had also relied on CIT v. Bilahari Investment Pvt. Ltd. (2008 (2) TMI 23 - SUPREME COURT ).
Having regard to the factual findings of the ITAT, the Court is of the opinion that no substantial question of law arises.
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2017 (2) TMI 695
Applicability of provisions of Section 40(a)(i) r.w.p. of Section 10 (15)(iv)(c) - need for approval of the Central Govt. for approving the loan amount, rate of interest and the mode of repayment - Held that:- Section 10(15)(iv)(c) provision clearly bears the fact that its approval of the Central Government which is necessary – not with respect to the transaction per se but with regard to the rate of interest. Given this objective factor, and the fact that the Revenue does not appear to have notified any specific agency – i.e. the Department of Revenue/CBDT or any other Department by naming it (unlike Section 10B, Section 35(2)(a)(b) etc.), where either the specific power is granted or the concerned authority/agency itself is mentioned; the particular elusion to the Central Government cannot, in the opinion of the Court in any manner, undermine or render valueless the approval granted by one of the agencies or departments of the Government.
This view is more crucially important - given the fact that in the present case, the Department of Revenue did not express any contrary opinion in its approval dated 15.01.1999. In this context, the Court holds the Revenue’s arguments - that the amounts mentioned in the Department of Revenue’s approval do not tally with the approval granted by the Department of Economic Affairs utterly unsubstantial. What the Department of Economic Affairs has approved is the transaction and the rate of interest. That the assessee availed a lesser amount of credit or loan did not mean that there was no approval. Particularly, because it is not the Revenue’s case that the Department of Revenue approved an entirely different transaction.
Thus the impugned order of the ITAT cannot be sustained. It is accordingly set aside.
The assessee is held entitled to the benefit of claim of deduction of interest made by it, in its return. Decided in favour of the assessee.
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2017 (2) TMI 684
Addition u/s 68 - Held that:- The assessee has established that the loan in the question has been received through banking channel and further that proprietor of M/s Lotus Corporation was assessed to tax as was evident from his PAN Number. These evidences established that all three ingredients of Section 68 of the I.T. Act, 1961 are fulfilled thus, the addition in dispute is not sustainable in the eyes of law and needs to be deleted. - Decided in favour of assessee
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2017 (2) TMI 679
Claim for deduction under Section 80 IB(7) - lack of approval by Competent Authority - Held that:- Tribunal has observed that Assessee did not pursue matter diligently before Competent Authority and, therefore, cannot get any advantage if it has not been able to obtain approval from Competent Authority. In our view, approach of Tribunal in this regard is neither justified nor sustainable in law.
Under the statute, i.e., Section 80 IB(7)(c) deduction under Clause (a) or (b), as the case may be, would be applicable only if hotel is for the time being approved by Prescribed Authority. Authority has been prescribed under Rule 18 BBC. For attracting deduction under Clause (b) it is only one authority, namely, Director General in the Directorate of Tourism, Government of India but for attracting deduction under Clause (a), Competent Authority is Director General, Income Tax (Exemptions), who has to act upon with concurrence of Director General in the Directorate of Tourism, Government of India. The Director General in the Directorate of Tourism, Government of India, admittedly had granted approval and for that reason benefit of deduction under Clause (b) has been allowed by Revenue Authorities to Assessee. In order to attract Clause (a), no decision has been taken by Director General, Income Tax (Exemptions) though application has been filed by Assessee in this regard in 2002. Competent Authority for granting approval is an officer of Income Tax Department itself. Assessee has neither any administrative control nor otherwise can compel said authority to act within a particular time and in a particular manner. It is the authority of Revenue itself, who has to grant approval. For own lethargy or inaction on the part of an officer of Income Tax Department, a deduction which otherwise may be available to Assessee, cannot be denied since it is not a case where Assessee is disqualified being ineligible for such deduction but question of approval is pending before Competent Authority, who is a senior officer of Income Tax Department and has not been able to get enough time to take a decision on the application filed by Assessee on 28.08.2002. Observations of Tribunal that Assessee did not pursue matter are unwarranted for the reason that whatever could have been done by Assessee, it has done by submitting application and rest is the job of departmental authority, specified in Rule 18 BBC.
We, therefore, answer the substantial question of law involved in Assessee's appeals in its favour and hold that it was inappropriate and illegal on the part of Director General, Income Tax (Exemptions) not to take a decision on Assessee's application filed for seeking approval as required under Section 80 IB(7)(c). Tribunal in upholding denial of deduction to Assessee ignoring the fact that application seeking approval submitted by Assessee is still pending for consideration before Competent Authority, has committed manifest error.
Section 80A application - Held that:- In the present case, Assessee claimed deduction under a provision in Chapter VIA and in the return also it claimed deduction with reference to Section 80 IB(7) but sub-clause mentioned was (a) and not (b). Sub-clause (a) talks of a larger degree of deduction and if that was not admissible a smaller degree of deduction, under same section but in another sub-clause could have been allowed. Here it cannot be said that Assessee had not claimed any deduction whatsoever in return, therefore, is not entitled in view of Section 80 A. We have no hesitation in holding that in the present case Section 80 A has no application.
We are not impressed that while declining exemption under Section 80 IB(7)(a) for want of approval by Competent Authority, Tribunal has erred in law in confirming order of CIT(A) in allowing deduction under Section 80 IB(7)(b) of Act, 1961. Therefore, the questions formulated in appeals filed by Revenue are answered against it.
Concerned authority under Section 80 IB(7)(c)(iii) of Act, 1961 read with Rule 18 BBC of Rules, 1962 is directed to take a final decision on Assessee's application for grant of approval within a period of two months from the date of production of a certified copy of this order. In case approval is granted, Assessing Authority shall reconsider the matter in the light of aforesaid approval with regard to deduction under Section 80 IB(7)(a) and pass appropriate order in accordance with law.
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2017 (2) TMI 693
Non setting off carried forward business loss against the Capital Gain computed u/s 50 - sale of depreciable assets - Held that:- The co-ordinate bench of Pune Tribunal in ACIT vs. Demech Heavy Equipments Pvt. Ltd. [2017 (2) TMI 652 - ITAT JAIPUR] held that provision of section 50 makes explicitly clear that deemed fiction under sub-section 1 & 2 is restricted only to the mode of computation of capital gain contend in section 48 & 49 and legal fiction is to be deemed the capital gain as STCG and not to deemed asset as Short Term Capital Asset and accordingly the exemption u/s 54E cannot be denied on account of deemed fiction and the Tribunal held that assessee is entitled for setting off of brought forward loss from deemed STCG.
