TMI Tax Updates - e-Newsletter
February 21, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
TMI SMS
Highlights / Catch Notes
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Income Tax:
Addition u/s 68 – The unsubstantiated material found in the pendrive cannot be considered in the hands of the assessee as a conclusive evidence so as to make additions towards unexplained credit - AT
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Income Tax:
Protective assessment converted as substantive assessment – when there are two assessments, one on protective basis and other on substantial basis, it is always advisable to adjudicate both the issues simultaneously - AT
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Income Tax:
Permanent Establishment – Chargeability of payments received u/s 9(1)(vii) r.w section 115A and 44DA of the Act - The taxpayer had a fixed place PE in India because RRIL’s premises were ‘available’ to all of employees and assessee paid all the expenses in maintaining its premises - AAR
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Income Tax:
Entitlement to file a revised return – Search and seizure u/s 132(1) of the Act – An assessee is not entitled to file revised return, once the return under Section 158BC is filed - HC
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Income Tax:
Whether the Tribunal was justified in law in holding that Vibro Bed Drier is entitled for 100% depreciation as energy efficient instrument - Held Yes - HC
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Income Tax:
Disallowing any part of the depreciation on account of personal use of the directors, u/s 38(2), does not appear to have been passed upon application of mind, when the director had no opportunity to use the car - HC
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Income Tax:
Speculative loss - Tribunal’s conclusion that the gross total income of the assessee consisted mainly of income chargeable under the heads of interest on security, house property, capital gains or income from other sources calls for no interference - provisions of Section 73 are not applicable - HC
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Income Tax:
The generator sets being one such block of asset falling for consideration under Clause 10A of the depreciation table, this alone would qualify for the rate as prescribed under 'renewal energy devices', i.e., 100% depreciation - HC
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Income Tax:
Reassessment u/s 147 – the expression “reason to believe“ cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made u/s 143(3) and another applicable where an intimation was earlier issued u/s 143(1) - HC
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Income Tax:
Reopening of Assessment – The provisions contained in Section 151 are indubitably mandatory in nature and since compliance was either not made or could be established by the revenue, benefit will have to be given to the assessee - HC
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Income Tax:
Charitable Institution - Grant from Government - the funds were made available to the Corporation for implementing the scheme in a particular manner - grant in question fulfills the requirement of section 11(d)(1) r.w.s 12(1) - HC
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Customs:
Classification of goods - un-alloyed or non alloy steel - classifiable under Chapter 72.28 or under Ch. 72.13 - benefit of exemption allowed - AT
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Customs:
Revenue contends that exemption applicable to “nylon chips“ falling under Chapter Heading 39.08 and not to “Nylon 6 Resin“ - The difference in meanings is very thin and vague - exemption allowed - AT
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Customs:
Import of cut used rails or used rails of assorted sizes - whether the item is a “melting scrap” or “re-rollable scrap” for the purpose of Notification 21/2002-Cus - Exemption allowed - AT
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Customs:
Refund claim of Terminal Excise Duty (TED) - rejection of refund on the ground that CENVAT credit provisions are available under Excise rules and CENVAT rules which should be availed of rather than claiming refund is not tenable - HC
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Corporate Law:
Winding up petition - petition for re-call of order - admission of the winding up petition, is sought to be reargued or reopened. This is not permissible. - HC
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Service Tax:
Construction of railways by private agencies - The term ‘railways’, which has not been defined, has ordinarily to be understood in accordance with common parlance - stay granted - AT
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Service Tax:
Waiver of pre deposit - IT software recorded in CDs and sold to customers, the question whether service tax under the same head was leviable on this activity irrespective of any excisability of the product is highly debatable. - stay granted partly - AT
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Central Excise:
Rejection of rebate claim - original and duplicate copy of ARE1 for the goods exported not submitted - original and duplicate copy of ARE1 lost in transit - matter remanded back for reconsideration - HC
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Central Excise:
Power to levy penalty for violation of CENVAT Credit Rules - Challenge to the validity of rule 13(2) of CCR 2002 and Rule 15(2) of CCR, 2004 as ultra-virus to Central Excise Act, 1994 - Decided in favor of revenue - HC
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Central Excise:
Disllowance of CENVAT Credit - Cenvat Credit on input services availed by the Job Worker availing exemption under Notf. No. 214/ 86-CE - credit allowed - AT
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Central Excise:
Valuation - inclusion of bought-out item - The LCC is not fitted into the EPABX system at the time of clearance, but the same is supplied separately from their trading unit situated within separately demarcated premises - value not be included - AT
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Central Excise:
CENVAT Credit - Duty paying document - Additional / differential CVD paid on TR-6 Challan being differential duty - credit allowed - AT
Articles
Circulars / Instructions / Orders
News
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Cancellation of licence to carry on banking business in India under Section 22 (4) of the B.R. Act, 1949 (AACS) - The Municipal Co-op. Bank Ltd., Ahmedabad
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CCI Imposes Penalty of Rs.3.81 crore on Dr. L.H.Hiranandani Hospital, Mumbai
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Finance Minister Shri P. Chidambaram Leaving for Five Day Visit to Australia Tomorrow to Attend G-20 Finance Ministers’ and Central Bank Governors’ Meeting; During his Stay, FM to Address Investors’ and Businesses’ Meet Among Others
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RBI penalises The Amravati Zilla Mahila Sahakari Bank Ltd., Amravati
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RBI and select branches of Banks to accept Advance Income Tax
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RBI penalises The Mahila Vikas Co-operative Bank Ltd., Ahmedabad (Gujarat)
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RBI Reference Rate for US $ and Euro
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Providing budgetary support for payment of salary/wages and statutory dues to the employees of HMT Ltd., Bangalore and Statutory Dues to HMT Machine Tools Ltd., Bangalore
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Proposal for acquisition of 100 percent equity stake of M/s Prizm Payment Services Private Limited by M/s Hitachi Consulting Software Services India Private Limited and M/s Hitachi Limited, Japan
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M/s GlaxoSmithKline Pte Limited, Singapore for acquisition of 24.33 percent shares in existing Indian subsidiary company of GSK Group in India
Case Laws:
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Income Tax
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2014 (2) TMI 811
Addition made u/s 40A(3) of the Act – Payments made to the agriculturists - Purchase of agricultural lands – Whether the payments are covered by the exceptions mentioned in Rule 6DD of the IT Rules – Held that:- There is absolutely no merits in the challenge made as to the validity of section 40A(3) of the Act by mere deletion of sub clauses (1) and (2) of rule 6DD(j) - The provision is perfectly valid and the deletion of sub clauses (1) and (2) of rule 6DD(j) is only a step forward in the achievement of the avowed object envisaged u/s 40A(3) of the Act - the only exception that the Assessee can claim is when payments are required to be made on days when the Banks were closed on account of holidays or strike - Transactions after the banking hours in the course of regular business will not fall within this exception - the payment is not required to be made when the banks are closed i.e. after banking hours - the purpose of the disallowance u/s 40A (3) is to dissuade transactions by cash - no banking facility is available where the properties were purchased by Assessee - there was no choice for the assessee except to make the payments in cash due to exceptional or unavoidable circumstances as provided under Rule 6DD – thus, the order of CIT(A) set aside and the addition made u/s 40A(3) of the Act set aside. Addition made u/s 68 of the Act – Unexplained credits – Held that:- Mere guess work is not possible while framing assessment without any proper material - The Assessing Officer shall have the basis for assuming the unexplained credit in the case of the assessee and it is not possible to assess the income of the assessee in the absence of any evidence on arbitrary basis - The unsubstantiated material found in the pendrive cannot be considered in the hands of the assessee as a conclusive evidence so as to make additions towards unexplained credit – Relying upon CBI Vs. V.C. Shukla [1998 (3) TMI 675 - SUPREME COURT] - file containing loose sheets of paper are not books and entries therein are not admissible u/s 34 of the Evidence Act, 1872 - this is not substantiated by any corroborative evidence to establish that the assessee is involved in this transaction, so as to make addition in the hands of the assessee - in the absence of any corroborative evidence or material to establish that the entry is pertaining to Assessee, the order of CIT(A) set aside – Decided in favour of Assessee.
