TMI Tax Updates - e-Newsletter
March 18, 2020
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Highlights / Catch Notes
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Income Tax:
Validity of Section 40(a)(iib) - Scope of the term "Charges" - Whether Value Added Tax (VAT) would be falling within the definition of a “charge” - petitioner Corporation contending that the amount which is deductible in computing the income chargeable in terms of the Income Tax Act is not being allowed under the garb of the aforesaid provision - as the matter is still sub judice before the Income Tax Authority, we are not inclined to entertain the writ petition - HC
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Income Tax:
Application filed before the Settlement Commission - Settlement Commission passed the impugned order though there was no true and full disclosure by the assessee in the application for settlement filed before the Commission - The difference is very marginal as compared to the disclosure made by the assessee - Petition by revenue dismissed - HC
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Income Tax:
Income accrued in India - For the purpose of applying Article 13(5) of the India-Belgium tax treaty two fold conditions are required to be cumulatively satisfied viz. (i). that, the transfer of shares should represent participation of at least 10% in the capital stock of company; and (ii). that, the company whose shares are transferred should be a resident of a contracting state - Unilateral amendment made available in the I.T Act as ‘Explanation 5’ to Sec. 9(1)(i) of the Act, cannot be read into the India-Belgium tax treaty. - AT
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Income Tax:
Assessment u/s 153A - claim of deduction under section 80IA(4) - Paper company or not - assessee as a SPV was a mandatory requirement of NHAI - four laning of the existing road - to be considered as a new infrastructure facility or not - AO directed to verify the correctness of assessee's computation of deduction u/s 80IA and allow the same. Further, to ensure that deduction for the same infrastructure facility is not allowed to both the assessee and Gil, the Assessing Officer is directed to verify the relevant facts and thereafter compute deduction u/s 80IA. - AT
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Income Tax:
Deduction u/s 80P - CIT(A) has allocated the whole of the interest expenditure over the interest on FDRs and to the extent of interest attributable to FDRs placed with JCCB, the same has been reduced while working out the net interest income eligible for deduction u/s 80P(2)(d) of the Act. - In case, there are no liquid funds and all the funds are deployed in fixed and current assets, then the said theory of interest free funds doesn’t support the case of the assessee. - AT
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Income Tax:
Disallowance of higher reduction of depreciation on the cost of civil engineering works for laying foundation of solar power panels - the expenditure which is incurred by the assessee in the process of installation of solar panels is for the purpose of solar power plant. Thus the cost of said work cannot be separated from the installation of solar power plant and entire cost of solar power plant is eligible for depreciation as applicable for plant and machinery. - AT
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Income Tax:
Exemption u/s 11 - charitable activity or not - running a crime investigating agency parallel to the investigative agencies of the state and central government. - above object cannot be called as charitable in nature - The Learned CIT(E) has also pointed out following inconsistencies or discrepancies in the accounts and the activities of the assessee - Applications u/s 12AA and 80G were rightly rejected - AT
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Income Tax:
Revision u/s 263 - Default in computation of amount eligible for deduction u/s 80IA - The AO has passed the assessment order after calling for details on the issue and after considering the reply and documents after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. - AT
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Income Tax:
Exemption u/s 11 - sections 11 and 12 are substantive provisions which provide for exemptions to a religious or charitable trust. Sections 12A and 12AA detail the procedural requirements - denying such benefit to a trust like the assessee who had obtained registration u/s 12AA during the pendency of the appeals filed against the orders of the assessing authority, by narrowly interpreting the term, 'pending before the assessing officer' so as to exclude its pendency before the appellate authority, will be doing violence to the provisions of the Statute and, as such, liable to be interfered with. - AT
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Income Tax:
Revision u/s 263 - Unexplained cash deposits - A lack of inquiry on a pertinent point which demonstrates possible revenue leakage of staggering amount would definitely tantamount to the order being both erroneous as well as prejudicial to the interest of the Revenue. Consequent upon the action of Pr.CIT, the assessment order is merely cancelled and set aside to the file of the AO for making relevant inquirie - revision sustained - AT
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Income Tax:
Transfer of cases u/s 127 - assessee submitted that the AO had no jurisdiction to complete the assessment in Kolkata, since the jurisdiction over the assessee was duly transferred u/s 127 to chennai - Even a ‘right’ decision by a ‘wrong’ forum is no decision. It is non-existent in the eye of law. And hence a nullity. The assessment order under appeal is therefore no order in the eye of law, hence we quash the assessment order. - AT
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Income Tax:
Addition on account of difference in Arm’s Length Price - As far as rate of custom duty is concerned, it can be easily taken from the official website of the European Union and we find that the rate at the relevant point of time was 4.5% whereas the custom duty paid by the assessee accounts for more than 75% of the purchase value and 50% of the total cost of goods sold. In our considered opinion, such difference on account of custom duty paid by the assessee and that existing in the location where comparable companies operate, cannot be ignored. - AT
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Income Tax:
Assessment of trust - Exemption u/s 11 - The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. - AT
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Income Tax:
Depreciation on Car - if the payment has been made by the assessee then the assessee shall be the owner of the vehicle despite the fact it was registered in the name of 3rd person who is closely connected with the assessee - AT
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Customs:
Bonafide baggage or not - the benefit of free allowance of ₹ 50,000/- under the Baggage Rules has been wrongly extended by the adjudicating authority to the applicant since drones and their accessories cannot be cleared as “baggage”. - CGOVT
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Customs:
Refund claim - reassessment of bills of entry - Since the appellants have not challenged the assessment within the prescribed period and also for the reason that the goods were not available for testing as to whether they are manufactured from plastic scrap or plastic waste, the authorities below have rightly rejected the belated request for reassessment - AT
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Customs:
Exemption from countervailing duty (CVD) - where the exemption Notification stipulates two conditions, namely that the inputs should have suffered duty and that no CENVAT credit should have been availed, then the benefit of the Notification will be available only if both conditions are satisfied. An importer will never be able to satisfy both these conditions and hence, he cannot claim the benefit. - AT
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Customs:
Diversion of imported goods - violation of N/N. 21/2002-Cus. - Therefore, the only for the reason that the goods were transferred to their Baddi Unit, the exemption could not be denied subject to verification that the said transferred goods have been used in the Baddi Unit. - AT
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2020 (3) TMI 639
Exemption u/s 11 - registration under Section 12AA - activities of the trust whether they fall within any of the above clauses of charitable activities - HELD THAT:- This Court is of the opinion that under Section 12AA of the Act, the CIT(E) can only register or refuse the registration of the trust and it cannot direct registration of the trust under a particular category as it had done in the present case i.e. General Public Utility Trust.
Tribunal has not held that the CIT(E) should have granted registration to the respondent-Trust without examining its objects and activities. Only the conditions imposed and the categorisation of the trust have been struck down.
In the present case, the Tribunal has not replaced the satisfaction of the CIT(E) with its own satisfaction.
This Court is in agreement with the Tribunal that it was not open to the CIT(E) to categorise the trust under any particular category. No substantial question of law.
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2020 (3) TMI 638
Validity of Section 40(a)(iib) - Scope of the term "Charges" - Whether Value Added Tax (VAT) would be falling within the definition of a “charge” - petitioner Corporation contending that the amount which is deductible in computing the income chargeable in terms of the Income Tax Act is not being allowed under the garb of the aforesaid provision and for which learned Advocate General appearing for the petitioner / TASMAC has invited the attention of the Court to the order passed by the Assessing Authority dated 30.12.2019 - HELD THAT:- It is in order to protect the tax base of the State Government undertakings that the provision came to be introduced. She has further narrated as to the manner in which the State Government by issuing retrospective Government Orders, had appropriated the amount as a privilege fee and therefore, in such circumstances, it had become imperative to introduce the aforesaid provision, which is ultimately to the benefit of the State Government undertakings and also ensures the correct appropriation of revenue to the Central Government.
Having considered the submissions raised, the issue of raising a challenge to the vires of the provision at this stage, need not be entertained by us, as the matter is still sub judice before the Income Tax Authority even though, it is open to the aggrieved party to question the same at the appropriate moment.