In view of the above legal position as discussion by co-ordinate bench in the decision cited above, we are of the view that the assessee is entitled for setting off of carried forward business loss against the capital gain computed u/s 50 of the Act. Thus, following the decision of co-ordinate bench, the appeal of the assessee is allowed. The AO is directed to allow the set off of carried forward business loss against the Capital Gain computed u/s 50 of the Act. - Decided in favour of assessee
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2017 (2) TMI 687
Penalty u/s 271(1)(c) - quantum addition deleted - Held that:- Penalty imposed u/s 271(1)(c) will not survive. Our view find support from the decision in K.C. Builders vs ACIT (2004 (1) TMI 7 - SUPREME Court) and the ratio laid down in CIT vs S.P. Viz, (1988 (3) TMI 8 - MADRAS High Court). Even otherwise, when the quantum addition is deleted, there remains no basis at all for levying the penalty for concealment or furnishing inaccurate particulars. The penalty cannot stand on its legs when addition on the basis of which the penalty was imposed remains no more in existence, thus, the appeal of the assessee is allowed and the ld. Assessing Officer is directed to delete the penalty. - Decided in favour of assessee
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2017 (2) TMI 683
Addition u/s 69 - difference between the cost of construction as estimated by the DVO and as declared by the assessee - Held that:- The reference made to the DVO by the authority concerned is clearly bad and illegal in this case as the books of account had been rejected. - Decided in favour of the assessee .
Addition towards extra profit by adopting the gross profit rate of 30.18% instead of 35.66% as disclosed by the assessee after rejecting the account books - Held that:- Full particulars and details were never supplied by the assessee. The assessing officer, therefore, made an addition. The CIT and Tribunal have not considered these aspects at all, who have ignored them and have, therefore, deleted the addition.
As referred by revenue case of Izhar International vs. Deputy Commissioner of Income-tax (2013 (7) TMI 810 - ALLAHABAD HIGH COURT) and Shri Venkteshwar Sugar Mills vs. Commissioner of Income-tax (Appeals) (2012 (1) TMI 81 - ALLAHABAD HIGH COURT) to substantiate his point that where the books of account were not properly maintained and the vouchers pertaining to the consumable items were not available for verification, then there is no option before the assessing officer except to make estimation on the basis of best judgment and also it would be open to him to make addition if amounts are so found against the assessee. - Decided in favour of the department.
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2017 (2) TMI 678
Penalty u/s 271(1)(c) - disclosures made by the offering incomes in the returns under Section 153A - Held that:- We do not find any application of Smt. Meera Devi (2012 (8) TMI 812 - DELHI HIGH COURT ) to the present case. The requirement of clause (2) in Explanation 5 under Section 271 (1) was not fulfilled in the facts of that case. The assessees did not make any disclosure or statement or surrender income during the course of search. They filed a return, which for the first time disclosed the hitherto concealed income. In those facts the Delhi High Court held that their explanations were not the kind which fell within the exception to Explanation 5.
So far as Prasanna Dugar (2015 (5) TMI 317 - CALCUTTA HIGH COURT ) is concerned, we find with dismay that the said judgment relates to application of Explanation 5A under Section 271 (1) while application of exception clause(2)in Explanation 5 is the case before us.
The contention of the Revenue sought to be raised by the questions suggested stand already answered by Brijendra Gupta (2015 (7) TMI 451 - CALCUTTA HIGH COURT ) as held he expression “unless” appears after Clauses (a) and (b) of Explanation which provides for imposition of penalty. Therefore, ‘unless’ has to apply to the provision for imposition of penalty. Therefore, the aforesaid expression “to be furnished” has to be interpreted as ‘‘required to be furnished”. Only in that case the Section will make a meaning otherwise the Section does not make any meaning. - Decided against revenue.
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2017 (2) TMI 677
Addition of recruitment expenses to the income of the assessee - Held that:- We find merit in the contention of the assessee, made before the authorities below that the recruitment expenses is the one time professional fees paid to the Recruitment Agency. Such expenditure is incurred in the normal course for running the business more professionally and efficiently. Therefore, the same does not fall within ambit of capital expenditure. Hence, there is no justification in disallowing 50% of expenditure incurred on payment of recruitment agency. The Ld. CIT (A) has accordingly, held that the expenditure is revenue in nature. Thus no infirmity in the impugned order. Moreover, it is not the case of the revenue that the assessee has claimed more than the actual expenses incurred. Hence, we uphold the findings of the Ld. CIT(A) and dismiss this ground of appeal of the revenue.
Expenditure on compliance of Sarbans Oxley Act, 2002 (SOX) allowance - Held that:- As per the assessee the affiliated/associate enterprises of the appellant/assessee were based in United States and therefore, the provisions of SOX were applicable to the assessee during the assessment year under consideration. The assessee accordingly appointed M/s Mahajan & Aibara, Chartered Accountants, Mumbai to carry out SOX compliance audit. In view of the submissions of the assessee made before the authorities below, the Ld. CIT(A) has rightly held that the payment relates to the professional fees paid to M/s. Mahajan & Aibara, who were appointed to conduct SOX compliance at the service provider site of its group companies. The Ld. DR did not produce any case law to substantiate its contention. Hence, we concur with the Ld. CIT (A) and hold that the expenditure on compliance of provisions of SOX does not fall within ambit of capital expenditure.
International Share Award Plan (ISAP) expenditure allowance - Held that:- The expenditure on ISAP awards incurred by the assessee is akin to salary paid to the employees for their services which cannot be treated as enduring benefit to the assessee. Moreover, the ISPA award is taxed in the hands of the director concerned. Therefore, the ISAP Award paid to Mr. Anupam Kashiv under the head ‘remuneration to directors’ cannot be treated as capital expenditure. In our opinion the Ld. CIT(A) has rightly held that ISPA award expenditure/expenses are routine expenses of revenue nature.
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2017 (2) TMI 697
Grant of registration 12AA denied - Held that:- Since the assessee was in process of acquiring land for achieving the aims and objects of the assessee trust, therefore, there is nothing wrong in acquiring land by the assessee. Preparation of the balance sheet for part period is no ground to reject application for registration under section 12AA of the Act because assessee field application for registration on 23.11.2015 and as such, it is difficult to prepare the balance sheet of the assessee ending 31.03.2016. The assessee also explained that M/s Vishav Manav Roohani Kendra have been allowed registration under section 12AA of the Act who have helped the assessee in its formation. Some advances have been given by different persons which have been used for purchase of land in favour of the assessee. Therefore, it is not a case that advance was given by the assessee trust and the land have been purchased in the name of third person. Moreover, these are not relevant criteria to be considered at the time of grant of registration because aims, objectives and activities of the assessee in reference to objects shall have to be considered. Application of income for charitable purposes can be examined at the stage of assessment when trust would file the return of income.
Considering the fact that there is no denying the fact that assessee's main aims and objects are charitable in nature i.e. running educational and medical institutions, we are of the view assessee would be entitled for registration under section 12AA of the Act. - Decided in favour of assessee.
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2017 (2) TMI 686
Revision u/s 263 - whether action has not been taken by the Ld. CIT suo moto but based on the proposal of the AO which is invalid in law and liable to be quashed? - Held that:- In the order passed u/s 263 CIT-A has stated that while reviewing the case my predecessor reviewing authority for the cases assessed by the ACIT observed certain matters which were listed down and thereafter in para 3 of its order, CIT states that the undersigned also took note of the matter and found the above observations correct in view of the facts of the case, and thereafter a show cause notice u/s 263 vide its office letter dated 31.03.2016 was issued fixing the case for hearing on 31.03.2016 itself. The above factual matrix makes it clear that even though the proposal has been initially received by the Pr. CIT for initiating action u/s 263 of the Act, the Pr. CIT has himself gone through the assessment records and thereafter has called for the report of the AO on two occasions and thereafter has issued the show-cause and passed the order u/s 263 of the Act. It is therefore, not a case where the Pr. CIT has simpliciter initiated the action u/s 263 on the basis of the proposal received from the AO rather he has applied his own independent mind and after going through the assessment records has come to an opinion that the order passed by the AO is erroneous so far as it is prejudicial to the interest of the revenue.