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2014 (2) TMI 810
Sustainability of the additions for completed assessments - Assessments made u/s 153 A r.w section 143(3) of the Act Addition made u/s 68 and 14A of the Act - Held that:- In the assessment u/s 153A, the AO made Addition u/s 68 on account of artificially inflated investment in house duly disclosed in the balance sheet of the assessee and disallowance u/s 14A - there is no incriminating material before the AO to support the above additions - The valuation report, which is garnered by the authorities constitutes mere estimates and the provisions of section 132 is not required to obtain such report from the DVO - for making additions AO has not used even the valuation report and the AO disallowed what is reported in the books - Similar is the case with the additions u/s 14A of the Act thus, the additions are made merely based on the entries in the accounted books and certainly not based on either the unaccounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue thus, the assessments or additions are unsustainable in law. Relying upon Gurinder Singh Bava vs. DCIT [2014 (2) TMI 731 - ITAT MUMBAI] In the absence of any seized material which are incriminating in nature to back the additions u/s 68 or 14A of the Act made in the assessment made u/s 153A of the Act for the AY under consideration - Regarding the DVO s report gathered during the search action, the report suffers from certain deficiencies quacost of construction of residential property and the land obtained thereto - This is merely a presumption rather conclusion based on any evidences - Such additions are unsustainable in law in the assessments made u/s 153A r.w.s 143(3) of the Act notice u/s 153A of the Act and (2) in disapproving the making of the impugned additions u/s 68 and 14A of the Act, which are not backed by the incriminating materials - In the absence of incriminating material, the role of the AO is only to reiterate the returned income filed in response to the notice u/s 153A of the Act - Decided partly in favour of Assessee.
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2014 (2) TMI 804
Addition on account of investment in flat – Protective assessment converted as substantive assessment – Held that:- The substantial addition has been made in the hands of the firm - The same amount cannot be assessed in the hands of the assessee on substantial basis - There is no material on record by which it can be said that there was some change in the facts and circumstance of the case according to which the assessee could be held to be assessable on substantial basis – thus, the protective assessment made in the hands of the assessee could not converted into substantive –when there are two assessments – one on protective basis and other on substantial basis- it is always advisable to adjudicate both the issues simultaneously. The CIT(A) has committed an error in confirming the addition in the hands of the assessee on substantive basis without examining the finality of the same income in the hands of the firm where department has assessed the same amount on substantive basis - No material has been brought on record to show that whether the said substantial assessment made in the hands of the firm has attained finality – thus, the matter remitted back to the AO for re-examination – Decided in favour of Assessee.
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2014 (2) TMI 803
Confirmation of penalty u/s 271(1)(c) of the Act – Held that:- The penalty has been levied on account of disallowance of expenses under various heads – on ad-hoc disallowance out of expenses, no penalty under Section 271(1)(c) is leviable – the decision in CIT Vs. Reliance Petroproducts Pvt.Ltd. [2010 (3) TMI 80 - SUPREME COURT] followed - Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c) – thus, the penalty is set aside – Decided in favour of Assessee.
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2014 (2) TMI 802
Permanent Establishment – Chargeability of payments received u/s 9(1)(vii) r.w section 115A and 44DA of the Act - Whether the payments received/receivable in connection with the provision of services of technical/professional personnel to Booz India is chargeable to tax in India as FTS under section 9(1)(vii) read with section 115A as well as Section 44DA of the Act in the absence of fixed place PE in India - Held that:- The OECD does not expressly define what constitutes the place to be ‘at the disposal’ of the taxpayer and instead gives examples wherein it may or may not tantamount to ‘right of disposal’ - Conducting trading operations of the taxpayer which is called the “disposal test”- Relying upon Rolls Royce Plc v. DIT [2011 (8) TMI 313 - DELHI HIGH COURT] - The taxpayer had a fixed place PE in India because RRIL’s premises were ‘available’ to all of employees and assessee paid all the expenses in maintaining its premises - An employee of MSCo when deputed to MSAS does not become an employee of MSAS - A deputationist has a lien on his employment with MSCo. As long as the lien remains with the MSCo the said company retains control over the deputationist's terms and employment - on request/requisition from MSAS the applicant deputes its staff - The request comes from MSAS depending upon its requirement - On completion of his tenure he is repatriated to his parent job - He lends his experience to MSAS in India as an employee of MSCo as he retains his lien and in that sense there is a service PE (MSAS) under Article 5(2)(l) – there was no infirmity in the ruling of the ARR on this aspect - MSCo is rendering services through its employees to MSAS - the AAR was right in ruling that MSAS would be a Service PE in India under Article 5(2)(l), though only on account of the services to be performed by the deputationists deployed by MSCo and not on account of stewardship activities. Income attributable to the Permanent Establishment – Held that:- The Transactional Net Margin Method was the appropriate method for determination of the arm's length price in respect of transaction between MSCo and MSAS - the ruling of AAR is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise - The decision in Aramex International Logistics Versus Director of Income-tax [2012 (6) TMI 187 - AUTHORITY FOR ADVANCE RULINGS] followed - When a business cannot be carried on exclusively in so far as it relates to customers in India without intervention of another entity, a subsidiary, normally that entity must be deemed to be the establishment of the group in that particular country – the Indian subsidiary must be taken to be a permanent establishment of the group in India - the subsidiary must be considered to be a permanent establishment of the group in the concerned country, here, India. Nature of payments received – Scope of Article 12 of DTAA – Chargeability to tax as FTS u/s. 115A read with section 9(1)(vii) as well as section 44DA of the Act - Held that:- The applicants have Permanent Establishment in India, the incomes received by them from the Indian Company are taxable as business profit under Article 7 of the Tax Agreement of India and the respective countries (except M/s.Booz & Co.(ME) Ltd. Cayman Islands) with which there is no tax treaty by India, and M/s.Booz & Co.(Italia)S.R.L., Italy ), whose income will be taxed as per provisions of the Act) – thus, the applicants have Permanent Establishment in India and their incomes are taxable as business profits – Also, the income being taxable as business profits, the payments by the Indian company to the applicants will be subjected to withholding of tax under section 195 of the Act - Decided against Assessee.
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2014 (2) TMI 801
Entitlement to file a revised return Search and seizure u/s 132(1) of the Act Notice u/s 158BC issued Requirement to file return for undisclosed income - Revenue was of the view that as the assessee had already furnished return under Section 158BC thus the income disclosed by the assessee was treated as concealed income in terms of Section 158BFA of the Act Held that;- The provision contained in second proviso to Section 158BC of the Act is mandatory, the undisclosed income even if disclosed by the assessee, after the filing of the return u/s 158BC by filing a revised return, would be liable to be treated as concealed income and hence, incur penalty - the assessee cannot file even a revised lower return on account of some mistake committed by him and thus, the second proviso to Section 158BC is intended at prohibiting the assessee from filing a revised higher return with a view to get away with imposition of penalty on the undisclosed income - The plea taken by the assessee that penalty could not have been imposed on the additional undisclosed income disclosed by the assessee itself, is fallacious - Merely because the disclosure of additional undisclosed income was made by the assessee prior to any notice from the Assessing Officer would not lead to a presumption that the Assessing Officer could not have detected the concealed income. Second proviso to Section 158BC is mandatory and the provision under Section 158BFA is also mandatory subject to the conditions mentioned - thus, the intention of the assessee is immaterial Relying upon Chairman, SEBI Vs. Shriram Mutual Fund and Anr. [2006 (5) TMI 191 - SUPREME COURT OF INDIA] - An assessee is not entitled to file revised return, once the return under Section 158BC is filed - The provisions under Section 158BFA is also mandatory and therefore, irrespective of the intention of the assessee, the undisclosed income disclosed by the assessee after filing the return under Section 158BC, would attract penalty - The plea of non-supply of documents is not available to the assessee for filing a revised return though, such a plea may be available to the assessee for challenging the final order on the ground of violation of the principles of natural justice thus, the matter remitted back to the CIT(A) for fresh consideration - Decided in favour of Revenue.
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2014 (2) TMI 800
Waiver of penalty - Reasonable cause - Scope of reasonable cause as defined in section 273B of the Act - Short deduction of TDS on account of the payment of trade discount/commission to franchisees - Whether reasonable cause for a failure to deduct tax at source under Section 194H of the Act had been shown by the Assessee – Held that:- The fundamental principle is that ignorance of law is no excuse - The CIT(A) has exercised his discretion that the assessee was under a bona fide belief that tax was not liable to be deducted on commission/trade discount - on a review of facts, it was found that a reasonable cause had been shown under Section 273B – thus, the imposition of penalty which was deleted by the CIT(A) has been affirmed by the Tribunal – there is no substantial question of law arises for adjudication – Decided against Revenue.