We are not inclined to entertain the writ petition at this stage without prejudice to the rights of the aggrieved parties to approach the appropriate forum in accordance with law in the event the occasion so finally arises.
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2020 (3) TMI 634
Income accrued in India - transaction of transfer of shares under consideration - addition of STCG India-Belgium tax treaty - A.O held a conviction that as the assessee by transferring the shares of the aforesaid company viz. Accelyst Pte Ltd, Singapore, had indirectly transferred the shares of its subsidiary Indian company viz. M/s Accelyst Solutions Pvt., therefore, the gain arising from the said fact pattern of transaction of transfer of shares was exigible to tax in India, both as per ‘Explanation 5’ to Sec. 9(1)(i) of the Act and also Article 13(5) of the India-Belgium tax treaty - HELD THAT:- On a perusal of the aforesaid definition of the term “Contracting state”, it can safely or rather inescapably be gathered that the same in context of India-Belgium tax treaty would take within the sweep of its meaning either “India” or “Belgium”.
For the purpose of applying Article 13(5) of the India-Belgium tax treaty two fold conditions are required to be cumulatively satisfied viz. (i). that, the transfer of shares should represent participation of at least 10% in the capital stock of company; and (ii). that, the company whose shares are transferred should be a resident of a contracting state.
Accordingly, for the purpose of applying Article 13(5) of the tax treaty, one of the pre-condition that has to be satisfied is that the company whose shares are transferred should be a resident of a Contracting State viz. India or Belgium. As such, it is only if the shares transferred are of a company which is a resident of India and the same forms part of a participation of at least 10 per cent of the capital stock of the company, that the gains arising from alienation of such shares would be taxable in India as per Article 13(5) of the tax treaty. However, as the shares transferred by the assessee in the present case are of Accelyst Pte. Ltd., i.e a Singapore based company, therefore, in the absence of satisfaction of the pre-condition that the shares transferred should form part of the capital stock of a company which is a resident of a Contracting State, the application of Article 13(5) stands excluded to the current fact pattern of the transaction of transfer of shares under consideration.
Article 13(5) of the India-Belgium tax treaty does not permit a see through approach. Unlike Article 13(4) which is the only provision in the Article 13 of India- Belgium tax treaty that provides for a see-through approach, the Article 13(5) of the tax treaty in the absence of usage of words “directly or indirectly” does not provide for a see-through approach. Accordingly, in the absence of a see-through approach in Article 13(5), the transfer of shares of Accelyst Pte. Ltd., Singapore cannot be regarded as a transfer of shares of its Indian subsidiary viz. Accelyst Solutions Pvt. Ltd. Our aforesaid view is supported by the judgment of Sanofi Pasteur Holding SA [2013 (2) TMI 589 - HIGH COURT OF ANDHRA PRADESH] while adjudicating upon the scope of applicability of Article 14(5) of India France tax treaty (similarly worded as Article 13(5) of India-Belgium tax treaty), had ruled out a see-through approach in Article 14(5) of the India-France tax treaty, and had concluded that transfer of shares of the holding company could not be regarded as a transfer of shares of its subsidiary entity.
Unilateral amendment made available in the I.T Act as ‘Explanation 5’ to Sec. 9(1)(i) of the Act, cannot be read into the India-Belgium tax treaty. Accordingly, in the absence of any such corresponding provision in the India-Belgium tax treaty, both the A.O/DRP were in error in concluding that the shares of Accelyst Pte. Ltd., Singapore were to be deemed to be situated in India.
Both the A.O and the DRP are in error in concluding that the gains on the transfer of the shares of Accelyst Pte. Ltd., Singapore by the assessee company would be exigible to tax in India as per Article 13(5) of the India-Belgium tax treaty. As observed by us hereinabove, as the current fact pattern of the transaction of transfer of shares is assessable under the residuary provisions i.e Article 13(6) of the India-Belgium tax treaty, therefore, the gain, if any arising therefrom would only be taxable in Belgium i.e the Contracting State of which the alienator of the shares i.e the assessee company is a resident of. Before parting, we may herein observe that as we have concluded that the gains arising from the transaction of transfer of shares of Accelyst Pte. Ltd., Singapore by the assessee company are not chargeable to tax in India as per the India-Belgium tax treaty, therefore, we refrain from adverting to chargeability of the same under the provisions of the Income-tax Act, 1961, which having been rendered as academic in nature are thus left open. Accordingly, we ‘set aside’ the order passed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 15.10.2018 and vacate the addition of STCG made in the hands of the assessee. - Decided in favour of assessee.
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2020 (3) TMI 633
Income accrued in India - income attributed to the PE - Agency PE in India - Whether assessee is a permanent establishment in India within the meaning of Article 5(1) and Article 5(5) of the DTAA through its dependant agent VGSIPL - HELD THAT:- In the case of present assessee the care is manufactured by the Audi AG outside India and constitutes a separate and independent activity. As noted earlier the car is sold to VW Group for further sale in India and VW Group sale is not acting on behalf of Audi AG nor is Audi AG selling cars through VW Group sales. Moreover, the cars are sold on principle to principal basis. Hence, we are of the view that Assessing Officer was not justified in invoking section 9 of the Act and the Article 5 of Indo-Germany Tax Treaty for taking view that assessee has PE in India. In the result, Ground No.1 to 3 of appeal is allowed.
Deduction for marketing and promotional expenses - HELD THAT:- We have noted that this ground of appeal is also directly connected with the Ground No. 1 to 3 of the appeal, which we have allowed holding that the assessee has no PE in India and accordingly, the income earned by assessee is not taxable in India. Therefore, the adjudication of this ground of appeal is also become academic.
Levy of interest under section 234B & 234C - HELD THAT:- Considering the fact that the assessee is a foreign company and tax resident of Germany. The entire income of the Audi AG is subject to tax deducted at source under section 195 of the Act. The assessee has no liability to pay advance tax and the fact that we have already hold that income earned by assessee is not taxable in India, we direct the Assessing Officer to recompute the tax/interest by following the decision of the jurisdictional High Court in case of NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT].
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2020 (3) TMI 632
Assessment u/s 153A - claim of deduction under section 80IA(4) - Paper company or not - assessee as a SPV was a mandatory requirement of NHAI - four laning of the existing road - to be considered as a new infrastructure facility or not - HELD THAT:- When the status of the assessee has been accepted as a developer, even by the Assessing Officer in the impugned assessment order, Commissioner (Appeals) cannot change the status purely on the basis of conjecture and surmises without any contrary material available on record. In fact, Commissioner (Appeals) has not referred to even a single piece of material which can even remotely suggest that the assessee is a mere paper company and does not qualify the conditions of section 80IA(4) - There is no doubt that the BOT Toll Road built by the assessee is a infrastructure facility as defined under section 80IA(4). Therefore, an entity which developed such a facility is eligible to claim deduction, provided, he fulfills the conditions of section 80IA(4)(i) - In the fact of the present case, if neither the assessee nor GIL are held as ineligible then no one else could get the benefit of section 80IA and the very object for which the provision has been brought would fail. Unless the entity coming forward to make the investment in developing infrastructure facility is granted the statutory deduction no one will come forward to make huge investment for development of infrastructure facility which ultimately leads to development of country‟s economic condition.
Including the decision of the Tribunal in assessee‟s own case as referred to elsewhere in the order, we hold that the assessee is eligible to claim deduction under section 80IA - AO is directed to verify the correctness of assessee‟s computation of deduction under section 80IA and allow the same. Further, to ensure that deduction for the same infrastructure facility is not allowed to both the assessee and Gil, the Assessing Officer is directed to verify the relevant facts and thereafter compute deduction under section 80IA.