Denial of natural justice - Whether order has been passed in undue haste and the assessee has been denied an opportunity of being heard and the principal of natural justice has been violated? - Held that:- The assessment order in this case was passed on 24.03.2014 and thereafter, a show cause notice has been issued to the assessee on 31.3.2016 and thereafter the order u/s 263 has been passed on the same date, being the last date of the two years limitation period. The show cause notice was handed order to the assessee at 2 PM on 31.3.2016 and the assessee was asked to reply to the show cause by 4 PM.
These facts thus demonstrate that firstly no action was taken by the Pr. CIT for 2 years after passing of the assessment order, and thereafter at the fag-end of the limitation period which was expiring on 31.3.2016, the assessment records were pursued, the reports were called from the AO, a show cause notice was issued to the assessee on 31.3.2016 wherein the assessee was given a limited time window of mere two hours to respond to the show cause. Further, given the fact that the assessee managed to prepare and file its submissions by 5 PM and order u/s 263 was passed by the ld Pr. CIT and handed over to the assessee by 6 PM, we have our serious doubts as to whether the submission of the assessee filed at Kota have been considered at all by the Pr. CIT sitting at Jodhpur while issuing the order u/s 263 of the Act.
Thus it is a clear case where the assessee has been denied a rightful opportunity of fair and adequate hearing before the ld Pr. CIT. Allowing a time window of two hours to respond to the show-cause is as good as not allowing any opportunity at all to the assessee. The order has been passed in undue haste and there is nothing on record to suggest the urgency in the matter except the fact that the limitation period to exercise powers under section 263 was expiring on the said date. - Decided in favour of assessee
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2017 (2) TMI 692
Exemption u/s 80G(5) - Held that:- There is no dispute with regard to the fact that the assessee has been granted registration under section 12AA of the Act - Held that:- Once, the registration under section 12AA has been granted, the approval under section 80G should not be denied unless the case of the appellant falls under non-fulfillment of one or more of the conditions specified in section 80G(5). See Hemdha Medi Resources Pvt. Ltd. vs. CIT (Exemptions) [2016 (7) TMI 944 - ITAT JAIPUR] - Decided in favour of assessee
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2017 (2) TMI 688
Refusing registration u/s 12AA - objects of the trust are for the benefit of particular religious community and therefore provisions of section 13(1)(b) are attracted and it cannot be held as a charitable trust - Held that:- There is no dispute with regard to the fact that as per definition of ‘Charitable purpose’ under section 2(15) includes relief of the poor, education, medical relief (preservation of environment (including watersheds, forests and wildlife) and reservation of monuments or places or objects or artistic or historic interest) and the advancement of any other object of General Public Utility. As submitted that ‘Jainism’ is the philosophy and preservation of symbol of such philosophy would definitely come into the embrace of the word ‘Charitable’. During the course of hearing, the ld. D/R could not refute the fact that clauses 16 of the objects which provides that without any discrimination of the caste or creed to help economically poor, old, ailing, handicap, poor students and clause 17 provides for help for hospitalization of ailing persons, medicines, cold water, night shelter and Dharamshala etc. In our considered view, both these objects definitely fall under the category of Charitable purpose and cannot be construed as solely for the benefit of a particular religious community. Thus we hereby direct the ld. CIT (Exemption) to grant registration to the assessee trust. - Decided in favour of assessee.
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2017 (2) TMI 680
Addition on account of unsecured loan - Held that:- CIT(A) has rightly applied the test of identity, creditworthiness and genuineness to examine the unsecured loan transactions of the appellant and after examining the material on record, has given a clear finding that except for Anuradha Pareek, the said test is duly satisfied. Regarding the findings about Anuradha Pareek from whom the assessee has shown unsecured loan transaction of ₹ 9,00,000, the ld CIT(A) has given a finding after examining her return of income that her creditworthiness is not proved. Where any one of three limbs of the basis test as referred above are not satisfied, it cannot be said that the assessee has discharged the primary onus placed upon him. The assessee has placed the necessary documentation before the ld CIT(A) and after going through the same, where the ld CIT(A) has arrived at a conclusion, it cannot be said that adequate opportunity was not given to the assessee. Apparently, on review of the same set of documentation furnished by the assessee, the ld CIT(A) has come to a conclusion that the other loan transactions are duly explained and he has provided the necessary relief to the assessee. Nothing further has been brought to our notice to controvert the said findings of the ld CIT(A) to establish the creditworthiness of Anuradha Pareek. To that extent, the assessee has not discharged the primary onus. - Decided partly n favour of assessee.
Addition of difference in the contract receipts as declared in the ITR and as reflected in the form 26AS - Held that:- The AO has simply compared the contract receipts with Form 26AS. The ld CIT(A) has however gone through the details furnished by the assessee in detail in terms of reflection of sales on account of supply of material in addition to the contract receipts in its books of accounts, the fact that the TDS has also been made on the supplies in addition to contract receipts and the reconciliation thereof. The appellant has also submitted copies of bills and payment instructions issued by the principal which shows that tax has been deducted at source on sales/supply material as well. The appellant has submitted a reconciliation statement which shows that all the receipts in the 26-AS statement has been credited in the books of accounts. Hence no addition is called for - Decided in favour of assessee.
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2017 (2) TMI 689
Grant of registration u/s 12AA - Held that:- The registration u/s 12AA and the assessment are separate proceedings. At the stage of registration u/s 12AA only object and genuineness of the trust can be examined and not the activities as well as application of the funds of the assessee trust. This view has been taken by this Coordinate Bench vide its order dated 3-11- 2016 in the case of IMC of ITI Chhabra vs. CIT (Exemptions) [2017 (2) TMI 653 - ITAT JAIPUR]. In view of the above facts, circumstances of the case and the case laws cited (supra), the CIT (exemptions) is directed to grant registration to the assessee society. Thus the appeal of the assessee is allowed.
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2017 (2) TMI 681
TDS u/s 195 - non deduction of TDS u/s 195 on commission paid to two foreign parties - addition u/s 40(a)(ia) - Held that:- Undisputedly, the commission has been paid to two foreign parties outside India on account of sales orders procured by them for the assessee. The orders were obtained by them from outside India and no services have been rendered by them in India. Payments have also been made outside India. Under the provisions of section 5 and section 9 of the Act, the said commission payment on export sales cannot be held chargeable to tax in India. In view of that, the provisions of section 195 are not applicable and thus the provisions of section 40(a)(ia) have wrongly been applied by the AO. The addition thus made under section 40(a)(ia) is thus deleted and ground of appeal is allowed.
Addition on account of under-statement of interest income earned - Held that:- In the return of income, the appellant has claimed credit of the whole of such TDS of ₹ 43,619 which in terms of section 199 of the Act, impliedly means that the corresponding income has been offered to tax and where the same is not offered to tax, it should be brought to tax in that year. There cannot be a situation where the credit for TDS is made in one year and income is offered to tax in another year. In view of that, in the instant case, where the appellant has earned interest income on FDR placed with Corporation Bank and an amount of ₹ 2,79,949 has only been offered to tax, an addition to extent of ₹ 1,37,722 (Rs 4,17,671 less ₹ 2,79,949) has rightly been made by the AO. The appellant therefore gets relief of ₹ 2,79,949 which has already been offered to tax and addition to that extent is deleted. The ground of appeal is thus partly allowed.