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2014 (2) TMI 799
Addition made on Expenses u/s 37(4) of the Act - Maintenance of guest house – Held that:- The Assessing Officer while making addition of ₹ 15 lakhs as estimated expenses for guest house has not referred to any expenditure or any material for estimating expenditure of ₹ 15 lakhs – assessee contended that he has not incurred any expenditure apart from paying rent of ₹ 9 lakhs - ad-hoc disallowance on conjectures and surmises is entirely unsustainable in law and on facts - There is no material to indicate that any other expenses have been incurred by the assessee apart from paying the rent – the findings are the finding of fact - The Assessing Officer has also not referred to any kind of expenditure incurred by assessee other than paying rent of ₹ 9 lakhs -Thus, there was no error in the order of the Commissioner allowing the appeal – Decided against Revenue. Allowability of Deduction u/s 80HH of the Act – Whether the deduction is to be allowed on total income including the profit from sale of scrap being part of income of the Industrial Undertaking – Held that:- The Commissioner has clearly directed for including the income from the Scrap generated by specified units as - The Scrap generated from the above units has to be treated as Scrap derived from the industrial undertaking and any income from the sale of the said Scrap has to be included for the purpose of benefit of Section 80-HH –Relying upon Pandian Chemicals Ltd. Vs. Commissioner of Income Tax2003 (4) TMI 3 - SUPREME Court] - the word derived from under Section 80-HH has to be understood as something which has immediate nexus with the industrial undertaking - the scrap generated from the units has direct and immediate nexus with the industrial undertaking since the said scrap has been generated from the manufacturing process itself - the Commissioner as well as the Tribunal has committed no error in allowing the benefit of Section 80-HH to the assessee – Decided against Revenue.
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2014 (2) TMI 798
Reopening of Assessment – Examination of claim of deduction u/s 80IB(10) of the Act – Held that:- The notice has been issued within a period of four years from the end of relevant assessment year – there is a distinction between the expressions ‘change of opinion’ and ‘mere change of opinion’ as decided in Multiscreen Media Private Limited v. Union of India and another [2010 (2) TMI 269 - BOMBAY HIGH COURT] a mere change of opinion is not enough - A change of opinion is permissible provided it is grounded on additional or tangible material. In Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income-tax [2012 (9) TMI 69 - Gujarat High Court] it was held that the Assessing Officer must have some tangible material to form a belief that income chargeable to tax had escaped assessment - reopening of assessment within a period of four years could be made as long as it is not based on mere change of opinion - claim under section 80IB( 10) of the Act was the sole claim of the petitioner in the return filed - The entire claim was examined at length - To the extent the Assessing Officer thought the same was not allowable, after hearing the petitioner and inviting her response, he disallowed the substantial portion of the claim – thus, now it is not possible for the Revenue to canvas that yet another element of the claim was not gone into by the Assessing Officer. Regarding recording of Reasons - Held that:- The completion of housing project in the year 2010 was well within the time limit envisaged under the statute - There is insufficient material to hold so - Even the sale deed refer to several dates and events - Without reference to the original documents and further evidence, it would be hazardous to accept the petitioner’s contention that for the first time, the development permission was granted by the local authority only in the year 2007 - The validity of the reasons must be judged on the basis of requirement of reason to believe and not necessarily that the addition must invariably made ultimately – thus, this contention of the assessee cannot be accepted. The notice is quashed - Though second contention of the assessee is not accepted, petition allowed on the basis of first contention - Decided in favour of Assessee.
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2014 (2) TMI 797
Entitlement for depreciation - Whether the Tribunal was justified in law in holding that Vibro Bed Drier is an item covered Under Appendix-1/H-III/(3)(III) of the Income Tax Rule 1962 and is entitled for 100% depreciation – Held that:- The instrument is a waste heat recovery equipment and is also energy economiser enabling a saving of over 40% as compared to conventional dryer – the Tribunal held that the energy efficient instrument was considered to fall within the relevant entry of the schedule and therefore 100% depreciation was allowed - The question is a mixed question of fact and law - The department did not try to lead any evidence to show that the instrument in question cannot be brought within entry 3B or 3C of the schedule – thus, the order of the Tribunal upheld – Decided against Revenue. Valuation of Closing stock – Deduction u/s 43B of the Act - Whether the Tribunal was justified in law in holding that valuation of closing stock is to be made ignoring the amount of cess paid when the same was debited, and the net effect will be nil on deduction of the same has to be allowed from the income of next year – Held that:- The decision in Berger Paints India Ltd. Versus Commissioner of Income-Tax [2004 (2) TMI 4 - SUPREME Court] and Lakhanpal National Limited Versus Income-Tax Officer [1986 (3) TMI 42 - GUJARAT High Court] followed - The entire amount of excise duty/customs duty paid by the assessee in a particular accounting year was an allowable deduction in respect of that year irrespective of the amount of excise duty/customs duty which was included in the valuation of the assessee’s closing stock at the end of the accounting year – Decided against Revenue. Deduction u/s 80HHC of the Act – Export turnover - Whether the Tribunal was justified in holding that the export turnover should be the total of the amount brought to India and the amount paid as brokerage/commission outside India ignoring the fact that the amount paid as brokerage/commission was not made by appropriate remittances from India – Held that:- The amount of commission or brokerage paid outside India was never received or brought into the country by the exported - The money spent on account of brokerage or commission was deducted from the price of the goods and the balance amount even according to the assessee was received in the country in foreign exchange – thus, the view taken by the revenue is correct - Decided in favour of Revenue.
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2014 (2) TMI 796
Entitlement for deduction u/s 57(iii) of the Act – Interest incurred on borrowed funds – Held that:- Relying upon CIT Vs. Rajendra Prasad Moody [1978 (10) TMI 133 - SUPREME Court] - Assessee rightly contended that the expenditure on account of interest was a proper expenditure allowable under section 57 - there was no reason why a proper expenditure should have been disallowed only because the investment was not made for the purpose of earning dividend - There is no finding that the investment was made otherwise than for the purpose of making an income - both the Tribunal and the AO were wrong in disallowing the expenditure – Decided in favour of Assessee. Disallowance of depreciation on motor cars - Whether the Tribunal was justified in law in upholding the disallowance of 1/5th depreciation on motor cars hired out by the appellant by invoking Section 38(2) of the Act – Held that:- The vehicle has been hired out - the vehicle is not used for the business of the company. The vehicle has been used for the purpose of earning money by way of hiring charges – thus, the order disallowing any part of the depreciation on account of personal use of the directors, under section 38(2), does not appear to have been passed upon application of mind - When the director had no opportunity to use the car, the question of disallowing any part of depreciation on account of directors’ personal use appears to be altogether misconceived – Decided in favour of Assessee.
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2014 (2) TMI 795
Exercise of jurisdiction by the CIT u/s 263 of the Act – Held that:- The income derived by the assessee is in the nature of capital one as it was connected with main activity - this cannot be said to be income, as rightly held on fact finding by the Assessing Officer initially and thereafter by the Tribunalthe Tribunal has taken a correct view of the matter as the Commissioner of Income Tax has no jurisdiction to reopen this case, because one of the two possible views was taken by the Assessing Officer and such change of view cannot be any ground to reopen the issue under Section 263 of the Income Tax Act – thus, the CIT had passed the order in total illegal exercise of jurisdiction – thus, there was no merit in the appeal – decided against Revenue.
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2014 (2) TMI 794
Applicability of Section 41(1) of the Act – Deletion made u/s 41(1) of the Act – Profits chargeable to tax – Held that:- The Tribunal was of the view that there is no finding that the liabilities were trading liabilities in respect of which the assessee had obtained any benefit or advantage either by way of their remission or cessation in the year under appeal - The assessee has not written off the liabilities shown in the accounts - The A.O. has not brought sufficient material on records to establish as to how the ingredients of section 41(1) are satisfied so as to bring the addition within its ambit. Section 41(1) of the Act would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled - There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration - The Assessing Officer undertook the exercise to verify the records of the so called creditors - thus, the amount in question cannot be added back as a deemed income under section 41(c) of the Act – Decided against Revenue.
