TMI Tax Updates - e-Newsletter dated: April 17, 2014 - with Direct Tax, Indirect Tax and GST Updates and Updates on FTP, FEMA, IBC & Corporate Laws etc. published on TMI with Latest Case Laws

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TMI Tax Updates - e-Newsletter April 17, 2014 Case Laws in this Newsletter: Income Tax Customs Corporate Laws FEMA Service Tax Central Excise CST, VAT & Sales Tax Indian Laws Highlights / Catch Notes Income Tax Claim of depreciation @ 25% - Actual cost of the copy rights and trademarks - the depreciation is to be allowed on goodwill also as any other intangible asset - AT Visit to Get Source Penalty u/s 272A(2)(g) - Failure to furnish certificate of TDS u/s 203 – the default was committed under a bona fide belief that the certificate in question was to be issued after the close of the financial year - penalty waived - AT Visit to Get Source Where profit motive is involved and where no charity towards general public is being done, applicability of section 2(15) is certainly established and benefits of exemption u/s 12AA are not allowable - AT Visit to Get Source Genuineness of the donations – Benefit of exemption u/s 11 and 12 - the benefit of sections 11 & 12 in computing the income received on account of donations from identified donors cannot be denied - AT Visit to Get Source Transfer u/s 2(47) - Exemption u/s 47(xiii) - partnership firm succeeded by a private limited company - Treating value of land as loan in hands of company amounts to an indirect transfer of property to the partners - exemption denied - AT Visit to Get Source Withdrawal of registration u/s 12AA - Once it is shown that the object of the trust was advancement of education, merely because the auditorium was incidentally let out to outsiders for commercial purpose, the case would not fall in the category of advancement of any other object of general public utility - AT Visit to Get Source Customs Valuation of goods - Enhancement in valuation - Customs authorities have made out a case for under valuation and, therefore, the onus of proving that there was no undervaluation shifts to the respondent-importer - AT Visit to Get Source Service Tax Just because the social security contribution in respect of the expatriate employees was paid by the holding company, the expatriate employees cannot be treated as the employees of the holding company provided to the appellant company on manpower supply basis - AT Visit to Get Source Even if there is dispute over the mode of payment of service tax by the service provider alleging that the service tax has been paid by wrong utilization of Cenvat Credit, this is not the ground on which the Cenvat Credit can be denied to the service recipient - AT Visit to Get Source Refund claim - when there is provision of self certification and certification regarding availment of the services, in question, has been given by the assessee, the same has to be accepted unless there are serious doubt about the correctness of the same. - AT Visit to Get Source Denial of refund claim - Refund of service tax paid under the mistake of law - export of services - period of limitation of one year and provisions related to unjust enrichment, both are applicable - HC Visit to Get Source Confirmation of demand by the tribunal - Once it is held that the demand is time barred, there would be no occasion for the Tribunal to enquire into the merits of the issues raised by the Revenue - HC Visit to Get Source Central Excise Waiver of pre deposit - Duty demand - duty became payable on Printed Laminated Plastic, the present was not a case of waiver of the entire amount - HC Visit to Get Source VAT The dealer has failed to establish that the selling dealer M/s. Healthy Life Agro Foods, Bangalore is a bonafide registered dealer borne on the file of any local VAT office - input credit denied - HC Visit to Get Source Mineral water - Classification - the plain meaning of the words “non-alcoholic drinks“ includes mineral water is not and indeed cannot be denied - HC Visit to Get Source Articles CORPORATE SOCIAL RESPONSIBILITY (CSR) UNDER COMPANIES ACT, 2013 (PART I) PREVENTION OF MONEY-LAUNDERING (TAKING POSSESSION OF ATTACHED OR FROZEN PROPERTIES CONFIRMED BY THE ADJUDICATING AUTHORITY) RULES, 2013 – AN OVERVIEW Notifications Customs 31/2014 - dated 15-4-2014 - Cus (NT) Amends Notification No. 36/2001-Customs (N.T.), dated the 3rd August, 2001 SEZ S.O. 883 (E) - dated 24-3-2014 - SEZ De-notifies an area of 8.92 hectares, thereby making resultant area as 93 hectares - sector specific Special Economic Zone for Aviation at Village Mamidipally, District Ranga Reddy in the State of Andhra Pradesh. S.O. 882(E) - dated 24-3-2014 - SEZ De-notifies an area of 75.55 hectares, thereby making resultant area as 25.69 hectares - sector specific Special Economic Zone for information technology and information technology enabled services at Villages Bhigan and Kurar Ibrahimpur, Near Murthal, District Sonepat in the State of Haryana. S.O. 743(E) - dated 10-3-2014 - SEZ De-notification of the entire area of 27.07845 hectares - sector specific Special Economic Zone