Addition on account of disallowance of bad debts - Held that:- CIT(A) has given a finding that most of these payments claimed as bad debts have been shown in the books as excess payment made for purchase of consumable stores, freight outwards, staff advance etc. It is thus not in dispute that these excess payments are towards various expenditure pertaining to the business of the appellant and thus the test of business expediency is satisfied. Further, the same have been written off in the books of accounts during the year under consideration. In our view, such written off of sundry business advances are in the course of carrying on the business of the assessee and are allowable in the hands of the assessee. The ground of appeal is thus allowed.
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2017 (2) TMI 696
Disallowance u/s 36(1)(iii) - Held that:- We find that this issue stands settled in view of the decision of the Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd.(2015 (11) TMI 342 - PUNJAB & HARYANA HIGH COURT) wherein at para 16 of the order it was categorically held that where the funds/reserves were sufficient to cover interest free advances, the presumption that would arise was that the investments were made out of interest free funds generated or available with the company.
Thus we find merit in the contention of the assessee that in view of the sufficient interest free own funds available with the asessee, the investments in the present case are to be presumed to have been made out of the same. Further once it has been held that the investments have been made by utilizing the own interest free funds of the assessee, it automatically means that for the purpose of making the investments, no interest expenditure has been incurred by the assessee. When no interest expenditure have been incurred by the assessee, issue of allowance of the same under section 36(1)(iii) of the Act does not arise at all, since section 36(1)(iii) of the Act deals with the circumstances or the conditions subject to which interest expenditure are to be allowed.
Since in the present case, the investments have been presumed to made out of own funds, clearly no interest expenditure has been incurred for making the same and, therefore, no question of allowability/disallowability of the same arises under section 36(1)(iii) of the Act - Decided in favour of assessee
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2017 (2) TMI 685
Addition u/s 153A - Held that:- The issues with regard to deduction under section 80-IA of the Act and arm's length price of international transaction between the assessee and its associated enterprise could not and ought not to have been examined by the Assessing Officer in the assessment proceedings, under section 153A of the Act as the said issues stood concluded with the assessee's return of income on these issues being accepted in the assessment completed under section 143(3) of the Act prior to the date of search. In respect of assessments completed prior to the date of search that have not abated, the scope of proceedings under section 153A of the Act has to be confined only to material found in the course of search. Since no material whatsoever was found in the course of search, the additions made by the Assessing Officer in the assessment completed under section 153A of the Act for the assessment year 2003-04, 2004-05 and 2005-06 could not have been subject-matter of proceedings under section 153A of the Act for those years.
As for claim of the assessee in the assessment under section 153A of the Act for the aforesaid assessment years that sales Tax remission subsidy which was originally offered to Tax and brought to Tax in the original assessment under section 143(3) of the Act, is not Taxable, we are of the view that even these claims could not be made by the assessee. These claims were independent claims and had no nexus or interconnection with the determination of total income under section 153A of the Act based on incriminating material found in the course of search. Therefore, these claims could not have been and ought not to have been the subject- matter of determination of total income under section 153A of the Act for the aforesaid assessment years. In view of the above conclusion, the other grounds of appeal raised by the assessee in its appeal and the grounds raised by the Revenue in its appeal for these assessment years do not require any consideration.
Claim of deduction of 80-IA - Held that:- there are exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of section 80-IA(8) of the Act and Therefore, the proviso to section 80-IA(8) of the Act would apply and the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. In our view, interest of justice would be met by setting aside the order of the Assessing Officer on this issue and directing the Assessing Officer to determine the profits and gains of the undertaking generating power on a reasonable basis after affording the assessee opportunity of being heard. The discretion given to the Assessing Officer under the proviso to section 80-IA(8) is not a subjective satisfaction but an objective one and Therefore, the reasonableness of the action of the Assessing Officer should be justifiable. With these observations, we allow the relevant ground of appeal of the Revenue for statistical purpose.
Sales Tax remission - whether the Dispute Resolution Panel could have directed AO to entertain the claim of the assessee that sales Tax remission received by it is capital receipt not chargeable to Tax when the said claim was not made by filing a revised return of income before the Assessing Officer but only by filing a computation of income before the Assessing Officer? - Held that:- Assessee can file revised computation in the course of ongoing assessment proceedings under the Act, without making recourse to revised return, despite the fact that time limit for revising return under section 139(5) had expired. In the light of the aforesaid decisions, we are of the view that the Dispute Resolution Panel was right in accepting the revised claim that sales Tax remission received is capital receipt and not chargeable to Tax.
Determining the true character of the subsidy one has to ascertain the purpose of the scheme under which the subsidy is received. If the purpose of the scheme is to finance setting up of a new unit or expansion of an existing unit, then the subsidy shall constitute a capital receipt notwithstanding the fact that the subsidy was in the form of sales Tax exemption. Further, the point of time at which the subsidy is received is also immaterial. The features of the scheme applicable to the assessee's case (as discussed above), show that the scheme was brought about to assist entrepreneurs in setting up new units/expanding existing units in backward areas. Thus, the subsidy received in the form of sales Tax exemption clearly constitutes a capital receipt not chargeable to Tax.
Assessing Officer is bound by the directions of the Dispute Resolution Panel and the action of the Assessing Officer in reducing the value of sales Tax remission from the block of fixed assets was in violation of the mandate laid down in section 144C(10) of the Act. In fact ground No. 5 raised by the Revenue is itself an admission by the Assessing Officer that there was no direction by the Dispute Resolution Panel to reduce the value of sales Tax remission from the block of fixed assets and allow lesser depreciation to the extent of sales Tax remission held to be capital receipt not chargeable to Tax. Thus ground No. 4 raised by the assessee is allowed.
Addition on excess depreciation claim - Held that:- The scheme applicable to the assessee's case nowhere specifies that the subsidy was to be utilised for acquisition of fixed assets. The scheme was brought about to encourage and induce the entrepreneurs to move to backward areas and establish industries there so that the region may develop in promoting the welfare of the people living in that region. Thus, in the absence of any specification (in the scheme) as to the utilisation of the subsidy for the purpose of acquiring depreciable fixed assets, the said subsidy cannot be reduced from the actual cost of the fixed assets under section 43(1) read with Explanation 10. Thus the amount disallowed on ground of excess depreciation claim, should be allowed.
TPA - LIBOR rate application - Held that:- Instead of the base rate of 8 per cent. (based on lending rates of banks in India, for commercial borrowing), it would be appropriate to apply LIBOR rate (and not domestic lending rate). We direct accordingly.
Whether any percentage has to be added over and above the LIBOR rate on account of credit rating of the associated enterprise? - Held that:- Following the decision of Kohinoor Foods Ltd. [2015 (7) TMI 147 - ITAT DELHI] action of the Transfer Pricing Officer in using data issued by Standard and Poor is clearly bad in law. Consequently the addition of interest rate on account of borrower risk in addition to the LIBOR rate was not justified. We are also of the view that the safe harbour rules referred to in the order of the Dispute Resolution Panel is not applicable, to the disputes before the Dispute Resolution Panel and Therefore, cannot be applied in the present case. We hold accordingly.