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2014 (2) TMI 793
Speculative loss - Deletion made under Explanation to section 73 of the Act – Nature of Loss - Whether the Tribunal is right in deleting the addition made on account of treating the share trading loss as speculative loss – Held that:- The assessee pointed out that it earned interest income and the Revenue held that such income must be considered to be a business income of the assesse – thus, the exclusion clause in the explanation would not apply - the Tribunal has correctly appreciated the facts - it could not be concluded that the assessee was in business of advancing loans and earning interest - Tribunal held that giving loans and advances cannot be termed as the business of the assessee - The Tribunal’s conclusion that the gross total income of the assessee consisted mainly of income chargeable under the heads of interest on security, house property, capital gains or income from other sources calls for no interference – thus, the assessee would not be governed by the explanation to section 73 - the deeming fiction would not apply - Loss could not treated as speculative loss – Decided against Revenue.
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2014 (2) TMI 792
Power of the Tribunal u/s 254(2) of the Act – Held that:- The decision in Honda Siel Power Products Ltd Versus Commissioner of Income Tax, Delhi [2007 (11) TMI 8 - Supreme Court of India] followed - the purpose behind the enactment of Section 254 (2) is based on the fundamental principle that no party appearing before the Tribunal, be it the assessee or the department, should suffer on account of any mistake committed by the Tribunal – the fundamental principle has nothing to do with the inherent power of the Tribunal - if prejudice had resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error, then the Tribunal would be justified in rectifying its mistake which was not done in the case - the Tribunal was satisfied that the assessee's claim was reasonable, nevertheless, rejected their claim – thus, the order dated 17.08.2005 passed by the Tribunal under Section 254 (2) of the Act is wholly within jurisdiction and perfectly justified. Allowability of depreciation @ 100% u/s 32 of the Act - block of assets u/s 2(11) - Assets used for the purpose of other than engineering products – Held that:- The findings of the Tribunal is justified in respect of the wind energy generators used in the process of manufacture of wind mills - So far as other machineries, viz., drilling machines, boring machines, boring machine for foundation work and lathe machine, are concerned, the Assessing Officer, on verification of the Written Down Value (WDV) of 100% depreciation block, found that the entire plant and machinery is included in the block - The generator sets being one such block of asset falling for consideration under Clause 10A of the depreciation table, this alone would qualify for the rate as prescribed under 'renewal energy devices', i.e., 100% depreciation - As far as other machineries are concerned, as rightly pointed out by the Assessing Officer, the same would qualify for depreciation at 25% and not at 100% as claimed by the assessee - the Assessing Officer is directed to re-work the relief on the grant of depreciation treating generator sets as the block of assets used in the manufacture of wind mills and the other machineries would not fall within that head of block of asset, but would entitle to the relief of depreciation at such rate as has been fixed by him – Decided partly in favor of revenue.
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2014 (2) TMI 791
Reassessment u/s 147/148 of the Act – Whether the income on purchase and sale of shares to be treated as business income OR Short Term Capital Gain – Held that:- The reasons provided u/s 148 must indicate specifically what such objective material facts are, on the basis of which a reopening is initiated under Section 148 - There is a vague reference in this case to ‘material facts’, which does not meet the standard under Section 148 – Relying upon Phool Chand Bajrang Lal and Anr. v. Income Tax Officer and Anr., [1993 (7) TMI 1 - SUPREME Court] - the return was processed under Section 143(1) for the A.Y. 2005-06, which involves a mere intimation, rather than an application of mind or true assessment of the return, a less stringent threshold must be taken in terms of ‘reasons to believe’ that income has escaped assessment or not. The decision in CIT v. Orient Craft [2013 (1) TMI 177 - DELHI HIGH COURT] followed – the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1) - it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment - it is open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards – Decided in favour of Assessee.
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2014 (2) TMI 790
Reopening of Assessment – failure to take approval as per section 151(1) - Held that:- If the assessment is reopened after expiry of the four years from the end of relevant assessment year, no notice under Section 148 of the Act shall be issued unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice - neither the reasons recorded by the Assessing Officer under sub-Section (2) of Section 148 of the Act nor approval granted by the Chief Commissioner or Commissioner as contemplated by the proviso to sub-Section (1) of Section 151 of the Act is on record. Revenue could not point out any observation so as to hold that approval under Section 151 was obtained before issuing notice under Section 148 of the Act -In the absence of the order granting approval by the Commissioner under Section 151 or in the absence of any indication in the orders passed by the authorities including the order of the Tribunal or the materials on record that such approval was obtained, it would not be possible to assume that such approval under Section 151 of the Act was obtained - The provisions contained in Section 151 of the Act are indubitably mandatory in nature and since compliance was either not made or could be established by the revenue, benefit will have to be given to the assessee - decided against Revenue.
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2014 (2) TMI 789
Charitable Institution - Grant from Government - Whether the grant from the Government of Gujarat constitute the income of the assessee as per provisions of Section 11(2) of the Act – Held that:- The decision in Gujarat Municipal Finance Board Vs. DCIT (Assessment) [1996 (5) TMI 71 - GUJARAT High Court] followed - The Tribunal held that the grants are sanctioned the assessee only for the project under Rehabilitation Programme and same cannot be treated as assessee's income - grant given by the State Government to another entity which was to spend grants only for the stated purpose cannot be considered as voluntary contribution nor can the same be assessed under section 12 of the Act as income of recipient - the funds were made available to the Corporation for implementing the scheme in a particular manner - The Tribunal committed no error in holding that the grant in question fulfills the requirement of section 11(d)(1) read with section 12(1) of the Act – Decided against Revenue. Deletion of Interest Income - Whether the Tribunal is correct in deleting the addition of interest income – Held that:- The decision Gujarat Municipal Finance Board Vs. DCIT (Assessment) [1996 (5) TMI 71 - GUJARAT High Court] followed - Tribunal was of the view that the interest derives by investing the grant temporarily for interest is also not taxable - It did not confirm with the view of CIT (Appeals) that the assessee treated the grants given by the State Government as its income and therefore the interest earned by temporary investment of the grants cannot be exempted by holding that ratio in the said judgement is that any grant-in-aid cannot be considered as income - merely because the grant is treated as income by the assessee in its books, the interest does not become taxable – the findings of the Tribunal upheld – Decided against Revenue. Addition made on refund of grant to District Rural Development Agency – Held that:- The decision in CIT Vs. Ganga Charity Trust Fund [1985 (10) TMI 67 - GUJARAT High Court] followed - for the purpose of applying the income of the trust for charitable purposes, income derived from the trust properly must be determined on commercial principles and in doing so, all outgoings including income-tax must be deducted and it is only from the surplus income in the hands of the trustee that the question of application of income can arise - the amount of Rs.13 crores, which was earlier assessed as income, refunded to DRDA constitutes a deduction while ascertaining the application of the income for the purpose of section 11(1)(a) of the Act – the order of the Tribunal upheld – Decided against Revenue.
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2014 (2) TMI 788
Addition on account of Long Term Capital Gain on sale of immovable property – Held that:- CIT(A) was of the view that the facts namely that against the deduction u/s 54B, Assessee had only shown new purchase of land - the new asset purchased was a residential land and not an agricultural land and the land that was sold was converted into land for non-agricultural purpose prior to its sale have not been rebutted by the Assessee - the land sold was not an agriculture land nor was the subsequent land which was purchased an agriculture land - the value of land purchased were also less than required for claiming the exemption - no material has been brought on record to controvert the findings of CIT(A) – thus, there is no reason to interfere with the order of CIT(A) – Decided against Assessee. Lump sum addition made on account of Low Household withdrawal – Held that:- The Assessee has submitted that he had made a withdrawal of 62,700/- for meeting the household expenses - A.O. found the withdrawals not commensurate with the requirement of the family and made an addition of Rs. 20,000/- on estimated basis which was also confirmed by CIT(A) - the estimate made by the A.O. was not based on any material on record and is also not supported by any evidence - even the submission of Assessee is also not supported by any evidence – thus, the addition is restricted to 10,000/- as against 20,000/- made by the A.O – Decided partly in favour of Assessee.