for information technology and information technology enabled services at village Sikohpur, Tehsil Sohna, District Gurgaon in the State of Haryana. S.O. 666(E) - dated 26-2-2014 - SEZ Notifies an additional area of 40.7356 hectares, thereby making total area of the Special Economic Zone as 93.9165 hectares - sector specific SEZ for Information Technology/Information Technology enabled services at Kakkanad Village, Kanayannur Taluk, Ernakulam, District in the state of Kerala. News Indian Industry has an Important Role to Play in Developing Standards: Cabinet Secretary Comprehensive Law to Look at Standards in a Composite Manner Extremely Important: Rajeev Kher RBI Reference Rate for US $ and Euro Change in Tariff Value of Crude Palm Oil, RBD Palm Oil, Others – Palm Oil, Crude Palmolein, RBD Palmolein, Others – Palmolein, Crude Soyabean Oil, Brass Scrap (All Grades), Poppy Seeds, ARECA Nuts, Gold and Silver Notified Case Laws: Income Tax 2014 (4) TMI 537 Validity of reopening of assessment – Sale of residential property – Claim u/s 54 of the Act – Held that:- Assessment previously framed after scrutiny is sought to be reopened within a period of four years from the end of relevant assessment year - There is nothing conclusive on record to suggest that the question of assessee’s claim for exemption from capital gain under section 54 was examined by the AO - reference u/s 54E was not an error and it is manifest from the reasons recorded - This was not a mere typographical error but a conscious decision on the part of the AO to disallow the exemption claimed - Relying upon Aayojan Developers vs. Income-tax Officer [2011 (2) TMI 738 - Gujarat High Court] – the reason on which the notice for reopening is issued lacks validity - Section 54E of the Act was neither applicable nor sought to be applied by the assessee - The question of denying any such claim under the provision for breach of condition did not arise - notice for reopening has to be sustained and supported only on the basis of reasons recorded by the assessing officer and not with the help of extraneous ground, material or possible improvement – the notice is set aside – Decided in favour of Assessee. 2014 (4) TMI 536 Interpretation of Section 292C of the Act – Materials seized and inference drawn by the revenue – Presumption as to assets, books of account - Held that:- The Tribunal rightly held that apart from the demands made by the five named commission agents or brokers for a higher rate of commission at 4-6%, there was no reasonable basis for the Revenue to assume or conclude that in fact such amounts, constituting the difference of what was revealed in the books and what would arise on account of fulfilment of such demands, were actually paid - presumptions which the Revenue falls back upon under Section 292C do not support its case. The failure to gross up on account of the addition of the notional income and the consequential liability to deduct tax for TDS purposes too could not have been cast upon the assessee - there was no dispute that the funds deployed by the assessee to its subsidiaries or sister concerns was not borrowed funds but its share capital and other surplus that had been generated in the course of the business – the funding by the parent or holding company to the sister concern or subsidiary to advance its business objective would fall within the framework of legitimate expenditure - the order of the Tribunal is upheld - thus, no substantial question of law arises for consideration - Decided against Revenue. 2014 (4) TMI 535 Allowability of benefit of exemption u/s 11 of the Act - Whether the remuneration paid to specified persons was excessive and is in violation of section 13(1)(c)(ii) read with section 13(2)(c) of the Act – Held that:- The fact that the 1/3rd of the total expenditure made on payment of salaries to the stated persons had been allowed by the AO, is clearly indicative that engagement of the stated persons by the petitioner for rendering services to it, is neither disputed nor disbelieved by the revenue - the AO has not explained any formula or the parameters vide which he allowed 1/3rd of the total expenditure, whereas rest of the payment was disallowed - No basis much less objective, transparent and verifiable have been spelled out - Merely because Form No.10-B (giving complete details of the expenditure incurred on payment of managerial remuneration to persons specified under Section 40A(2)(b) and in terms of Section 13(3) of the Act) instead of being filed along with the return was furnished afterwards, was not a circumstance to reject the claim of the assessee. Mr. Joseph John has 10 years of teaching and administrative experience and his remuneration comes only to Rs.41,200/- per month which is not only justifiable but also reasonable in the terms of quantum of services rendered by him to the school as full time teacher as also as Secretary of the assessee-trust - He is also an individual income tax assessee and has shown salary receipt of Rs.4,94,500/- and return of income submitted by him for the year in question, has been accepted by the Income Tax