Corporate guarantee provided - obtaining the loan by the associated enterprise - Held that:- We agree with the plea of the learned authorised representative that the arm's length guarantee commission adopted at 2 per cent. by the Dispute Resolution Panel cannot be sustained.Even the assessee has paid 0.40 per cent. as guarantee commission to a bank for similar services. The Safe Harbour Rules prescribing 2 per cent. as the guarantee commission is not relevant as those rules are relevant only to an eligible assessee who opts to be governed by those rules. Accordingly, following the decisions of the Tribunal referred to above, we direct the Assessing Officer/TPO to adopt the 0.5 per cent. as guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the associated enterprise.
Short credit for Tax deducted at source - Held that:- Assessing Officer is directed to give effect to the Dispute Resolution Panel's direction by making verification of TDS certificate that may be filed in physical form as well as from details from 26AS, and give credit for Taxes deducted at source
Sale proceeds of CER units - carbon credits received is capital receipt not chargeable to Tax or revenue receipt chargeable to Tax - Held that:- Receipts from sale of carbon credits constitute capital receipts which are not chargeable to Tax at all.
Computation of disallowance under section 14A - Held that:- We are of the view the submission made with regard to availability of own funds in the light of overall funds position without insisting on direct nexus between investments and own funds would be the right approach as held by the Hon’ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT ]. If the overall funds position i.e., if own funds are sufficient to cover the investments which are subject to consideration under section 14A of the Act, then a presumption has to be drawn that the own funds were used for making investments. We are of the view that it would be just and proper to restore the disallowance under section 14A of the Act to the Assessing Officer for a fresh consideration
Amount receivable on the completion of a contract including any money retained or undisbursed - whether had accrued to the assessee and was thus its income for the year - Held that:- As on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability accrued or arose and, accordingly, it could not be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of bills. The assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract. Therefore, it is correct in holding that the retention money in respect of the jobs completed by the assessee during the relevant previous year should not be taken into account in computing the profits of the assessee for the assessment year in question.
Forfeiture of share warrants monies - Held that:- The price of the shares of the assessee had steeply fallen in the period of holding of the share warrants and was approximately ₹ 35.34, ₹ 43.24 and ₹ 43.26 respectively at the time of exercise of the option of conversion. The assessee being a listed company, the price of the shares could be substantiated from listings in the recognised exchange. Based on the above, any prudent person would purchase the shares of the assessee from the stock exchange rather than the conversion of the share warrants by payment of a substantially higher rate (for example, in case of promoter companies market price was ₹ 35.34 as compared to balance price of ₹ 68.40 which was to be paid by them upon conversion). In view of the same, the promoters and the non-promoters did not opt for conversion of share warrants. The prudence of the same is also evident from the fact that even the non-promoters to the share warrants did not opt for the conversion as is also confirmed by the learned Assessing Officer in the impugned order. In the light of the discussion as above, we do not find any merits in the ground raised by the Revenue and the same is dismissed.
Additional depreciation not claimed in the earlier assessment year (2010- 11) be allowed in the current assessment year 2011-12.
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2017 (2) TMI 698
Registration under section 12AA denied - from the objects of the society, it has been created for the benefit of persons belonging to the Jain Samaj only - Held that:- As per definition of ‘Charitable purpose’ under section 2(15) includes relief of the poor, education, medical relief (preservation of environment (including watersheds, forests and wildlife) and reservation of monuments or places or objects or artistic or historic interest) and the advancement of any other object of General Public Utility. During the course of hearing, the ld. Counsel for the assessee submitted that ‘Jainism’ is the philosophy and preservation of symbol of such philosophy would definitely come into the embrace of the word ‘Charitable’.
During the course of hearing, the ld. D/R could not refute the fact that clauses 16 of the objects which provides that without any discrimination of the caste or creed to help economically poor, old, ailing, handicap, poor students and clause 17 provides for help for hospitalization of ailing persons, medicines, cold water, night shelter and Dharamshala etc. In our considered view, both these objects definitely fall under the category of Charitable purpose and cannot be construed as solely for the benefit of a particular religious community. Keeping these objects in view and respectfully following the judgment in the case of CIT vs. Dawoodi Bohara Jamat, (2014 (3) TMI 652 - SUPREME COURT), the order of ld. CIT (Exemption) is set aside and we hereby direct the ld. CIT (Exemption) to grant registration to the assessee trust. - Decided in favour of assessee.
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Customs
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2017 (2) TMI 662
Smuggled - cut betel nuts were alleged to be smuggled from Nepal - whether the said goods are liable to confiscation and whether the respondents are liable to penalty under the Customs Act, 1962? - Held that: - I do not find any material of evidence that the impugned goods are of smuggled nature. There is no dispute that the goods in question are non-notified items. It is well settled that the non-notified goods cannot be seized merely on assumption or presumption - appeal dismissed - decided against Revenue.
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2017 (2) TMI 664
Classification of imported goods - classified as 'lace' falling under CTH 58042990 or as "Fabric" - Held that: - the test report describes the imported goods as "Wrap Knitted Fabric”. The HSN explanatory note also states that ‘lace’ is a decorative fabric, which is in the form of “wrap Knitted Fabric”. There is no dispute that the imported goods are for use as a decoration on readymade Garments. It is also on record that the importer has been importing the very same goods since 2009 and Revenue has not raised any objection to the classification as well as extending the benefit of notification - denial of exemption benefit not justified - appeal dismissed - decided against Revenue.
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2017 (2) TMI 663
Classification - valuation - brass scrap - brass scrap arisen during the course of manufacture of artificial jewellery - whether classified under 74072110 as brass ingots, or under 74040022 as brass scrap? - Held that: - Looking to the shapes in which the goods are being cleared, the classification as a brass bar is more appropriate than the classification as brass scrap. There is no difference in rate of duty between the two classifications - Since two views are easily possible in the classification of a product, mis-declaration with intend to evade payment of duty cannot be alleged.
Valuation - Held that: - Revenue is not in possession of any evidence to conclude that the transaction value is to be disregarded - By considering the goods as other than brass scrap, Revenue has gone ahead with enhancement of the value of the goods. We find that such a step adopted by Revenue does not have the sanction of law. Valuation of imported goods is required to be done on the basis of normal transaction value. To disregard transaction value, sufficient reasons should be available - enhancement of value ordered by Revenue is without justification.
Appeal allowed - decided in favor of appellant.
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Corporate Laws
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2017 (2) TMI 699
Prayer to follow financial year from 1st January to 31st December as per the First Proviso to Sec.2(41) of the Companies Act, 2013 - consolidation of accounts - Held that:- As in the Board Resolution passed by the applicant company on 11 November, 2016, it has been decided to seek permission from the NCLT to follow the calendar year starting from 1st January to 31st December as financial year, to which the Board of Directors of M/s. Bill Forge Private Limited does not have any objection. A copy of the said Resolution is placed on record. Besides this, the latest Balance Sheet of the Holding Company incorporated in India with whom the Applicant company is aligning its financial year, is also placed on record along with the Board resolution dated 11th November, 2016 passed by the Holding Company. The proof of despatch of a set of application to the Registrar of Companies, Coimbatore, Tamil Nadu, is also placed on file. The set of application seems to have been forwared on 2nd of December 2016 to the ROC concerned.