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2014 (2) TMI 787
Additions made service charges (commission) received @ 1% for sale of banana - Ancestral agricultural income estimated by AO @10% reduced to 6% by the CIT(A) - Exemption u/s 10(1) – Held that:- The assessee did not disclose the saving account of PNB in which cash was deposited - the assessee’s initial reaction was that during the year under appeal he has purchased the bananas from the farmers and sold the same to Punjab and Hariyana and earned 1% commission on these transactions and also offered the same for taxation – but assessee could not give the details of the traders of Punjab and Hariyana with whom he made trading of banana nor he could give any details of the transporters through which these bananas were supplied to the traders - No details/vouchers in this respect were furnished by the assessee at any stages including during the hearing of appeal. When AO proposed to add net profit @ 10% of the total sales, assessee took the plea that all the transactions were done by the assessee on behalf of HUF and in support of certain documents were also filed - AO also found that neither the HUF nor any member of HUF obtained PAN No. and were not assessed to tax - CIT(A) has also agreed with the finding of AO that cash deposit in the undisclosed bank account was out of trading of bananas - He reduced the estimation of profit from 10% taken by the AO to 6% - nothing was brought on record on behalf of the assessee which could persuade to give any further relief to the assessee and therefore the order passed by Ld. CIT(A) is hereby upheld – Decided against Assessee.
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2014 (2) TMI 786
Rejection of book result as per section 145(3) of the Act – Survey u/s 133A of the Act – Held that:- The books of account maintained without proper supporting evidence - Assessee contended that no specific defect has been pointed out by the AO before rejecting the book result - After considering the factual position of the survey as well as discrepancy found during the course of survey in impounded book and cash book maintained manually and computerized, the AO was right in applying Section 145 of the IT Act for rejection of book result – Decided against Assessee. Addition made on account of unexplained expenditure – Violation of section 194J of the Act – Held that:- CIT(A) was of the view that when assessee itself surrendered the income of Rs.13,62,259/-, the assessing officer was quite justified in making the addition by accepting the income voluntarily surrendered by assessee - when income is voluntarily surrendered during the course of assessment proceedings, assessee cannot contest said addition by filing appeal - for violation of TDS provisions separate addition is already made to the income of the assessee and apart from that there is no other cogent evidence which necessitates lump sum addition - The assessee made the disclosure voluntary and AO had not brought on record any evidence for estimating income at Rs.20,00,000/-. The difference into cash book worked out to Rs.13,62,259/- thus, the CIT(A) was right in upholding the addition of Rs.13,62,259 – Decided against Assessee. Disallowance u/s 40(a)(ia) of the Act – Legal and professional expenses, office rent and commission to others - Held that:- CIT(A) held that the assessee could not give any reasons as to why no TDS has been made from the payment of legal and professional fees, office rent and commission to others - As no TDS is made from the expenditure, provisions of Sec 40a(i)(a) of the Act is directly applicable - the word payable used in the section does not at all mean that there should be any outstanding amount at the end of the year & there is no legislative intent to disallow only the outstanding amount - The assessee had not deducted TDS on above amount, but had claimed as expenditure - As per Section 40(a)(ia), this expenditure is not allowable - The CIT(A) examined the issue thoroughly and confirmed the addition - the income has not been estimated u/s. 144 but determined after detailed scrutiny of the impounded documents as well as statement of the partner – Decided against Assessee. Disallowance u/s 40A(3) of the Act – Disallowance on account of donation - Held that:- CIT(A) held that the assessee could not explain the reasons to make cash payments - the AO scrutinized the impounded documents and considered the statement of the partner and assessed the income on the basis of scrutiny of the impounded documents – Decided against Assessee. Addition on account of various expenses – Held that:- The CIT(A) had restricted this addition on the basis of no quantification made by the AO and not supported by voucher and cash payments made and also personal use – the findings of the CIT(A) also confirmed as the reasonable addition – Decided against Assessee. Deletion made - Unexplained introduction of cash and inflation of expenditure – Held that:- The assessee had already shown cash balance of Rs.45,27,670/- in the audited balance sheet as on 31.03.2005 as against cash balance found as on 31.03.2005 in manual cash book at Rs.3,99,493/- which is lesser than cash disclosed in the balance sheet - These entries undisputedly pertained to A.Y. 05-06 - there is no basis to make any addition in the year under consideration - the CIT(A) has given relief on the basis of submission made by the assessee - since the entries pertained to A.Y. 05-06, no addition could have been made in A.Y. 06- 07 - it deserves to be deleted – Decided against Revenue.
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2014 (2) TMI 785
Addition made on unaccounted income – Survey u/s 133A of the Act – Estimation of net profits - Held that:- A survey was conducted at the premises of Assessee and during the course of survey certain diaries were found which contained entries of certain amounts against different dates aggregating to Rs. 21,03,466 - Assessee submitted that the reflected cash sales which were not recorded in the books of accounts and offered Rs. 50 lac as undisclosed income but however in the return of income, Assessee offered only Rs. 15 lacs - CIT(A) worked out sales for the entire year, capital requirement and thereafter applying the net profit rate @ 3% restricted the addition to Rs. 11 lacs as against Rs. 35 lacs made by A.O - Revenue has pointed out that CIT(A) has worked out the sales on the basis of entries found in diary and considering the number of days to be 43 instead of 18 days and therefore the addition has been worked out to a lower figure - Assessee on the other hand has submitted that CIT(A) has proceeded on the basis of presumption but at the same time, the Assessee has also not brought any material on record to controvert the findings of CIT(A) – thus, the addition is restricted to Rs. 5 lac as against the addition of Rs. 35 lac made by A.O. and which was sustained at Rs. 11 lac by CIT(A) – Decided partly in favour of Revenue.
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2014 (2) TMI 784
Deletion made u/s 68 of the Act – Undisclosed income from sale of flat – Unexplained cash credits - Held that:- The assessee had explained the entire facts to Assessing Officer – assessee had submitted sufficient evidences of having received the amount on account of sale of flat at Calcutta - The Assessing Officer made the addition only because no formal sale agreement was entered into - the identity of buyer along with his PAN number, confirmation, affidavit and possession letter was filed before Assessing Officer and these are sufficient evidences to prove the contentions of assessee - CIT(A) has very elaborately dealt with the issue. Complete address and PAN number was mentioned and lender had confirmed to have made payments on behalf of assessee - originally the amount was paid by the lender to Fertilizer & Chemicals Travancore Ltd., and against which the assessee had repaid in the same year whereas the balance amount was repaid on 30.4.2005 – the CIT(A) has rightly deleted the addition after verifying complete facts and details – thus, there is no infirmity in the order of the CIT(A) – Decided against Revenue.
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Customs
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2014 (2) TMI 782
Classification of goods - un-alloyed or non alloy steel - classifiable under Chapter 72.28 or under Ch. 72.13 - overriding effect of Chapter Notes - CVD exemption under S No 202A of exemption Notification No. 21/2002-cus - Held that:- As per the above parameters any steel, having %age weight of any element (except sulphur , phosphorous, carbon and nitrogen) more than the limits specified in this chapter note, will be classified as ‘other alloy steel’. As per the test got done by the Revenue the %age of Vanadium in the imported steel is 0.1% or more which is covered by the parameters specified in Chapter Note 1(f) of chapter 72 of the customs Tariff Act. There is no mention in the chapter notes to Chapter 72 that for interpreting the classification of steels specified in the customs Tariff, BIS standards should be followed. Taking of the lowest value of a range, with respect to test reports will arise only when several samples of a uniform lot give different test reports, as was the case where test reports were given by the National Metallurgical Laboratory, Madras Centre. In all those appeals where samples of TMT bar tested showed uniform dimensions and it was opined that lowest of the test reports was taken to hold the steels in those cases to be ‘non-alloy steel’. In the case of the appellant there is no point of taking lowest of the range of any values. In the case of the appellant, the quantity of Vanadium, as determined in the tests got conducted by the Revenue, was 0.1% or more as specified in the Chapter Note 1(f) of Chapter 72 and accordingly imported goods have been correctly held to be classifiable under CTH 72.28 by the lower authorities. Separate value of 16mm, 20mm, 25mm and 32mm has not been made available, hence separate duty cannot be assessed for 16mm ‘steel bars’. Nott. No. 21/2002 cus exempts both the basic customs duty and CVD under different serial numbers of an exemption notification and the CVD rate applicable to the goods imported by the appellant will be as per Sr No. 202A of Nott. No. 21/2002-cus dated 1/3/2002. - Decided in favour of assessee.