Disallowance of depreciation claimed on the right to collect annuity by treating it as intangible asset - HELD THAT:- Undisputedly, the assessee was awarded the work of constructing a part of the National Highway no.5, under BOT basis. Entire investment/finance for developing the infrastructure facility was borne by the assessee. By making such investment what the assessee received in return was a right to collect annuity over the period of concession. Thus, the investment made by the assessee for acquiring such right certainly is an intangible asset coming within the purview of section 32(1)(ii) of the Act. Therefore, the assessee would be eligible to claim depreciation. The decision of the learned Commissioner (Appeals) on the issue is hereby reversed.
Disallowance of deduction claimed u/s 14A - HELD THAT:- Undisputedly, in the original return of income filed for the assessment year under dispute, the assessee had voluntarily made disallowance of ₹ 2,36,81,525. It is also a fact on record that before the search and seizure operation took place in case of the assessee assessment for the impugned assessment year was completed under section 143(3) accepting the disallowance made under section 14A - In the return of income filed in pursuance to the notice issued under section 154A of the Act, the assessee withdrew the disallowance made under section 14A - since the issue relating to assessee‟s claim of deduction under section 14A of the Act, already stood concluded by virtue of the original assessment order, no further deliberation on the issue can be made in the impugned assessment order. Therefore, we fully agree with the decision of Commissioner (Appeals) on the issue even with regard to deletion of disallowance made while computing book profit under section 115JB of the Act. This ground is dismissed.
Disallowance u/s 40A(2) - HELD THAT:- Before invoking the provisions of section 40A(2)(b) the Assessing Officer has to establish through cogent material that the price paid by the assessee is not at arm's length. In the facts of the present case, as rightly observed by the learned Commissioner (Appeals), the Assessing Officer has substituted the price of contract with an estimated cost. Therefore, we do not find any reason to interfere with the decision of the Commissioner (Appeals). Even, otherwise also, the tax effect on the amount disputed by the Revenue in the present appeal is below the monetary limit of ₹ 50 lakh applicable to appeals before the Tribunal, as per CBDT Circular no.17 of 2019, dated 8th August 2019. Further, he submitted, none of the exceptions provided in CBDT Circular no.3 of 2018, dated 11th July 2018 r/w circular F. no.279/Misc./142/2007–ITJ–(Pt) dated 20th August 2018, would apply to Revenue‟s appeal. For that reason also, Revenue‟s appeal is not maintainable.
Validity of assessment framed u/s 153A as well as disallowance of deduction claimed under section 80IA - HELD THAT:- Admittedly, on the date of search, the assessment proceedings for all these assessment years were in progress, hence, abated. Assessing Officer is not required to confine himself only to incriminating materials for making any addition. As per the ratio laid down by the Hon'ble Jurisdictional High Court in Continental Warehouse Corporation (Nhava Sheva) Ltd. [2015 (5) TMI 656 - BOMBAY HIGH COURT] in case of abated assessment proceeding, the Assessing Officer retains the power to examine all the issues irrespective of their linkage to any incriminating material found during the search. Therefore, we are unable to accept the grounds raised by the assessee challenging the validity of the assessment orders passed under section 153A of the Act. However, on merits, we allow assessee‟s claim of deduction under section 80IA of the Act by following our decision while deciding similar issue.
Claim depreciation on the right to collect annuity by treating it as intangible asset.
Disallowance of expenditure u/s 14A r/w rule 8D - HELD THAT:- It is fairly well settled that the disallowance under section 14A r/w rule 8D cannot exceed the exempt income earned during the year. Further, if no exempt income has been earned in a particular assessment year, no disallowance under section 14A of the Act can be made. The Assessing Officer is directed to verify the relevant facts and if it is found that during the relevant assessment year, the assessee has not earned any exempt income, no disallowance under section 14A of the Act can be made. Otherwise, the disallowance under section 14A r/w rules 8D should be restricted to the exempt income earned during the year. Insofar as the disallowance of expenditure in relation to the exempt income earned for computing the book profit under section 115JB though, the Assessing Officer can make such disallowance under Explanation–1(f) to section 115JB(2) of the Act, however, such disallowance has to be restricted to the actual expenditure incurred for earning the exempt income. With these observations, the grounds raised by the assessee are allowed.
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2020 (3) TMI 631
Deduction u/s 80P - assessee received interest on FDRs placed with Jaipur Central Cooperative Bank - CIT(A) held that Jaipur Central Cooperative Bank is a cooperative society - HELD THAT:- Following the Coordinate Bench decision in assessee’s own case for earlier years [2019 (10) TMI 759 - ITAT JAIPUR] and considering the principle of consistency, we see no reason to deviate from the earlier decision and accordingly, for the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as a cooperative society. Therefore, interest on FDRs placed by the assessee society with such cooperative society shall be eligible for deduction u/s 80P(2)(d) of the Act and such claim cannot be denied by virtue of provisions of Section 80P(4) of the Act.
As decided in RAJASTHAN RAJYA SAHKARI UPBHOKTA SANGH LIMITED [1995 (1) TMI 33 - RAJASTHAN HIGH COURT] that the income exempted under section 80P(2) has to be arrived at separately in order to determine the income under section 80P(2) and it can never be envisaged that the total income which has been so received could be allowed without deducting the expenditure incurred in earning the income. In light of the same, the deduction u/s 80P(2)(d) can be allowed only on the net receipt after deducting the expenditure incurred for earning exempt income. Therefore, in the instant case, it needs to be determined whether the assessee has incurred any interest expenditure in earning the interest income.
CIT(A) has allocated the whole of the interest expenditure over the interest on FDRs and to the extent of interest attributable to FDRs placed with JCCB, the same has been reduced while working out the net interest income eligible for deduction u/s 80P(2)(d) of the Act.
What is relevant to determine is at the relevant point in time, when the FDRs were placed with JCCB, what is the position of availability of funds and whether at that time, interest free surplus funds were available which were deployed in form of FDRs. However, there is nothing on record to this effect. There is no dispute on the legal proposition that where interest free funds are more than the interest bearing funds, a presumption will arise that investment has been made out of interest free funds. Such a presumption has to be tested at the point in time when the investment was made and not at the beginning or at the end of the year. In the instant case, merely stating that the assessee has interest free funds by way of share capital and accumulated profits at the yearend will not help the case of the assessee as the same reflect the position subsequent to deployment of funds in FDRs which were placed sometime during the year and not at the end of the year. Further, whether such interest free funds at the year end are liquid funds or are represented by fixed assets and other currents. In case, there are no liquid funds and all the funds are deployed in fixed and current assets, then the said theory of interest free funds doesn’t support the case of the assessee.
AR has submitted some figures, however, we find that the matter require further information and verification and in absence of findings of the lower authorities, for the limited purposes of verification of the aforesaid contention, the matter is set-aside to the file of the ld CIT(A) to examine the same afresh. In the result, the respective grounds of appeal are disposed off.
Disallowance of contribution to ‘sparsh trust’ registered u/s 12AA treating the same is business expenditure - HELD THAT:- Expenses actually given in donation to the trust was to be with the requirement of trust for the benefit and betterment of quality of milk to meet the health of the animals - Decided in favour of assessee.
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2020 (3) TMI 637
Taxability of DEPB licence and deduction u/s 80HHC - HELD THAT:- Since the matter stands remanded back to the Assessing Authority in the present case, we leave it free for the assessing authority to comply with the law laid down in M/S TOPMAN EXPORTS VERSUS COMMISSIONER OF INCOME TAX, MUMBAI [2012 (2) TMI 100 - SUPREME COURT] and pass appropriate orders in accordance with law, without answering the substantial questions of law raised in the present appeal as such.
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2020 (3) TMI 630
Disallowance of higher reduction of depreciation on the cost of civil engineering works for laying foundation of solar power panels - AO noted that the assessee has claimed depreciation on solar power plant which includes the cost of civil engineering works - AO accordingly bifurcated total cost of solar power plant and separated the cost of civil engineering works and allowed depreciation on the same at the rate as applicable on building and consequently the disallowance was made by the AO - HELD THAT:- AO has not disputed the fact that soil leveling and other civil works carried out by the assessee is not required for installation of solar power panels. Therefore, the expenditure which is incurred by the assessee in the process of installation of solar panels is for the purpose of solar power plant. Thus the cost of said work cannot be separated from the installation of solar power plant and entire cost of solar power plant is eligible for depreciation as applicable for plant and machinery.