Thus we are satisfied that the applicant company [which is a subsidiary of M/s. Bill Forge Private Limited (Holding Company), which is further a subsidiary of M/s. Mahindra CIE Automotive Limited (the Holding Company of M/s. Bill Forge Private Limited) and which is a subsidiary of M/s. CIE Automotive SA (Ultimate Holding Company), a Company incorporated outside India], essentially requires to follow financial year from January 1st ending December 31st as its financial year for consolidation of its accounts outside India. Therefore, in exercise of the powers conferred under First Proviso of Section 2(41) of the Companies Act, 2013, we allow the application of the Company.
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2017 (2) TMI 700
Retain of financial year commencing from January 1st ending December 31st every year to align the financial year with its Holding Group of Companies that have been incorporated outside India - Held that:- The holding Company is following the financial year commencing from January 1st ending December 31st every year to maintain uniformity for the purpose of consolidation of its accounts, all over the world. This is being followed in order to maintain symmetry in financial reporting of all affiliates in the Habasit Group and thereby enabling consolidation, reviewing and controlling the financial results of various entities across the globe by the Holding Companies. Therefore, in order to serve the said purpose, the Applicant Company is essentially required to retain the financial year commencing from January 1st ending December 31st every year, so as to align the financial year with its Holding Group of Companies that have been incorporated outside India.
The Applicant company has placed on record true copy of the Resolution adopted on December 2015 wherein its Board of Directors has approved for filing application/petition before the Company Law Board for retention of the existing financial year of the Company from January 1st ending December 31st every year, by giving the authority to Mr. Ashok Malhotra, Managing Director, to sign and execute the application. Besides this, the current Balance Sheet placed on record goes to show that the Company has been following the financial year starting January 1st ending December 31st every year for consolidating its accounts with the Holding Company.
Thus this Bench is satisfied that the prayer of the Applicant Company is genuine and in exercise of the powers conferred under First Proviso to Sec.2(41) of the Companies Act, 2013, do hereby allow the Applicant company to retain and follow the financial year starting January 1st ending December 31st every year, for consolidation of its accounts with its holding company registered outside India.
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2017 (2) TMI 657
Appeal from orders of Tribunal - maintainability of petition - Held that:- If the Tribunal has fixed the Company Petition for hearing both on the question of maintainability and if so required on merit, we find no reason to interfere with such order passed by Tribunal. However, we are of the opinion that during the final hearing the question of maintainability should be decided first and if it is answered in negative, against the appellants, the question of waiver of the petition be decided if any strong ground has been made out to claim exception under proviso to sub section (1) of Section 244. In case, aforesaid issues are decided in favour of the appellants, then the Tribunal can decide the case on merit.
For the reasons recorded above, no relief can be granted to the appellants.
The case is remitted to Tribunal to dispose of the Company Petition on merit after hearing the petition uninfluenced by any of the observation made in the impugned orders dated 22nd December 2016, 18th January 2017 and 31st January 2017. It will be open to the appellants to file a petition for amendment and may argue on the question of removal of 11th respondent, if he is removed by the decision of the EGM during the pendency of the Company Petition. In case the question of maintainability and/or waiver on merit is decided in favour of the appellants, it is always open to the Tribunal to pass appropriate order restoring the original position of Respondent No. 11, was at the time of filing of the Company Petition.
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FEMA
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2017 (2) TMI 656
Complainant preferred a complaint under Sections 8(1), 9(1)(c) and 9(1)(a) of the Foreign Exchange Regulation Act, 1973, punishable under Section 56(1)(i) of Foreign Exchange Regulation Act, 1973 - Held that:- On perusal of the entire materials available on record, it is clearly revealed that so many incriminating materials available against the petitioner/A3. It is also revealed that the petitioner/A3 was informed by A2 about the business transaction of the A1 Company then and there.
Further, the petitioner/A3 has acted as Chairperson for the Board of Directors of the Company meeting and passed resolution in the Board Meeting and A1 Company entered into contract with some other companies and the subsequent transactions were also informed by A2 to the petitioner/A3. Hence, it is very reasonable to presume that the petitioner/A3 was knowing about the in-charge and responsibility for the conduct of the business. Hence, the argument of the learned Senior counsel appearing for the petitioner/A3 that the petitioner is not in-charge of the company and she does not know about the contravention took place in the day today administration of the company is not acceptable, at the present stage, since so many materials were produced on the side of the Enforcement authorities.
Further, the learned Senior counsel appearing for the petitioner has submitted that at the time of interrogation by the respondent authorities, the petitioner has denied all the questions and she has specifically stated that she had no knowledge about the business transactions of the company and the day today affairs of the Company. In this regard, this court is of the considered view that the petitioner/A3 denied all the questions raised by the enforcement officials and replied that she did not know about the company day today affairs and hence, this court has to look into the materials and evidences produced on the side of the Enforcement authorities.
On verification of the materials available on record, it is presumed that the petitioner/A3 is responsible and liable for the contraventions done by the A1 Company and there are sufficient records and evidences produced on the side of the enforcement authority. Hence, this court is of the considered view that there are prima facie materials available to frame charges against the petitioner/A3 under Sections 8(1), 9(1)(a) and 9(1)(c) of the Foreign Exchange Regulation Act, 1973 and the trial Judge has rightly come to the conclusion that prima facie materials are available against the petitioner and dismissed the discharge petition filed by the petitioner/A3. In view of the above circumstances, this court finds no infirmity or illegality in the order of the trial court, which do not call for any interference by this court.
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Service Tax
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2017 (2) TMI 674
Invocation of extended period of imitation - section 73 (1) of the FA, 1994 - department took a view that even prior to the amendment, the assessee was liable to pay tax - Held that: - the assessee through their letter dated 5.9.2005 had submitted month-wise details of all payment received by them against HVAC works for the period from 1.7.2003 to 15.6.2005. Once the details of the value of taxable services were available to the department on 5.9.2005, the tribunal came to the conclusion that there was no reason to invoke the extended period under the proviso to section 73 (1) of the Finance Act, 1994 - extension of limitation and application of the proviso to section 73 (1) of the Finance Act, 1994 set aside - appeal dismissed - decided in favor of assessee.
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2017 (2) TMI 676
Imposition of penalties u/s 77 and 78 - sponsorship services - there was delays in depositing the taxes which were subsequently deposited along with deposition of interest - Held that: - as per sub section 73 of Section 3 the FA, 1994 in case of non-levy or short levy of service tax, if the same is paid either by the appellants themselves or as ascertained by the central excise officers before the service and notice to him, no notice is required to be served - CBEC vide its letter no. 137/167/2006-CX-4 dated 03.10.2007 has clarified that if tax and interest is paid before SCN, all proceedings (which includes proceedings under Section 78 & 77 of the Act) under the Act are concluded - penalties set aside - appeal allowed - decided in favor of appellant.