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2014 (2) TMI 781
Conversion of free shipping bills into DEEC shipping bills - Advance licenses - CESTAT while remanding the matter, directed the Commissioner of Customs to verify the contemporaneous documents for the purpose of deciding the issue regarding conversion of shipping bills into DEEC shipping bills - Commissioner arrived at a factual finding that there were no contemporaneous documentary evidence to exercise the discretion and allow the conversion as prayed for by the exporter. Accordingly, the request for conversion was rejected - CESTAT without indicating as to how those documents would prove the contemporaneous nature of the transaction, the CESTAT arrived at a finding that the contemporaneous documents which were in existence at the time when the goods were exported justified the request for amendment of documents. Held that:- We are not inclined to verify the documents in the appeal filed by the Department. Those documents should have been considered by CESTAT in extenso. The present controversy has arisen only on account of the failure of CESTAT to indicate the details of documents and its link and the contemporaneous nature in the order under appeal. Therefore we are of the view that the Tribunal was not justified in allowing the appeal without any kind of indication about the details of contemporaneous documents - Even according to the exporter, only few documents were submitted before the Commissioner of Customs. The so called voluminous documents were produced for the first time before the Tribunal. Therefore, the Commissioner was not having the benefit of verifying those documents. We are, therefore, of the considered view that the matter requires fresh consideration by the Commissioner - Matter remanded back - Decided in favour of Revenue.
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2014 (2) TMI 780
Exemption from customs duty vide Notification No.17/01-Cus (Sl.No.133) and under notification 21/2002 (Sl.No.145 & 146) - Import of Ultramid B 35F Nylon 6 Resin - Revenue contends that notification is applicable only to "nylon chips" falling under Chapter Heading 39.08 and not to "Nylon 6 Resin" which was the declaration as per the Bill of Entry - Held that:- goods were in granule form and the accompanying documents described it as Nylon Resin and goods were declared in the Bills of Entry to be resin and the declarations were accepted. So Revenue has accepted the position that Resin can be in solid form. Even otherwise these days a simple search on the internet with the expression ‘Plastic Resin’ will show suppliers and their products along with images of the physical form which are mostly in different solid forms. No geometric shape is assigned to the goods covered by the description ‘chips’. Even going by the Concise Oxford dictionary the meaning given for chip is a small thin piece removed in the course of chopping, cutting or breaking a hard material . The meaning given in the same dictionary for ‘granule’ is ‘a small compact particle’. The difference in meanings is very thin and vague. So the basis of ‘strict interpretation’ of notification canvassed by Revenue is based on such vague difference. The opinion of Professor of High Polymer Engineering Laboratory, Chemical Engineering Department, IIT Madras states that these words are used interchangeably - No authoritative text showing any difference between Nylon Chips and Nylon Granules has been produced. A search on internet shows similar physical forms for goods marketed as ‘Nylon Chips’ and as ‘Nylon Granules’ - Decided in favour of assessee.
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2014 (2) TMI 779
Misdeclaration of goods – cut used rails or used rails of assorted sizes - whether the item is a “melting scrap” or “re-rollable scrap” for the purpose of Notification 21/2002-Cus - Revenue was of the view that goods were classifiable under Customs Tariff Item 7302 10 90 in which case the exemption under Notification No. 21/2002-Cus was not available to the goods - Rate of duty - Held that:- There was no reason to deny the classification claimed by the assesse for the goods to be under Heading 72.04 or to consider the goods not to be “Melting scrap of Iron and Steel” as described in Notification 21/2002-Cus – following the judgement of HINDUJA FOUNDRIES LTD. Versus COMMISSIONER OF CUS. (IMPORT), CHENNAI - [2013 (9) TMI 422 - CESTAT CHENNAI]. The difference in the case of used rails is that the item was specifically mentioned under Heading 72.04 for the purpose of excluding it - The meaning of the expressions “melting scrap” or “re-rollable scrap” were not defined in the Customs Tariff or HSN notes though the HSN notes makes a mention that waste and scrap which can be rolled into other products without melting to recover metal was excluded from Heading 72.04. Whether the value loaded for assessment is sustainable because duty other than basic customs duty was payable even when exemption under notification 21/-2002-Cus (S. No. 200) is extended - Held that:- The only reason for increase in value made is mis-declaration in description of goods. No evidence of additional remittance of money is brought out. Also there is an issue scrap is not a type of goods which can be easily compared. The appellants have also taken objection that the time of import of the comparable goods taken was also different and hence the value adopted for assessment has no legal basis. Revenue argues that the appellants accepted the increased value before clearance and hence they cannot challenge it now. No record showing acceptance of increase in value is brought on record - Following decision of CC Vs. D. M. International [2008 (6) TMI 525 - CESTAT, NEW DELHI] - – Decide in favor of assesse.
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2014 (2) TMI 773
Refund claim of Terminal Excise Duty (TED) - Supply of manufactured goods to 100% EOU - Deemed export - Denial in terms of the provisions of the Foreign Trade Policy 2009-14 framed under the Foreign Trade (Development and Regulation) Act, 1992 - Held that:- petitioner did not make any supplies against the ICB. Therefore, it would be covered by latter part of para 8.3(c), i.e. cases where refund of TED will be given. This intention is given effect by the second entry in column (a) of para 8.4 read with corresponding benefits spelt-out in column (c) which states that entitlement in terms of para 8.3 to refund is permissible. The eligibility for refund, therefore, would be in terms of these provisions and the unit has to apply for such refund - authorities in this case appear to have proceeded to make an order adverse to the petitioner and proceeded to hold that the petitioner was disentitled to the benefit of refund in view of some clarification given by the Policy Interpretation Committee, in its meeting of 04.12.2012 to the effect that “refund of CENVAT credit provisions are available under Excise rules and CENVAT rules which should be availed of rather than claiming refund”. This reasoning appears to have prevailed with the Policy Relaxation Committee as well in this case. Court also is unable to see the reason why the respondents were of the view that refund claim or benefit under the CENVAT regime under the Central Excise Act or the other statutory schemes framed under it is available. In this Court’s opinion, that regime operates in its own terms and is independent of the rights and liabilities of the petitioner and the respondents under the import-export policies framed under the 1992 Act - The respondents are hereby directed to process and pass appropriate orders in accordance with the 2009 policy in respect of the petitioner’s refund claims made through its applications dated 29.08.2012 and 16.11.2012 within three months - Decided in favour of assessee.
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Corporate Laws
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2014 (2) TMI 778
Winding up petition - petition for re-call of order - advertisement of admission of winding up petition - direct the Provisional Liquidator attached to this Court to take over the possession of all the assets of the Respondent Company, including the registered office of the Company, that is, 1-E/2, Jhandewalan Extension, New Delhi-110055 - Held that:- It is seen from the order of the learned Company Judge passed on 16.2.2009 that all the pleas taken by the respondent-company against the petition were discussed threadbare and prima facie observations were made justifying the admission of the winding up petition. These observations have attained finality in view of the order passed by the Division Bench in the review petition filed by the petitioners. The findings of the learned Company Judge and his prima facie observations on the admission of the company petition were upheld by the Division Bench. It would thus appear that in the additional affidavit filed by the respondent-company on 30.10.2013 along with the additional documents, the same issue i.e., admission of the winding up petition, is sought to be reargued or reopened. This is not permissible. The present petition was filed in the year 2005 and the respondent had sufficient opportunity to settle the claims of the petitioners, however, the same was also not done by the respondent. Therefore, deferring the publication of advertisements to enable the respondent to pay the admitted dues is also not warranted in the facts of the present case. Thus, in the present case, the advertisement as required under Rule 96 is required to be published in accordance with the Companies (Court) Rules, 1959
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FEMA
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2014 (2) TMI 783
Contravention of Section 8 (1) of the Foreign Exchange Regulation Act, 1973 (‘FERA’) - whether the expatriated employees seconded by the parent corporation to its branch or liaison office in India are required to be paid salaries by such liaison or branch office and further whether the payment made by the parent corporation to its expatriated employees abroad creates any liability on the liaison or branch office to repay the said amount to the parent corporation. Held that:- AOs have erroneously concluded that the expatriate employees of the parent corporation were ‘borrowed employees’ of the Appellants when there was no factual basis for such a conclusion. With the AOs holding that the case of the ED regarding violation of Section 9 (1) (c) FERA was not made out against any of the Appellants, the case regarding violation of Section 8 (1) FERA was untenable since the SCNs in all these cases set out the same allegations to justify the case under both provisions. The question of the Appellants “acquiring” or “otherwise transferring” any foreign exchange as a result of the parent corporation remitting funds to the Appellants for disbursal of the salaries of the employees seconded to them did not arise. Further, the question of the Appellants having to repay the parent corporation the sum paid abroad also did not arise. Factually, there was no attempt made by any of the Appellants to repay any such amount to the foreign corporation. Also, no reasons have been given in any of the AOs for the penalty imposed in terms of Section 50 FERA. Consequently, in all these cases, the determination of the penalty amount by the AOs is also held to be untenable in law. - Decided in favor of appellant.