Accordingly in view of the facts, circumstances of the case as well as the binding precedent of Hon'ble Jurisdictional High Court the case of CIT vs K.K. Enterprises [2015 (2) TMI 508 - RAJASTHAN HIGH COURT] we decide the issue in favour of the assessee and thereby the addition made by the AO on account of disallowance of depreciation is delete.
Addition on account of interest on Fixed Deposits during pre-commencement period as income from other sources - HELD THAT:- If the fixed deposits were made to avail the bank guarantee for setting up of the solar power plant then it is inextricably linked with the setting of solar power plant and consequently the interest on said fixed deposits would be in the nature of capital receipt and not the Revenue receipt. Following the judgement of Hon'ble Delhi High Court in the case of Pr. CIT vs Facor Power Ltd. [2016 (1) TMI 461 - DELHI HIGH COURT] we decide this issue in favour of the assessee and against the Revenue. Thus the addition made by the AO is deleted. The Ground of the assessee is allowed.
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2020 (3) TMI 629
Exemption u/s 11 - charitable activity or not - running a crime investigating agency parallel to the investigative agencies of the state and central government. - rejecting the registration of the assessee trust under section 12AA - HELD THAT:- We find from the pages 3 to 24 of the paper book, which is a copy of the trust deed of the assessee trust, that it’s objects have been bifurcated in the nature of the education, relief to poors, medical relief, and object of general public utility.
We are agreed with the finding of the Learned CIT(E) that above object cannot be called as charitable in nature. From other objects and activities, it appears that the assessee is running a crime investigating agency parallel to the investigative agencies of the state and central government. The Learned CIT(E) has also pointed out following inconsistencies or discrepancies in the accounts and the activities of the assessee - we do not find any merit in the grounds raised by the assessee and accordingly we uphold the rejection of applications under section 12AA and 80G of the Act. - Decided against assessee.
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2020 (3) TMI 628
Disallowance u/s 14A r.w.r. 8D - disallowance of expenses incurred in relation to earning of an exempt income - Addition under the normal provisions and also corresponding additions made to ‘Book Profit’ by invoking provisions of Sec.115JB for computing book profit for levying minimum alternate tax - HELD THAT:- Assessee has brought on record cogent material to evidence that assessee has own interest free funds available to the tune of ₹ 19.75 as on 31.03.2014 consisting of share capital along with Reserves and Surpluses ( preceding year 11.71 crores) and the assessee had investments of ₹ 8.34 Crs. as on 31.03.2014 while investments were to the tune of ₹ 34.19 lakhs as on 31.03.2013 - as observed that assessee has sold an property for ₹ 9.35 crores during the year under consideration. The assessee has filed bank statements and sale deed to evidence sale of property and investments made during the year under consideration. Allegations made by Revenue are that the assessee has used mixed funds for the purpose of making investments in the securities which are capable of yielding exempt income. Revenue could not demonstrate co-relation between the utilization of interest bearing borrowed funds with the investments made.
Major investments were made during the year under consideration and assessee had also sold its property for consideration of ₹ 9.35 crores during the year under consideration. Assessee has demonstrated with cogent evidences that the assessee has its own interest free funds which are higher than investments and presumption will apply that assessee has invested its own interest free funds for making investments in the securities capable of yielding exempt income.
The Revenue is not able to demolish/rebut the aforesaid presumption. The Reliance is placed on decision of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Limited [2009 (1) TMI 4 - BOMBAY HIGH COURT] . Thus, we have no hesitation in ordering deletion of additions as were made by Revenue u/s 14A read with Rule 8D(2)(ii) of the 1962 Rules. So far as additions as were made by Revenue u/s 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules which are vehemently challenged by assessee assessee has to bring on record cogent evidences and explanations to substantiate the complete modus operandi adopted by the assessee for making investments such as involvement of Board of Directors, committee of investments /Personnel appointed to look after decision making process for investments, time spent by Board of Directors/ committee members or other personnel and cost attributable thereof , other cost incurred such as administrative costs and other costs in relation to these investments, etc., to explain and demonstrate entire cycle of investment making process to discharge primary onus, then the AO has to look into books of accounts to compute the disallowance of expenditure incurred in relation to earning of an exempt income and to record satisfaction. In the absence thereof of the discharge of primary onus by the assessee as aforesaid, the AO will have right to invoke Rule 8D(2)(iii) of the 1962 Rules after recording satisfaction as mandated u/s 14A.
Matter is remitted back to the file of the AO for fresh adjudication and the assessee is directed to produce relevant details /explanation and modus operandi of managing its investment portfolio as detailed above by us in this order. We agree with the contentions of the assessee that Section 14A read with Rule 8D(2) of the 1962 Rules cannot be invoked for making disallowance u/s 115JB but disallowance of expenses incurred relatable to earning of an exempt income is to be computed in accordance with Explanation 1(f) to Section 115JB of the 1961 Act, in accordance with ratio of decision of Special Bench in the case of Vireet Investment [2017 (6) TMI 1124 - ITAT DELHI]. We also remit this matter back to the file of the AO for making additions to the Book Profit u/s.115JB in accordance with decision of the Hon’ble Special Bench of the tribunal in the case of Vireet Investment (P) Limited (supra) read with explanation 1(f) to Section 115JB.
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2020 (3) TMI 627
Revision u/s 263 - Default in computation of amount eligible for deduction u/s 80IA - assessee company had set off interest on Bank Overdraft account against FD interest income and the resultant interest income had been shown as other income chargeable to tax - HELD THAT:- AO has examined the issue of deduction claimed u/s 80IA for the power unit of the company. AO had examined the documents and explanations submitted before him.Thereafter the AO had taken one of the plausible view of netting up of interest expenses with interest income in view of the Supreme Court judgment in the case of ACG Associated Capsules (P) Ltd [2012 (2) TMI 101 - SUPREME COURT].Therefore, under these circumstances it cannot be said that the order of the AO is erroneous.
There is an application of mind and a decision has been taken by the A.O., the assessment order cannot be said to be erroneous unless the same is potentially wrong or unlawful. For that we rely on the judgment of M/s. Malabar Industrial Co. Ltd. Vs CIT [2000 (2) TMI 10 - SUPREME COURT]
Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. [2009 (9) TMI 633 - DELHI HIGH COURT] drew the thin line of difference between "lack of inquiry" and "inadequate inquiry" and held that in the case of inadequate inquiry there cannot be 263 order. Therefore, without prejudice, even it is held that the AO had made inadequate inquiry then also powers under section 263 of the Act cannot be invoked under the facts and circumstances of the case.
It is well established that the impugned order passed u/s. 143(3) dated 07.01.2016 was passed after calling for relevant information and after detailed examination of the same. The AO has passed the assessment order after calling for details on the issue and after considering the reply and documents after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. CIT’s finding fault with the order of the AO is erroneous as well as prejudicial to the interest of revenue on account of lack of inquiry has to fail.
AO has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the AO cannot be treated as erroneous and prejudicial to the interest of the revenue as held by Hon’ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000 (2) TMI 10 - SUPREME COURT] . Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is not sustaining in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT. Therefore, we quash the order of the Principal CIT dated 06.03.2018, being ab initio void. - Decided in favour of assessee.
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2020 (3) TMI 626
Reopening of assessment u/s 147 - assessee-trust is registered under the provisions of section 12AA and 80G - HELD THAT:- First proviso to section 12A(2) was brought in the statute only as a retrospective effect with a view not to affect genuine charitable trusts and societies carrying on genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The benefit of retrospective application alone could be the intention of the legislature and this point is further strengthened by the Explanatory Notes to Finance (No.2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 dated 21.1.2015.
Statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the Id. A.O., unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s147 could be taken by the AO merely for non-registration of trust for earlier years.