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2017 (2) TMI 673
Power of Commissioner (Appeals) to remand the case - whether the Commissioner (Appeals) has no power of remand as the said power was taken away by the amending Section 35A of the Central Excise Act, 1944, w.e.f. 11.05.2001? - Held that: - Section 85(4) of the Finance Act, 1994 allows/authorizes Commissioner (Appeals) to pass such order he thinks fit and therefore it cannot be argued that as per Section 85(4), the Commissioner (Appeals) cannot remand the case, if he thinks fit to do so - In Commissioner of Central Excise, Panchkula vs. Goel International Pvt. Ltd. [2015 (12) TMI 329 - CESTAT NEW DELHI], Tribunal has held that language used in Section 85(4) has wider connotation and power to pass such order as he thinks fit includes the power of remand - appeal rejected - decided against Revenue.
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2017 (2) TMI 675
Imposition of penalty u/s 78 - Business Auxiliary Services - commission paid to foreign based agents - appellant has been under the bonafide belief that under N/N. 41/2007-ST dated 06.10.2007 maintained by N/N. 17/2008-ST dated 01.04.2008 services provided by commission agent engaged by the Indian exporter to cause sale of the goods exported by them were exempted - Held that: - The department has not provided any evidence to prove any willful suppression and misstatement with an ‘intention to evade' payment of service tax on the part of the appellant. The facts on record indicate that there has been a bonafide mistake on the part of the appellant to treat the taxable services as exempted services - penalty u/s 78 cannot be imposed - appeal allowed - decided in favor of appellant.
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Central Excise
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2017 (2) TMI 669
Benefit of N/N. 6/2002-CE dated 1.3.2002 - paneer darbari - basmati rice and dal tadka - basmati rice and rajma masala - classified under heading 2108.99 of CETA, 1985 or not? - denial of exemption on the ground that products are not similar to the products viz., Mithais, Misthans, Namkeens, Bhujia, Mixture, etc., for which the exemption was made available under the said Notification - Held that: - Since paneer darbari is a product of different materials and predominantly of vegetables (58.69%), the same is liable to be classifiable under CSH 2001.10 of Central Excise Tariff Act, 1985, in terms of Rule 2(b) read with Rule 3(b) of the Interpretation Rules of the Tariff - paneer darbari will be eligible for the benefit of exemption at Sl. No.9 of the N/N. 6/2002-CE dated 1.3.2002.
Basmati rice and dal tadka - Basmati rice and rajma masala - Held that: - These products are cleared in the form of combo packs which consists of two separately packed products, which are in turn packed and sold in a single packet, for which a single MRP is affixed - In terms of Rule 3(b) of the Interpretative Rules, classification of set has to be made in accordance with that attribute which, the components taken together, can be regarded as conferring the set as a whole its essential character. We note that basmati rice is packed either with dal tadka or rajma masala with an intention of consuming the two together as a meal. Since the essential character of the meal arises out of basmati rice (the subji is eaten along with the rice), we are of the view that the combo pack has to be classified under Heading 21.08 (2106 90 99 for subsequent period) - such products will not be eligible for the benefit of exemption under N/N. 6/2002 dated 1.3.2002 (Sl. No.14) - these combo packs will be liable to duty during the relevant period.
The goods should be assessed to duty under Section 4A on the basis of the MRP of the combo pack.
Decided partly in favor of assessee - matter on remand for the purpose of quantification of demand - penalty set aside.
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2017 (2) TMI 665
Manufacture or second sale - The appellant-assessee was engaged in procuring various parts of computers such as CPU, monitor, hard-disk drive, mouse, etc., from different suppliers. These parts were being assembled by the assessee by interconnecting the various components resulting in the emergence of computer systems - whether the process amounts to manufacture and is liable to duty or is only a second sale transaction and is not liable to excise duty?
Held that: - all units of an ADP are designed to be interconnected to enable the ADP system to be formed to carry out its function. It cannot be said that the assembly of various units into a working system has brought about any new goods which have a distinct name, character or use different from that of the units of computer system.
The Revenue has already clarified vide their Circular No.497/63/99-CX dt. 30/11/1999 that the activity of creating a computer network from duty paid computers and peripherals would not amount to manufacture, since the network does not bring into existence goods with a distinct new name, character and use.
Appeal allowed - decided in favor of assessee.
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2017 (2) TMI 668
Natural justice - Whether the learned Tribunal has erred in deciding the Appeal of the Appellant without Notice of final hearing of the same? - maintainability of appeal - Held that: - The maintainability of an appeal under Section 35L depends upon the order impugned and not upon the grounds on which it is challenged or upon the infirmities that resulted in the order being passed - The alleged failure to furnish reasons even if established is only one of the aspects of the impugned order. It is not the order itself. It is an order that is challenged in appeal. The purpose of an appeal is to have set-aside the operative part of the order. There is a distinction between an order and the grounds on which it is based. The challenge to the grounds on which it is passed or the basis on which it is founded is to that end. Section 35L is not limited to certain aspects of an order referred to in Clause (b) of sub Section (1) therein. It pertains to the order itself and all aspects thereof.
Appeal dismissed on the ground of non-maintainability.
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2017 (2) TMI 670
Benefit of N/N. 8/97-CE - appellants have made substantial purchases of raw materials from the domestic market in addition to imports - whether exemption can be denied merely because the appellants had not made proper records that is procedural lapse? - Held that: - When there was no evidence produced, the impugned order holds that the appellant was not entitled to the exemption - the appellants deserve to be given sufficient opportunity for submission of evidences and documents, if any, to support their submissions.
The Central Excise Officers had been in the knowledge that the appellants had been availing concessional rate of duty for clearances also needs to be examined - The issue of invocation of extended period of limitation therefore needs examination.
Appeal allowed by way of remand.
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2017 (2) TMI 667
MODVAT credit - denial on the ground that the capital goods is used for cotton carded, silver which falls under chapter 52.02 and is not excisable therefore as per annexure Rule 57Q capital goods used in the manufacture of such finished good is not eligible for the modvat credit - Held that: - similar issue decided in the case of Thuran Spining Mills Vs. Commissioner [1999 (5) TMI 309 - CEGAT, MADRAS] where the Tribunal held that the Cenvat credit on capital goods used for producing silver cotton carded falling under chapter 52.02 is admissible under Rule 57Q - the appellant is entitle for the credit on the capital goods used for manufacture of intermediate goods i.e. silver, cotton carded which was further used in the manufacture of dutiable cotton yarn - appeal allowed - decided in favor of appellant.
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2017 (2) TMI 666
Whether duty payable under proviso 7 to Rule 9 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 is limited to remainder of the period for which the declaration is not filed or in-contravention to the declaration, the manufacturing activities continued?
Held that: - the 7th proviso restricts the liability to pay the duty for the remaining months meaning thereby the period during which the declaration is either not filed or the declaration is contravened. The availability of the packing machines may be assessed either on the basis of the declaration made in the month when the duty was last paid or the available machines in the premises by verification - Therefore, so far as the availability of the packing machines are concerned, the word whichever is higher would apply but the fact remains that the liability to pay duty is for the remaining months meaning thereby the months during which the duties are not paid as per the declaration filed which can be considered as contravention to the declaration or the duties not paid on account of no declaration having been filed at all.