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Service Tax
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2014 (2) TMI 814
Classification of services - business of packing parcels from parties in India handing to courier agencies - Business Support Service or not - Export of services - Held that:- in respect of the direction from the Tribunal to place all records that are necessary to prove the claims of the applicant. The applicant has not do so and is before the Tribunal again with fresh documents for resolving the dispute. This can be looked only at the time of appeal hearing. The applicant is also claiming that the services was actually exported but there is no clear demonstration whether consideration has been realized in foreign exchange but for the letter of UB Xpress (South) Pvt. Ltd., as reproduced in the adjudication order. - stay granted partly.
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2014 (2) TMI 813
Demand of service tax on the basis of difference between the value of the taxable services as reported in ST-3 return and as given in the balance sheet - non inclusion of value of material - extended period of limitation - levy of penalty - Held that: - there would be justification in the appellants plea that during the period of dispute, on account of conflicting decisions on this issue, there was a doubt and, therefore, based on a series of the judgment of the Tribunal on this issue, they paid the service tax only on the net value of the taxable service and it is this value which they reflected in the ST-3 returns. If this is so, the extended period of recovery of service tax would not be applicable and penalty under Section 78 also would not be attracted. But this point has nowhere been discussed either in the order-in-original or in the order-in-appeal. In view of this, the impugned order is set aside and the matter is remanded to the original adjudicating authority for de novo decision - Decided in favor of assessee.
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2014 (2) TMI 812
Immunity from levy of penalty - appellant although providing taxable service and also received the service tax from the clients but not paying to the department - Held that:- no immunity can be granted to the appellant who is playing with the money of the department. It was only detected during the course of investigation that appellant is receiving service tax and not paying to the department. In these circumstances, penalty under Section 77 and 78 are confirmed by upholding the impugned order. - Decided against the assessee.
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2014 (2) TMI 809
Denial of CENVAT credit on input services - Nexus between the output service and each of the services claimed to be input services - Whether the appellant could have claimed CENVAT credit - Held that:- Assessee in its previous case has accepted the previous order of pre deposit - Therefore, following decision of assessee's own case in [2013 (4) TMI 146 - CESTAT, Bangalore] - Conditional stay granted.
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2014 (2) TMI 808
Waiver of pre deposit - Demand of service tax - Denial of the benefit of Notification No. 17/2005-ST dated 7/6/2005 - Held that:- demand is on activities viz. site formation and clearance, excavation and earth moving and demolition and such other similar activities referred to in Section 65(105)(zzza) - activities were performed by the appellant preparatory to laying of railways leading to the premises of Karnataka Power Corporation Ltd., and JSW Steels Ltd. The learned Commissioner, who was adjudicating upon a show-cause notice issued on 18/5/2010 invoking the extended period of limitation, took the view that the aforesaid activities preparatory to construction of ‘railways’ as defined under the Railways Act could not claim exemption from service tax being charged. Prima facie case found for the appellant against the above view taken by the adjudicating authority. The term ‘railways’, which has not been defined under the Finance Act 1994 and in respect of which the said Act does not refer to the Railways Act, has ordinarily to be understood in accordance with common parlance. Construction of railways by private agencies in connection with their business activities is not unknown to trade and commerce. It is also undeniable that railway lines so constructed are operated by the railways. The above Notification should be interpreted having regard to all these aspects - Stay granted.
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2014 (2) TMI 807
Waiver of pre deposit - Demand of service tax - Works Contract Service - Held that:- entire demand in the present case is within the normal period of limitation. Though the appellant has pleaded financial hardships in the stay application, the plea appears to be a feeble haphazard attempt to get over the statutory requirement of pre-deposit. There is no documentary support to the plea of financial hardships - Conditional stay granted.
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2014 (2) TMI 806
Demand of service tax - Information Technology Software Service - Held that:- appellant received from a foreign vendor licence for use of IT software in India and conveyed this licence to distributors in India, who in turn conveyed this to the ultimate customers in India. The appellant paid service tax on the consideration received from the distributors. The case of the appellant at this stage is that, in the event of any liability to pay service tax being fixed on them in relation to licence received from the foreign vendor, CENVAT credit of the service tax so paid would be available to the appellant for payment of service tax in India - Stay granted.
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2014 (2) TMI 805
Waiver of pre deposit - Demand of service tax - Information Technology Software Services - Held that:- The subject matter of the impugned demand is IT software which, in one stream, was transferred by the appellant to their customers through internet to enable the latter to download the same and use it for their purposes under specific licence granted in this behalf and, in another stream, recorded in compact discs (CDs) and sold off the shelf to customers - As regards IT software recorded in CDs and sold to customers, the question whether service tax under the same head was leviable on this activity irrespective of any excisability of the product is highly debatable. Therefore, for the present purpose, we hold that the appellant has not made out any prima facie case on merits against whatever service tax and education cesses were demanded on the value of IT software transferred to their clients electronically. Adverting to the plea of limitation, we find that the appellant declared their activities to the department, admittedly, only in May 2009. Prior to that date, there was no disclosure of the activities to the department even though the appellant was bound to be aware of at least one stream of their activity having been covered under Section 65(105)(zzzze) of the Finance Act, 1994 - Conditional stay granted.
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2014 (2) TMI 776
Entitlement to CENVAT Credit - Whether the appellants are entitled for input service credit on “telephone services” which are installed at the residence of their officers and “air travel agent services” undertaken by their officers as per Rule 2 (l) of CENVAT Credit Rules, 2004 - Held that:- any service which has nexus with the business activity of the appellant, whether it is manufacturing or rendering service, has to be treated as “input service” coming within the purview of Rule 2(l) of the CENVAT Credit Rules, 2004. Undisputedly, in this case, the telephone service and air travel services has been availed by the appellants in the course of business activity as a manufacturer of excisable goods. Therefore, the issue is no more res integra - Following decision in the case of Ultra tech Cement Ltd. [2010 (10) TMI 13 - BOMBAY HIGH COURT ] - Decided in favour of assessee.
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Central Excise
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2014 (2) TMI 777
Interest on delayed payment - Rule 20 of CER, 2002 - Warehousing provisions - Whether the appellants are required to pay interest on this delayed payment of duty or not - Held that:- there being no Circular issued by the Board, specifying any interest rate, as envisaged in Rule 20(2), the interest cannot be confirmed against them in terms of Section 11AB. The said Rule is a complete code in itself and provides facility for warehousing, subject to the condition including interest, specified by the Board. Inasmuch as the Board has only specified the recovery of duty of excise, no interest can be demanded from them - Matter remanded back - Decided in favour of assessee.
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2014 (2) TMI 775
Rejection of rebate claim - original and duplicate copy of ARE1 for the goods exported not submitted - original and duplicate copy of ARE1 lost in transit - photo copies of the requisite original and duplicate ARE1 of the goods submitted - Held that:- there are other decisions of the Government of India on identical fact situation, where the rebate claim has been disallowed. Nevertheless there must be an attempt to reconcile the differing views. Non consideration of the decision which appear to cover the petitioner's case does indicate a flaw in the decision making process warranting interfere in our writ jurisdiction - we quash and set aside the impugned order dated 7 September 2012 passed by the Government of India in revision under Section 35EE of the Act and restore the issue to the file of Government of India in revision for fresh disposal - Decided in favour of assessee.