Explanatory Memorandum to Finance (No.2) Bill, 2014, which sought to amend section 12A explains the objects and reasons for making such amendments. The explanation makes it clear that it was in order to provide relief to such trusts in respect of which, due to absence of registration u/s 12AA tax liability got attached though otherwise they were eligible for exemption by fulfilling other substantive conditions that the amendment was brought in. That being so, denying such benefit to a trust like the assessee who had obtained registration u/s 12AA during the pendency of the appeals filed against the orders of the assessing authority, by narrowly interpreting the term, 'pending before the assessing officer' so as to exclude its pendency before the appellate authority, will be doing violence to the provisions of the Statute and, as such, liable to be interfered with.
Under the Scheme of the Act, sections 11 and 12 are substantive provisions which provide for exemptions to a religious or charitable trust. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemptions under sections 11 and 12 by the assessee and the grant or rejection of such application by the commissioner.
Sections 12A and 12AA are only procedural in nature. Hence, it is not the registration u/s 12AA by itself that offers immunity from taxation. A receipt whether it is revenue or capital in nature is to be decided at the assessment stage. Being procedural in nature, in our view, liberal interpretation will give effect to the intention of the amendment, thereby removing the hardship in genuine cases like the present assessee under consideration.
As per second proviso to section 12A(2), no action u/s 147 shall be taken by the Assessing Officer in case of a trust for any assessment year preceding the aforesaid assessment year only for non-registration of such trust for the said assessment year. In the present case, since the assessee has been granted registration u/s 12A of the Act on 05.08.2014 for the assessment year 2015-2016, it is not possible to reopen the assessment earlier to that on non-registration of such trust and bringing the corpus donation into tax, which was received for specific purposes. Since we have allowed the legal issue in favour of the assessee, we are refrained from going into any other grounds raised by the assessee before us in these appeals. - Decided in favour of assessee.
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2020 (3) TMI 625
Revision u/s 263 - Unexplained cash deposits - deposits shown to have been received by the corresponding broker was not probed by the AO - whether the Pr.CIT was justified in setting aside the assessment order where source of cash deposits from unidentified people have been accepted summarily without any tangible inquiry in this regard? - HELD THAT:- A perusal of the questionnaires issued and replies made by the assessee thereon clearly show that no relevant or meaningful inquiry was conducted in respect of source of cash to meet the losses incurred on transactions with M/s. Labdhi Finance Corporation. A bare look at the assessment order gives an infallible impression that the assessment order was passed in a routine and perfunctory manner without any discussion on any aspect of the assessment for which the case was reopened. The preponderance of evidence and explanations thereon by the assessee clearly indicates its unrealistic nature which would warrant an inquiry from the source persons. The Pr.CIT in discharge of its solemn duty u/s 263 could not remain oblivious of these facts.
There is an apparent plausibility in the action of the Pr.CIT by resorting to powers under s.263 of the Act which is of wide amplitude. The circumstances clearly existed which demanded enquiry which was not done by the AO while discharging its statutory function.
Stock market regulations did not permit a share broker or market intermediary to accept the cash payments against the transactions carried out on the platform of the stock exchange.
The client is expected to deal with the share broker only through the banking channel. The case made out on behalf of the assessee that the transactions were carried out on behalf of the unknown clients from whom the cash was received remains totally unsubstantiated. No tangible enquiry has been made by the AO into the circumstances which led to so called arrangement whereby the cash was given by unidentified people to the assessee for doing transactions on their behalf where arrangement itself is violative of regulated procedure. The source of cash has remained unexplained before the AO indeed in the absence of proper verification in this regard. Similarly, no concrete evidence is available for conversion of cash into demand drafts, which has, in turn, been paid to the broker.
The elementary details called for by the AO could not persuade any reasonable person to form an opinion in favour of the assessee as regards source of cash. No trail of cash deposits was placed on record. Mere passing of entries towards receipt of cash from unknown persons, in the cash book, in the strange circumstances bypassing the stock market regulations, could not have discharged the AO of its quasi-judicial responsibilities. The assessment order passed by the AO clearly suffers from the vice of lack of requisite enquiries or verification expected from him which has rendered the order passed by the AO to be erroneous in so far as it is prejudicial to the interests of the Revenue as rightly held by the Revisional Commissioner. Armed with fairly extensive powers, the Pr.CIT, in our view, has taken action compatible with circumstances. Cause of action did exist in relation to all the three assessment years in question. Hence, the Pr.CIT was fully justified in invoking its power u/s 263 of the Act to set aside the assessment framed without any application of mind for making a fresh assessment de novo after making necessary enquiry regarding source of credit entries from the assessee and towards cash deposits made in the bank account by the assessee.
A lack of inquiry on a pertinent point which demonstrates possible revenue leakage of staggering amount would definitely tantamount to the order being both erroneous as well as prejudicial to the interest of the Revenue. Consequent upon the action of Pr.CIT, the assessment order is merely cancelled and set aside to the file of the AO for making relevant inquiries as specified for which objective material is available at the threshold. The assessee has not estopped in any manner from dealing with the inquiry as specified to the AO and to rebut the perception that the prima facie belief on error in the original order is not correct. The assessee is not prevented from supporting its case in any manner before the AO in the proceedings pursuant to Section 263 - no justifiable reason to interfere with the revisional action of the Pr.CIT. - Decided against assessee.
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2020 (3) TMI 636
Application filed before the Settlement Commission - Settlement Commission passed the impugned order though there was no true and full disclosure by the assessee in the application for settlement filed before the Commission - HELD THAT:- On perusal of the impugned order passed by the Commission, it is apparent that the application submitted by the respondent has been dealt with as per the provisions of section 245C and 245D of the Act. The Commission has observed detailed procedure while exercising powers under section 245D(4) by examining thoroughly report submitted by the petitioner under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997.
Commission has also provided proper opportunity of hearing to the respective parties and therefore the amount which has been determined by the Commission is just and proper. Commission was right in considering the revised offer made by the respondent during the course of the proceedings in the nature of spirit of settlement. Therefore, the decision of the Apex Court in case of Ajmera Housing Corpn. [2010 (8) TMI 35 - SUPREME COURT] would not come into operation in facts of the case. We are therefore of the opinion that order passed by the Commission does not call for any interference.
When we compare the disclosure made by the assessee to the tune of ₹ 11,33,02,651/- in the application filed before the Settlement Commission and the grievance made by the writ-applicant with regard to the amount of ₹ 2,04,88,560/-, the same is very marginal as compared to the disclosure made by the assessee. Accordingly, when the assessee had agreed for addition of ₹ 1,02,44,280/-to put quietus to the issue and to settle the matter, no interference is called for in the impugned order passed by the Settlement Commission. The petition, therefore, fails and is accordingly dismissed.
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2020 (3) TMI 623
Transfer of cases u/s 127 - assessee submitted that the AO had no jurisdiction to complete the assessment in Kolkata, since the jurisdiction over the assessee was duly transferred u/s 127 to ACIT, Central Circle 2(3), Chennai, CIT Central-II, Chennai - HELD THAT:- We note that order under section 127 of the Income Tax Act was issued by the Commissioner of Income Tax, Kolkata-1, on 15.03.2013 whereby the Commissioner transferred the jurisdiction from ITO,Wd-1(4), Kolkata to ACIT Central Circle-II(3), Chennai. The order was passed by the assessing officer Ward-1(4) Kolkata on 24.03.2014, which is without jurisdiction.
In assessee`s case under consideration, the order under section 127 of the Income Tax Act was issued by the Commissioner of Income Tax, Kolkata-1, on 15.03.2013 whereby the Commissioner transferred the jurisdiction from ITO,Wd- 1(4), Kolkata to ACIT Central Circle-II(3), Chennai. Whereas, the assessment order was passed by the assessing officer Ward-1(4) Kolkata on 24.03.2014, which is without jurisdiction. Even a ‘right’ decision by a ‘wrong’ forum is no decision. It is non-existent in the eye of law. And hence a nullity. The assessment order under appeal is therefore no order in the eye of law, hence we quash the assessment order. - Decided in favour of assessee.