Department – also, Ms. Sonia Joseph, is a post graduate teacher and is working as full time teacher-cum-administrator - Her salary comes to only Rs.27,480/- per month - She is an existing income tax assessee and return of income submitted by her for the year has been accepted and assessed by the Income Tax Department, Faridabad. The Tribunal had faulted in taking Mr. Joseph John and his wife Mrs. Sonia Joseph merely as teachers when it has fixed their salaries Rs.30,000/- and Rs.20,000/- respectively comparable with other teachers of the school – the order of the Tribunal fixing salary of Mr. Joseph John to Rs.30,000/- per month and of his wife Mrs. Sonia Joseph to Rs.20,000/- per month being neither correct on facts nor in law would not hold good – the finding of the Tribunal to the effect that excessive remuneration was paid to the two specified persons, being bad on facts and in law ans is set aside – the matter is remitted back to the CIT(A) for allowing benefit of exemption to the assessee u/s 11 of the Act, being legally sustainable – Decided against Revenue. Computation of salary under PGBP – Salary from charitable education institution – Held that:- Computation of salaries of members of the trust could not have been done under the head “business or profession” – the order of the AO as also partially of ITAT are wrong and untenable in law – thus, the Order of CIT(A) is restored in toto – Decided in favour of Assessee. Benefit of section 11, 12 and 13 of the Act - Computation of percentage of profits @ 85% - Expenses on account of salary – Held that:- The Tribunal and the CIT(A) rightly held that there was no diversion of profits of the assessee for the benefit of an individual and rather, profits had been utilised for the purpose of education - the surplus over and above 85% of profits, could be retained by the assessee and the assessee could apply its receipt to the extent of 85% for the fulfilment of its objects in the field of education - the excess over expenditure is within the limit of 15% - the assessee could not be denied the benefit of Section 11 of the Act - No violation of provisions of Section 13(2)(c) of the Act were found - the additions was deleted on holding that benefits of Sections 11, 12 and 13 of the Act could not be denied and rather would be available to the assessee - The revenue has not been able to show that 85% receipt of the assessee was not being utilised for fulfilment of its objects - expenses on account of salary have not been shown to be excessive - Since there is no violation of stipulations made in memorandum of association of the trust, for the reasons mentioned earlier, there is no merit in the pleas of the revenue – Decided against Revenue. 2014 (4) TMI 534 Assessability of Income from sale of Mutual funds – Mutual funds are not tradable – Whether the ITAT was legally justified in holding that the income on sale of Tata Mutual Funds (dividend plan) are assessable as income from Short Term Capital Gain – Held that:- The assessee is not a business entity in the nature of a manufacturing unit or marketing concern which, making departure from its normal business or marketing activities, had acquired a 'capital asset' as distinguished from 'business asset' - making investment to raise a 'capital asset' would definitely be not in the nature of stock-in-trade and such transaction would also not be a venture in the nature of trade - the assessee is engaged in the trade of sale and purchase of equity shares, securities and debentures etc. - The transaction is no different from the others entered into by the assessee in the regular course of its business and in the usual discharge of its functions by its employees - by no means the deposit can be taken to be distinct or different from other transactions carried out by the assessee - The deposit was clearly made by the assessee to earn profits on its deposit and thus, was in the nature of stock-intrade and the revenue generated to the extent of Rs.1,24,70,700/- is to be assessed as business income. The CIT(A) as also the ITAT were wrong in adjudicating the income on sale of Tata Mutual Funds (Dividend Plan) as income from 'short term capital gains' merely on the ground that the units of mutual funds were not freely tradable and thus, such investment was in non-tradable commodity - it has been amply proved that the business of the assessee is to make profits by virtue of investments in shares and securities etc. - Merely because there is single transaction or that such investment was in not freely tradable commodity, does not change the profit intent of the assessee who is in the business of investments only - the investment made by the assessee was rightly treated as stock-in- trade and revenue generated was correctly assessed as business income by the AO – Decided in favour of Assessee. 