It is not possible to accept the contention of the learned Counsel for the Revenue that the 7th proviso would operate independently for the whole year by excluding the word ‘for the remaining of the financial year’ nor it is possible to accept the contention that the 7th proviso is not relatable to 6th proviso for the purpose of liability to pay the duty irrespective of the fact that no declaration is filed or that the declaration is contravened while undertaking the manufacturing activity.
Appeal allowed - decided in favor of assessee.
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2017 (2) TMI 671
Confiscation - Cenvat credit - Notification No. 214/86 - Penalty - Held that: - We find that the cenvat credit has not been rejected on the ground that the said inputs have not been used for the manufacture of said products. It is in fact the entire notice is based on the assertion that certain goods have been supplied by Mahindra & Mahindra to the appellant for manufacturing of sub-assemblies and duty on said sub-assemblies have been demanded under these proceedings..
It is seen that the goods were chargeable to Central Excise duty and there was no exemption to the goods. The appellants were required to pay duty on these goods however the appellants were engaged in manufacture and clearance of goods without payment of duty in these circumstances confiscation of the goods his fully confiscated. The goods were seized and released on provisional basis and therefore it cannot be said that the goods were not available for confiscation.
Appeal partly allowed.
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2017 (2) TMI 672
Manufacture - production of goods like tower parts, structures, GT Line, V cross arms, HT/LT line materials - Whether subjecting the MS Angles, Channels, Plates etc. to the process of to cutting to the required size, drilling holes, riveting, welding etc. to fabricate "HT Lines", "11KV 'V' Cross Arms", "11KV top Clamps", "DC-8' Centre", "U Clamps", "Four Pin Arms" etc. which are used as parts of Transmission Tower, amounts to manufacture and would attract central excise duty? - appellant contested that they procured duty paid MS Channels, MS Plates and MS Angles and the processes undertaken by them does not amount to manufacture.
Held that: - the appellant is undertaking the process of cutting of channels, plates and angles and subjecting them to hole with the purpose of putting the same to use.
The Tribunal's order in appellant's own case EXECUTIVE ENGINEER, FABRICATION WORKSHOP MPSEB Versus COMMR. OF C. EX., BHOPAL [2004 (7) TMI 228 - CESTAT, NEW DELHI] is on the same issue as to whether the activity of the appellant of producing transformed structures from MS Rods, MS Channels etc. amounts to manufacture. The Tribunal held that there is no activity of "manufacture" attracting excise liability.
The process of fabrication of columns, purlines etc. by cutting, drilling, punching and welding does not amount to manufacture - the appellants are held not liable for Central Excise duty - appeal allowed - decided in favor of appellant.
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CST, VAT & Sales Tax
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2017 (2) TMI 661
Sub-contract - rejection of assessement - Circular instructions dated 23.12.2014 - Held that: - the assessment order for which the prayer is made at paragraph-16 (i) would essentially depend on whether prayer at paragraphs-16(ii) and 16(iii) are granted or not. Therefore, until the aforesaid questions of validity of the Circular and the taxable liability at the hands of Sub-Contractor, when whole of the contract is already taxed at the hands of Principal Contractor, is decided, the question of assessment cannot be treated as final - the impugned order passed by the learned Single Judge is set aside. The respective main writ petitions shall stand restored to the file of the learned Single Judge.
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2017 (2) TMI 659
Relevant date for deferred payment of tax - Whether on the facts and circumstances of the case, the Gujarat Value Added Tax Tribunal was justified in holding that the date for payment of deferred payment of tax is 01st April of each year? - Held that: - while passing the impugned judgment and order, the learned tribunal has missed considering the Certificate in Form B issued by the Sales Tax Officer. Neither the learned tribunal has considered the aforesaid document /Certificate in Form B nor the Incentive Scheme applicable at the relevant time - the matter is required to be remanded to the learned tribunal to consider the Appeal afresh in accordance with law - appeal allowed by way of remand.
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2017 (2) TMI 658
Natural justice - whether the assessment order passed prior to the expiry of time given for filing objections, is valid? - Held that: - the assessment order dated 31.10.2016 was passed prior to the time granted to the petitioner, to prefer objections - The necessary consequences of the same would be that the recovery proceedings will become inefficacious and therefore, no further steps can be taken in pursuance of the recovery notice - impugned order quashed - petition allowed by way of remand.
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2017 (2) TMI 660
Alternative remedy of appeal available or not? - Revenue is of the view that even if the appeal is preferred by the appellants before the appropriate authority, the aspects as to what is the interpretation of the entry and whether it was a composite sale including charger needs to be examined - Held that: - when the alternative forum is to be resorted to, all questions of law available to both the side should be kept open. Hence, the appellant is permitted to withdraw the appeals with a view to approach before the appellate authority - appeal disposed off.
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Indian Laws
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2017 (2) TMI 655
Regularization of loan account - All the accounts became NPA and therefore, the petitioner became a defaulter - permitting the petitioner to remit the amount which exceeded the sanctioned limit of the credit facilities - Held that:- The amount outstanding is substantial and there is no valid proposal agreed upon by the parties to settle the liability. Even according to the petitioner, there is no proposal to discharge the liability within a short time frame. Therefore, there is no reason why the Bank should be asked to desist from taking any further action under the SARFAESI Act. If interference is made by this Court in this matter, it would definitely hinder the right of the Bank to proceed further. In the interim order dated 9.4.2015, this Court had further observed that if the petitioner commits default in respect of the payments, it will be open for the respondent Bank to bring up the matter for further orders. It is submitted that after paying the amount as directed in the interim order dated 9.4.2015, no steps had been taken by the petitioner to regularise the term loan account by approaching the Bank. This fact has been disputed by the learned counsel for the petitioner, who submits that after paying the aforesaid amount, the petitioner had approached the Bank for regularising the account.
Be that as it may, we do not think that this is an instance where this Court should interfere and interfere with the contractual obligations/rights of the parties. Once the account had become NPA, unless there are special circumstances involved in the matter, it may not be possible for this Court to interfere in such contractual obligations and direct regularisation.
We do not think that the petitioner has ventilated any grievance which requires interference by this Court, especially, in an instance where huge liability is outstanding.
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2017 (2) TMI 654
Extension of time for repayment of dues - Held that:- Having regard to the totality of the facts and circumstances, though we find that the judgment of the learned Single Judge need not be interfered with, we deem it proper, looking to the amount to be repaid by the borrower, to extend the time fixed by the learned Single Judge for repaying the dues upto 31.10.2016. Accordingly, we pass the following:
(i) The borrower shall pay to the Bank the entire balance amount covered by Ext.P3 letter dated 7.4.2015 with interest @ 12% per annum from 30.6.2015 and also comply with all others terms as stated in the said letter, on or before 15.11.2016. Interest shall be paid for the payments made belatedly, taking into account the delay in their remittance from the respective dates as shown in Ext.P3. However, during the aforementioned period, the Bank will have no obligation to release any of the securities, unless otherwise decided by the Bank.
(ii) The sale of the scheduled property shall be fixed only after 15.11.2016. However, it is open for the Bank to take all other steps to notify the property for sale, if so advised.
(iii) We make it clear that if any of the payments are not made within the time stated supra, it is open for the Bank to proceed further and recover the entire amount ignoring the direction as stated in Clause (i) above.
(iv) We make it clear that no further extension of time will be granted to the borrower under any circumstances.
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