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2020 (3) TMI 622
Addition on account of difference in Arm’s Length Price - HELD THAT:- For certain types of adjustments, relevant data for comparables may either not be available in public domain or may not be reliably determinable based on information available in public domain, whereas, it may be possible to make equally reliable and accurate adjustments on the tested party whose data would generally be easily accessible.
Rule 10B(3)(ii) provides for making "reasonably accurate adjustments" for eliminating any material differences between the two transactions being compared. It is an undisputed fact that import of watches carry heavy customs duty which may not be there in so far as Italian companies are concerned. The purpose or intent of the comparability analysis is to examine as to whether or not, the values stated for the international transactions are at ALP. We are of the view that the regulations do not restrict or provide that adjustments cannot be made on the results of the tested party. We are also of the view that net profit margin of the tested party drawn from its financial accounts can be suitably adjusted to facilitate its comparison with other uncontrolled entities/transactions as per sub-clause (i) of Rule 10B(1)(e) of the Rules. There is no specific provision in Rule 10B(1)(e)(iii) of the Rules, which would impede the adjustment of the profit margin of the tested party.
As far as rate of custom duty is concerned, it can be easily taken from the official website of the European Union and we find that the rate at the relevant point of time was 4.5% whereas the custom duty paid by the assessee accounts for more than 75% of the purchase value and 50% of the total cost of goods sold. In our considered opinion, such difference on account of custom duty paid by the assessee and that existing in the location where comparable companies operate, cannot be ignored. Considering all these facts in totality, we decline to interfere with the findings of the ld. CIT(A). Ground No. 1 is, accordingly, dismissed.
Addition on account of advertisement and business promotion - AO was of the firm belief that the advertisement expenses were capital in nature and bring enduring benefit to the assessee and accordingly, amortized the expenditure in three years and thereby allowed 1/3rd of the expenditure in the current A.Y and balance 2/3 of the expenditure was added back - HELD THAT:- We have to say that considering the names of the brand ambassadors as mentioned elsewhere, we are of the considered opinion that the advertisement spend by the assessee is peanuts to the face value of these celebrities - Expenditure incurred on advertisements in the aforesaid manner has to be treated as revenue in the nature and was therefore fully allowable. - Decided in favour of assessee.
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2020 (3) TMI 619
Deduction u/s. 80P(2)(a)(i) - interest income earned from commercial and co-operative bank - interest income accrued to the assessee on the funds invested with the bank was considered as income from other sources u/s. 56 - HELD THAT:- Disallowance of expenses u/s. 14A ITAT has held that assessee was having mixed funds and the interest funds were more than investment in cooperative bank and cooperative societies no disallowance was called for from eligible deduction u/s. 80P(2)(d).
Disallowance of claim of deduction u/s. 80P(2)(d) on the basis of attracting provision of section 14A of the Act as narrated in the case of ACIT vs. Sabarkantha District Co-operative Milk Producers Union Ltd. [2013 (9) TMI 1114 - ITAT AHMEDABAD] - On the other hand, the issue involved in this case of the assessee is claim of deduction of interest income u/s. 80P(2)(d) of the act earned on idle funds placed with co-operative bank. However, on the issue of earning similar nature of interest from the commercial bank the Jurisdictional Hon’ble High Court in the case of SBI vs. CIT [2016 (7) TMI 516 - GUJARAT HIGH COURT] has held that interest income on deposit placed with the commercial bank is not entitled for deduction u/s. 80P(2)(a)(i) of the act. In the light of the above, we are of the view that the income by way of interest earned by deposit of idle fund does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co-operative bank. The identical issue on the similar facts has been adjudicated by the Co-ordinate Bench of the ITAT after considering the decision in the case of Pr. CIT s. Tatagars Co-operative Sale Society [2010 (2) TMI 3 - SUPREME COURT] .
The Narsanda Mercantile Co.Op. Credit Society Ltd. [2018 (8) TMI 1844 - ITAT AHMEDABAD] has adjudicated the identical issue on similar fact and held that earning of interest income either from nationalized or co-operative bank is not entitled for deduction u/s. 80P(2)(d) - Decided against assessee.
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2020 (3) TMI 621
Assessment of trust - Exemption u/s 11 - Carry forward expenditure incurred in excess of its income for setting off against income of the succeeding years - HELD THAT:- The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year.
The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The High Court relied on the decision in the case of CIT Vs. Society of Sisters of ST. Anne [1983 (8) TMI 44 - KARNATAKA HIGH COURT] - Decided against revenue
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2020 (3) TMI 620
Depreciation on Data Processing Equipment as part of computers - depreciation @ 60% - HELD THAT:- We in the interest of justice and fair play, expressed to set aside the finding of the learned CIT (A) to the AO to verify whether the items of addition are part and parcel of the computers. But at the time of dictation, we find that the learned CIT (A) has given very clear finding about the addition of the items under the head data processing equipments are computers/connected devices which was not controverted by the learned DR appearing for the Revenue. Therefore, we find that there is no justification to set aside the issue to the file of the AO for fresh adjudication of the items of addition under data processing equipments.
We also note that the appeal was filed by the Revenue and the onus was on it to high lights the infirmities in the order of the ld. CIT-A but the ld. DR appearing on behalf of the Revenue failed to do so - we are of the view that the assessee is entitled for depreciation on data processing equipments at the rate of 60%.
Disallowance u/s 40(a)(ia) - Housekeeping Expenses u/s 194C - HELD THAT:- We find that the assessee itself before the learned CIT (A) has admitted the fact that the parties for creating the house keeping provisions were not identifiable. Accordingly we hold that these are contingent liabilities which are not based/computed/calculated in scientific manner. Thus, we do not find any infirmity in the order of the learned CIT (A).
Retrospectivity of the second proviso to Section 40(a) (ia) - Interest Expenses u/s 194A - HELD THAT:- CIT (A) has no power to set aside the order to the AO for the verification. As such the learned CIT (A) has to adjudicate the issue raised by the assessee after calling the remand report from the AO. However, the facts of the present case are the different. As such, the learned CIT(A) has adjudicated the issue raised by the assessee but set aside to the file of the AO only for the limited purpose of the verification. Therefore, we do not find any infirmity in the order of the learned CIT (A) so far as the direction provided to the AO.
Similarly, we also note that, the amendment made under the provisions of section 40(a)(ia) vide Finance Act, 2012 has been applicable retrospectively. See ANSAL LAND MARK TOWNSHIP (P) LTD. [2015 (9) TMI 79 - DELHI HIGH COURT] - we hold that such amendment under the provisions of section 40(a)(ia) of the Act though brought from the assessment year 2013-14 but it has been held applicable from retrospectively. Accordingly, we do not find any reason to interfere in the order of learned CIT (A). Hence the ground of appeal of the Revenue is dismissed.
Interest Expenses to Kotak Mahindra Prime Limited under section 194A - HELD THAT:- We note that the learned AR for the assessee has not produced any documentary evidence suggesting that the impugned amount paid to ALBL represents the reimbursement of the expenses. Indeed, there was the submission filed by the assessee before the authorities below claiming that the impugned amount of interest represents the reimbursement of the expenses. However, the learned CIT (A) has not given any finding on this contention of the assessee.Accordingly, in the absence of documentary evidence, we reject the contention of the assessee.
We find force in the alternate contention of the assessee that the payee of such interest has offered the same to tax. Accordingly, we direct the assessee to file the requisite details showing the reconciliation for the payment made by the assessee to ALBL and the ALBL subsequently made the payment to Kotak Mahindra Prime Limited which has offered the amount of interest income in the income tax return. Hence the ground of appeal of the Revenue is dismissed whereas the grounds raised by the assessee in its CO are partly allowed for the statistical purposes.
Disallowances on account of bad debts - AO disallowed the same by holding that the impugned amount was not offered to tax in the earlier years, therefore the same should not be allowed in current year - HELD THAT:- Assessee cannot be allowed deduction for writing off such security deposit as bad debts for the reason that the conditions as specified under the provision section 36(2) have not been satisfied.