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2014 (2) TMI 774
Waiver of pre-deposit - Extended period of limitation - Excisability of structures - manufacturing aluminum sliding windows & aluminum doors - SSI exemption - Items were directly comes to the site where the structure was erected and glass was fixed - Applicant contended that aluminum assembly of Glazing Systems, the glazing is of glass which comes into existence at site and it is immovable property - The appellant also submitted that in any case credit to the extent of an amount of ₹ 28.42 lacs which they could have taken in respect of duty paid on the inputs but not taken as according to them the system was not excisable goods. - Tribunal ordered pre-deposit of ₹ 1.23 crores after granting benefit of extended period of limitation. Held that:- During the hearing on a specific query we were informed that the amount of ₹ 28.42 lacs paid on inputs has not been taken as cenvat credit. This was to avail benefit of a composition scheme in respect of service tax payable on works contract has as one of its conditions not to take cenvat credit on inputs. Therefore, permitting the appellant to take cenvat credit would mean they are disentitled to the benefit of service tax composition scheme which has already been availed. Therefore, the credit of ₹ 28.42 lacs cannot at this stage be taken into consideration for the purposes of determining the amounts to be deposited for the purpose of pre deposit. All these issues would be gone into at the final hearing of the appeal. No reason at this stage to interfere with the order of the Tribunal. - the time to deposit the further sum of ₹ 50 lacs as directed by the impugned order for the purpose of hearing the appellant's appeal on merits is extended - Decided partly in favour of assessee.
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2014 (2) TMI 772
Power to levy penalty for violation of CENVAT Credit Rules - Challenge to the validity of rule 13(2) of CCR 2002 and Rule 15(2) of CCR, 2004 as ultra-virus to Central Excise Act, 1994 - Delegated legislation - appellant were using non duty paid scrap for manufacturing the final product - duty paying documents obtained for availing credit without receiving Inputs - Held that:- In terms of section 37(1) and 37(4) of the Central Excise Act, 1944, the rule making authority had ample powers not only for providing for mechanism for collection of CENVAT and matters connected therewith but also to provide for penalties for breach of payment of such duty. We do not find that the rule making authority flows only from sub-section(1) of section 37 and can therefore, be stated to be general in nature without clothing the rule making authority with the power to levying penalty. As noticed section 11AC provides for penalty in case of unpaid duty by reason of fraud or collusion or any wilful mis-statement, etc., Such duty in terms of CENVAT Credit Rules, 2004, would be the central value added tax - we do not find any substance in the challenge raised by the petitioner to the rule 13(2) of the CENVAT Credit Rules, 2002 and rule 15(2) of the CENVAT Credit Rules, 2004 - Decided against Applicant.
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2014 (2) TMI 771
Maintainability of appeal - Non appearance of parties - Notice not served - Notice returned as not known - Tribunal dismissed appeal assuming that they are not interested in pursuing this appeal - Held that:- notice which was remitted to the assessee was returned undelivered with remarks of postal authority as "Not Known". From this, the Tribunal inferred that the appellant has changed its address without an intimation to the Tribunal and consequently the appellant appeared to be not interested in pursuing the appeal. As a matter of fact, the order of the Tribunal, as was urged before the Court, was served on the same address. The provisions of Section 37C(1) of the Act were clearly not followed - there was no valid service upon the appellant - Since, on the admitted facts as they stand, it is clear that there was no valid service on the assessee, it is not necessary for the Court to relegate the assessee to the remedy provided under the Central Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982 - Decided in favour of assessee.
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2014 (2) TMI 770
Invocation of extended period of limitation - Section 11A (1) of the Central Excise Act, 1944 - Held that:- if a scrutiny had been made by the Range Officer of the ER-1 returns, that would have revealed that the assessee had cleared its MS tanks and radiators to the owning company for the manufacture of transformers. This indicated that there was no fraud, collusion, misstatement or suppression of facts. Besides, since the situation was revenue neutral, no intent to evade the payment of duty could be ascribed to the assessee. Once there was no intent to evade the payment of duty, the Tribunal was justified in coming to the conclusion that the extended period of limitation under the proviso to Section 11A (1) of the Act would not be attracted. Hence, no substantial question of law arises in the appeal - Decided against Revenue.
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2014 (2) TMI 769
Disllowance of CENVAT Credit - Cenvat Credit on input services availed by the Job Worker availing exemption under Notf. No. 214/ 86-CE dated 25.03.1986 - Held that:- credit availed by the job worker cannot be denied where inputs were used in the manufacture of goods which were cleared without payment of duty under Notification No. 214/ 86-CE - appellants were entitled to Modvat credit of duty paid on inputs procured on their own account & used in the manufacture of job-worked goods exempted under notification number 214/ 86 CE. CENVAT Credit of input services was admissible to the job worker clearing goods to principal manufacturer under notification number 214/ 86 CE. In view of the above, we hold that the provisions of Rule 6(1) of the CENVAT Credit Rules, 2004 cannot be invoked for denying CENVAT Credit of input services used by the appellant factory for manufacture of job-worked goods under Notf. No. 214/ 86 CE - job work activity of the appellant is amounting to manufacture and is not one of providing any ‘service’. The appellant factory cannot be both a ‘manufacturer’ and a ‘service provider’ at the same time in relation to a particular activity. It is settled proposition in central excise matters that a job worker is a ‘manufacturer’ and hence the appellant factory cannot be treated as a service provider rendering exempted/ non-taxable service for the manufacturing activity - Decided in favour of assessee.
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2014 (2) TMI 768
Valuation of goods - inclusion of bought-out item - Whether the value of bought-out LCC (Line Circuit Card) supplied separately as traded goods, along with the EPABX systems, is includible in the assessable value of the EPABX systems for the purpose of charging central excise duty - Held that:- EPABX systems were sold without LCCs thereby proving that the EPABX without LCCs was fully manufactured goods and that the supply of LCCs (bought out item) was optional depending upon the requirement of the customers. The LCC is not fitted into the EPABX system at the time of clearance from the appellant s factory, but the same is supplied separately from their trading unit situated within separately demarcated premises. In the case of National Radio and Electronics Co. Limited Vs. Collector of Central Excise, Bombay [1995 (1) TMI 158 - CEGAT, NEW DELHI] it was held that, if the bought out items are only optional and if there are instances where the item manufactured by the assessee was supplied without these bought out items as contended on behalf of the party then the value of such items is to be excluded. Further following the decision of Webel Telecommunications (I) Limited Vs. Collector of Central Excise, Calcutta (1987 (10) TMI 151 - CEGAT, NEW DELHI) and Diamond Clock Manufacturing Co. Limited Vs. CCE, Pune (1987 (12) TMI 159 - CEGAT, NEW DELHI), Decided in favor of assessee.
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2014 (2) TMI 767
Rectification for Mistake - case law relied upon by the learned Counsel was not considered - Held that:- In para 7 of the order it is clearly mentioned that we have gone through various case laws cited by the appellants. Hence, the argument “while passing the order the Bench has not considered the case laws relied upon by the appellant” is not correct - Rectification denied.
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2014 (2) TMI 766
CENVAT Credit - Duty paying document - Additional CVD paid on TR-6 Challan being differential duty - Held that:- A combined reading of Rule 11 (3), Rule 11 (7) of Central Excise Rules 2002 and Rule 9 (a)(ii) of the CENVAT Credit Rules, 2004 will convey that in case of sale of imported goods by a first stage dealer or second stage dealer also the credit is admissible on the basis of such a sale invoice. A similar situation will exist for supplementary invoice issued by a first stage dealer/second stage dealer under Rule 9 (1) (b) of CENVAT Credit Rules, 2004. The word ‘Challan’ and ‘any other similar document’ evidencing payment of additional CVD, mentioned in Explanation to Rule 9 (1)(B), will thus mean those situations where duty is paid under a ‘challan’ by an importer/dealer of imported goods who has sold the cenvatable goods. In the present facts and conditions of the case, it has to be held that payment of differential duty was paid as a result of re-assessments with respect to imported capital goods as per law laid down by Delhi CESTAT in the case of Birla Jute Manufacturing Co. Ltd Vs CC Calcutta (1983 (8) TMI 253 - CEGAT, NEW DELHI). In Para-7 of this judgment, inter alia, it was held that refund claims and demands under Section 27 & Section 28 of the Customs Act, 1962 do involve re-assessment of the duty originally assessed. When additional duty is paid under re-assessment or on being pointed out by the Revenue then the credit of such duty paid will be admissible as CENVAT Credit to the appellant under Rule 9(1)(c) of the CENVAT Credit Rules, 2004. In view of the above settled position of law, the credit was rightly availed by the appellant and accordingly the appeal filed by the appellant is required to be allowed. Once on merits the issue is decided in favour of the appellant, there is no question of imposing penalty and confiscation of capital goods as adjudicated by the lower authority - Decided in favour of assessee.
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