Fact has not been doubted by any of the authorities below that such expenses were not incurred by the assessee in the course of the business. As such, the assessee has taken two showrooms in 2 different cities for the purpose of its business. Accordingly, the security deposits were made in the course of its business activities. Therefore, any loss incurred for any activity carried out in the course of the business is eligible for deduction either under section 37 or section 28 of the Act. In this regard we find support and guidance from the judgment of Hon’ble Gujarat High Court in case of PCIT vs. Dishman Pharmaceuticals & Chemicals Ltd [2019 (10) TMI 1195 - GUJARAT HIGH COURT]
Assessee kept showing such security deposit in its balance sheet for 2 years and also chased lessor for the recovery of the security deposits. But all the force of the assessee remains unfruitful. Finally, the assessee in the financial year 14-15 lost the hope of the recovery of the impugned amount and decided to write it off in the financial statements. In our considered view, the action of the assessee writing it off in the financial statements suggests the year of crystallization, though the assessee was entitled to receive the amount of security deposit in the financial year 11-12. As such, in our considered view, the year in which the assessee has written off the amount of security deposit is the relevant year in which the liability has crystallized.
Accordingly, we reverse the order of the learned CIT (A) and direct the AO to allow the claim of the assessee. The ground of appeal raised by the assessee in its CO is allowed.
Disallowances of car depreciation - assessee before learned CIT(A) submitted that the AO has made an assumption without any basis that the impugned car is owned by its Director - HELD THAT:- We note that the amount of depreciation was disallowed in the absence of documentary evidences furnished by the assessee. However the learned AR before us has undertaken the responsibility to file the necessary documents evidencing that the payment for the purchase of the car was paid by it. In this regard, we note that if the payment has been made by the assessee then the assessee shall be the owner of the vehicle despite the fact it was registered in the name of 3rd person who is closely connected with the assessee - we are inclined to set aside the issue to the file of the AO for fresh adjudication
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Customs
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2020 (3) TMI 650
Absolute Confiscation - restriction on import - rejection of claim for classification under heading no. 1211 9099 of First Schedule to Customs Tariff Act, 1985 and redetermined under heading no. 1211 9019 of First Schedule to Customs Tariff Act, 1975 - HELD THAT:- On perusal of the ITC (HS), Schedule I of the import policy, we find that seeds are covered by heading no. 1211 9019 of the First Schedule to the Customs Tariff Act, 1975 and that, other than ‘ambrette seed’, nuxvomica’, ‘psyllium’ and ‘neem’, all other seeds are restricted.
The appellant, admittedly, is a trader and the import of seeds, covered by the revised heading of the First Schedule to the Customs Tariff Act, 1975, is restricted. The existence of such restriction, from the elaboration in the ITC (HS), 2017, Schedule I, can only be attributed to the intent of imposing quantitative restrictions.
Neither is there any discussion nor do any of aspects in the records sustain this conclusion. As the actual user condition has not been complied with, the goods are liable for confiscation. However, in the absence of any elaboration on the restriction, other than licensing condition, we find no reason to approve the absolute confiscation - Even if the apprehension of the first appellate authority that use of these seeds in medical preparations may jeopardise health of human beings, in the absence of explicit authority devolving on officers of customs for taking upon themselves such authority, the government agencies entrusted with the task of ensuring public health would not fail in discharging their responsibilities.
The confiscated goods is to be released on payment of redemption fine of ₹ 50,000/-. The penalty under section 112(a) of Customs Act, 1962 is modified to ₹ 50,000/- - appeal disposed off.
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2020 (3) TMI 652
Stay against the forfeiture of bank guarantee - allowance to work under his Customs Broker’s licence - HELD THAT:- It appears that against the Order-in-Original dated 13th September, 2019 passed by the respondent (Annexure A to the memo of this writ petition), an appeal has already been preferred by the petitioner before the CESTAT, New Delhi.
Since, the petitioner has already preferred an appeal before the CESTAT, New Delhi, wherein stay application can be preferred by the petitioner, we therefore direct that as and when such stay application is preferred by the petitioner before the CESTAT, the CESTAT will decide the same, in accordance with law, rules, regulations and the Government policy applicable to the facts of the present case.
Petition disposed off.
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2020 (3) TMI 649
Refund of SAD - rejection on the ground that the duty has been paid by the appellant by utilising duty paid script - Public Notice No. 06/2014 dated 18.04.2013 - HELD THAT:- Admittedly, in Notification No. 102/2007-Cus. there is no restriction to pay duty by utilisation of duty paid script. Therefore, the Public Notice dated 18.04.2013 is no application for rejection of refund claim of SAD paid by utilisation of duty paid script.
The argument of Learned AR relying in the case of M.F. RINGS & BEARING RACES LTD., R.N. GUPTA & CO. LTD., UMA SHANKAR KHANDELWAL & CO., KUNJ FORGINGS VERSUS COMMISSIONER OF CUSTOMS & ANOTHER, UNION OF INDIA & OTHERS [2016 (5) TMI 440 - DELHI HIGH COURT] to say that the order of the Hon’ble High Court has been stayed by the Hon’ble Apex Court have no significance as held by the Hon’ble Delhi High Court in the case of PRINCIPAL COMMISSIONER OF C. EX., DELHI-I VERSUS SPACE TELELINK LTD. [2017 (3) TMI 1599 - DELHI HIGH COURT] wherein the Hon’ble High Court held that although the order has been stayed by the higher forum will not loose its legality unless and until the order is set aside.
The appellant is entitled for refund of the SAD paid by utilisation of duty paid script - Appeal allowed - decided in favor of appellant.
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2020 (3) TMI 648
Interest on delayed refunds - time limitation - HELD THAT:- The Commissioner (Appeals) has allowed the interest on the refund in respect of Order-in-Original dated 23.2.2019. The appeals in respect of Order-in-Original dated 20.2.2019 and 22.2.2019 requesting for grant of interest for delayed refund has been rejected of the ground of limitation. On perusal of the facts, it is seen that there is a delay of three days and one day in filing the appeals before Commissioner (Appeals). Since the appellant did not file a petition for condonation of delay, the same was not considered. In the letter issued by department dated 13.12.2019, it is seen that the appellants have received the Order-in-Original dated 22.2.2019 only on 28.2.2019.
Taking note of the fact that the other Order-in-Original relating to 22.2.2019 was also received on 28.2.2019, it can be well inferred that the contention of the appellant that all the three orders were received on 28.2.2019 is true and acceptable. Further, the department has not been able to show any proof to establish that they have received the orders prior to 28.2.2019. When computed from the date of 28.2.2019, the appeal is well within time. The rejection of these appeals as being time-barred is therefore without any legal basis.
Appeal allowed - decided in favor of appellant.
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2020 (3) TMI 647
Refund claim - reassessment of bills of entry - Eligibility for exemption from payment of CVD - classification of goods - polyster yarn is “recycled polyster staple fibre’ - Sl. No. 172A of Notification No. 12/2012-CE dated 173..2012 as amended by 24/2012-CE dated 8.5.2012 - HELD THAT:- Hon'ble Supreme Court in the case of ITC LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLKATA -IV [2019 (9) TMI 802 - SUPREME COURT] has decided the issue against the assessee. It was held that refund cannot be claimed by the appellant as they have not challenged the assessment even though it is a self-assessment.
Since the appellants have not challenged the assessment within the prescribed period and also for the reason that the goods were not available for testing as to whether they are manufactured from plastic scrap or plastic waste, the authorities below have rightly rejected the belated request for reassessment - appeal dismissed - decided against appellant.
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2020 (3) TMI 646
Movement of vessel from the jurisdiction of Commissioner of Customs, Goa - Section 129E of Customs Act, 1962 - HELD THAT:- The learned Commissioner of Customs while adjudicating the order, did not find merit in confiscating the vessel. The confirmation of duty, interest and penalty has been assailed by the appellant before this forum and have complied with the provision under Section 129E of Customs Act, 1962 - In these circumstances, there are no merit in not allowing the appellants to take the vessel out of the jurisdiction of the Goa Customs for its use at Redi in Maharashtra. Consequently, leave is granted to take the vessel out of the jurisdiction of Commissioner of Customs, Goa, to Redi Port in Maharashtra.
The leave is granted to take the vessel out of the jurisdiction of Commissioner of Customs, Goa, to Redi Port in Maharashtra - The appeal will be heard on 18.03.2020.
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2020 (3) TMI 645
Condonation of delay of 112 days in filing appeal - time limitation - suppression of facts with intent to evade payment of duty or not - HELD THAT:- The Commissioner (Appeals) has dismissed the appeal being time barred because the same was filed after a period of 112 days whereas it should have been filed within 60 days and the Commissioner (Appeals) has got power to condone upto 30 days.
Since the appeal has been dismissed by the Commissioner (Appeals) on time bar without going into the merits of the case, we are of the considered view that this case needs to be remanded back to the Commissioner (Appeals) to decide the issue on merit without going into the question of limitation.
Appeal allowed by way of remand.
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2020 (3) TMI 644
Exemption from countervailing duty under Notification No.30/2004-CE, dated 09.07.2004 - imported silk fabrics falling under Heading 5007 of the Central Excise Tariff Act, 1985 - allegation that the importer has not fulfilled the condition of the notification that the inputs have to be used in the manufacture of the goods, which suffered duty and no Cenvat credit is availed on the inputs - HELD THAT:- The Hon’ble Madras High Court in the case of THE COMMISSIONER OF CUSTOMS (EXPORTS) VERSUS M/S. PRASHRAY OVERSEAS PRIVATE LIMITED, CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL [2016 (5) TMI 1106 - MADRAS HIGH COURT] where it was held that In cases where the exemption Notification stipulates two conditions, namely that the inputs should have suffered duty and that no CENVAT credit should have been availed, then the benefit of the Notification will be available only if both conditions are satisfied. An importer will never be able to satisfy both these conditions and hence, he cannot claim the benefit.
The impugned order does not call for any interference - appeal dismissed - decided against appellant.
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2020 (3) TMI 651
Bonafide baggage or not - Import of Drones - Section 79 of the Customs Act, 1962 - HELD THAT:- It is found that the Commissioner (Appeals) has rightly observed that the drones and their accessories imported by the applicant do not constitute a part of bona fide baggage in terms of Section 79 of Customs Act, 1962 read with para 2.26 of Foreign Trade Policy (FTP), 2015-20 which defines the bona fide baggage which can be brought by a passenger without any authorisation by the concerned authorities.
The Government holds that the benefit of free allowance of ₹ 50,000/- under the Baggage Rules has been wrongly extended by the adjudicating authority to the applicant since drones and their accessories cannot be cleared as “baggage”.
The revision application filed by the applicant is rejected and the order of the Commissioner (Appeals) is upheld - The Department is directed to recover the differential duty from the applicant on the said accessories.
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2020 (3) TMI 643
Diversion of imported goods - violation of N/N. 21/2002-Cus. - only reason for raising the demand by the Revenue is that the goods so imported under Notification No. 21/2002-Cus. was used in appellant’s different unit located at Baddi, Himachal Pradesh - HELD THAT:- The appellant have bonafidely applied to the Jurisdictional Officer regarding transfer of goods from their Indrad Unit to their Baddi Unit. And after transfer of goods, the Jurisdictional Officer of Baddi Unit has issued certificate regarding receipt of the goods in the Baddi Unit. Therefore, there is no dispute that the goods were ultimately received by their own Baddi Unit. However, as regard the use of the goods, there is no evidence on record. Therefore, the only for the reason that the goods were transferred to their Baddi Unit, the exemption could not be denied subject to verification that the said transferred goods have been used in the Baddi Unit.
The Adjudicating Authority is directed to ascertain the fact of end use of the goods in Baddi Unit. And if it is found that goods were used in the manufacture of final excisable goods, the appellant shall be entitled for the exemption - appeal is allowed by way of remand to the Adjudicating Authority.
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Corporate Laws
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2020 (3) TMI 642
Dissolution of Company - HELD THAT:- The prayer made in the petition is allowed and the Company is wound up and shall be deemed to be Dissolved with effect from the date of the filing of the present petition, i.e. 02.03.2020.
Petition disposed off.
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Service Tax
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2020 (3) TMI 635
Construction of Complex Services - work undertaken by the appellant for the Bhopal Development Authority for construction of Inter State Bus Terminus platform - GTA Services - demand of service tax - HELD THAT:- The work order was only for construction of bus terminus platform at ISBT including building works, water supply, sanitary work and internal electrification works and not for any other construction. This is clear from the work order - demand do not sustain.
Construction of individual duplex under Vedavati Avasiya Yojana, Amravat Khurd for the Bhopal Development Authority under “construction of complex” - HELD THAT:- The definition of a “residential complex” leaves no manner of doubt that it would be a complex comprising of a building or buildings, having more than twelve residential units. In other words a complex may have a building having more than twelve residential units or a complex may have more than one building each having more than twelve residential units. Independent buildings having twelve or less than twelve residential units would not be covered by the definition of “residential complex” - In the present case, the appellant had constructed independent buildings having one residential unit only. Thus, even if the appellant had constructed more than 12 independent buildings, the nature of activity would not be “construction of complex” and, therefore, the service tax could be levied.
In this connection reliance can be placed on a Division Bench judgment of the Principal Bench of the Tribunal in MACRO MARVEL PROJECTS LTD. VERSUS COMMR. OF SERVICE TAX, CHENNAI [2008 (9) TMI 80 - CESTAT, CHENNAI] wherein the demand of Service Tax was for the period 16 June, 2005 to November, 2005 under “construction of complex” service under section 65(30a) of the Act.
Thus, the levy of service tax on the appellant under ‘construction of complex service’ is not justified and, cannot be sustained.
GTA Services - HELD THAT:- Though it is a fact that the appellant had not produced these receipts before the Principal Commissioner in response to the show cause notice but the meager amount paid by the appellant for this activity during this period persuades us to remand the matter to the Principal Commissioner for examining this aspect after providing an opportunity to the appellant to submit the relevant documents within six weeks from the date of order - matter on remand.
Appeal allowed in part and part matter on remand.
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2020 (3) TMI 624
CENVAT Credit - input/input services consumed or utilized in construction of the commercial complex - output service provider under the Head ‘renting of immovable properties’ - HELD THAT:- The period in dispute is prior to 1st April, 2011, and the appellant is entitled to CENVAT credit both on inputs and input services utilized for the construction of complex, utilized for output service being ‘Renting of immovable property service’.
Credit allowed - appeal allowed - decided in favor of appellant.
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Central Excise
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2020 (3) TMI 641
Imposition of penalty u/r 15(2) of CENVAT Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944 - issue was not free from doubts, when the assessee vide their letter dated 8.7.2005 claimed to have stopped availing Cenvat Credit after insertion of Explanation III in sub-rule6(3) of CENVAT Credit Rules, 2004 w.e.f. 16.5.2005 - HELD THAT:- The questions proposed do not arise for consideration.
Appeal disposed off.
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2020 (3) TMI 640
Rectification of mistake - error apparent on the face of record - ascertainment of quantum of reversible cenvat credit - HELD THAT:- The issue adjudicated by the impugned appeal was the appellant, who was involved not only in the manufacture of the aerated water but also in trading thereof, whether was entitled to avail the Cenvat credit as far as the element of trading was concerned. From paras 9 and 10 thereof, it is observed that the findings in the order are in favour of the assessee/present applicant holding him to be entitled to avail the Cenvat credit - the allegation of Department, in fact, becomes redundant as far as the order of reversal of the said Cenvat credit is concerned. In view of these observations the remanding of the matter for ascertaining the quantum of reversible Cenvat credit is definitely an inadvertent error, which is apparent on the face of record of this order.
No question of the ground taken in the application to be a debatable issue or present case to be a case amounting to the review of the impugned final order at all arises - Application allowed.
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