2014 (4) TMI 533 Rejection of books of accounts – Bogus accommodation entries - Held that:- In the search and on the basis of material recovered and statements obtained it has been duly established that assessee was indulging in bogus accommodation entries - No actual sale and purchase was done by the assessee - Proper books of accounts were not maintained – thus, there is no infirmity in the orders of the authorities in which the books of accounts have been rejected – Decided against Assessee. Estimation of income on accommodation sale bill/turnover – Held that:- The assessee is indulging in bogus accommodation entry business and no actual sale and purchase activity has been done - The books has also been rejected and it has been noted that proper books are not maintained - a reasonable estimates @2% of investment has been made by the AO, which cannot be faulted with – though the AO has written that addition was made on the basis “accommodation fresh investment”; the method of computation of the amount of investment is not on record – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Treatment of income u/s 69 of the Act – Held that:- The nature of seized documents has not been brought on record by the AO or the CIT(A) - No details has been submitted by means of paper book - Nothing is on record to suggest that the brokers were examined or the assessee was asked to produce them - the purchases have been duly registered at the circle rate specified - No addition can be made on the basis of observation of the AO that element of payment outside the books of accounts over and above the sale deed is a normal feature in property transaction – Relying upon K.P. Verghese vs. Income Tax Officer, Erankulam [1981 (9) TMI 1 - SUPREME Court] - the burden of proving is that of Revenue when there is allegation of understatement on concealment in the consideration - no addition can be made in this regard on the basis of dumb documents - the matter is required to be remitted back to the AO for fresh adjudication. Confirmation of addition amount to sale on protective basis – Held that:- The statement /affidavit of the assessee after two months of the search was an afterthought and was not backed by necessary evidences about genuine and non-genuine business - During the appellate proceedings the assessee had not been able to counter any of the findings of the authorities below with suitable evidence - the addition has been made only on protective basis – Relying upon Lalji Haridas v. ITO [1961 (7) TMI 8 - SUPREME Court] – thus, there is no infirmity in the order of the CIT(A) – Decided against Assessee. 2014 (4) TMI 532 Nature of Income – Income from PGBP or from other sources - Whether income from receipt of services fee assessable under the head Profits and Gains of Business or to be treated as ‘income from other sources’ – Held that:- The decision in Yum ! Restaurants (India) P. Ltd. Versus Additional Commissioner of Income-tax 2011 (5) TMI 852 - ITAT DELHI] followed - the word “business” is one of wide import and which means an activity carried out continuously and systematically by a person by the application of his labour and skill with a view to earn income - the assessee is receiving the income from parent company i.e. YRI and not making payment to it – the AO miserably failed to appreciate the facts and circumstance - The assessee has been offering income from consultancy etc. as a business income - It has duly been accepted by the department since 1998-99 - The AO without assigning any valid reason concluded that it is an income from other sources – the First Authority has considered this issue in right perspective – Decided against Revenue. Disallowance of Royalty expenses – Held that:- The decision in Yum ! Restaurants (India) P. Ltd. Versus Additional Commissioner of Income-tax 2011 (5) TMI 852 - ITAT DELHI] followed - The AO has misread the approvals granted by the Govt. of India while arriving at a conclusion that assessee has not been remitting the payment as per the approvals - In the approval SIA has used expression “royalty as well as fee for technical services” loosely and interchangeably - Apart from all these things, the tax rate for remitting a royalty as well as fee for technical service is 15% plus the research and development cess - The assessee has paid both these amounts while remitting the payment - The expense is directly related to its business - It has been incurred wholly and exclusively for running the franchises within India – Decided against Revenue. Deletion on account of administrative expenses – Held that:- The decision in Yum ! Restaurants (India) P. Ltd. Versus Additional Commissioner of Income-tax 2011 (5) TMI 852 - ITAT DELHI] followed -The CIT(A) deleted the disallowance - YRMPL was incorporated on 8th June, 1999 - It is a 100% owned subsidiary of the assessee - It has been incorporated to carry out advertisement, marketing and promotion activities of the assessee as well as various franchise - The assessee had entered into a tripartite agreement with its franchise and YRMPL - As per this agreement, the franchise shall pay AMP contribution to YRMPL and assessee may not pay a separate contribution - YRMPL was to carry out the activities on no profit no loss basis - The AO has disallowed the expenses which are attributable to YRMPL but in fact, he ought to have not disallowed any such amount because ultimately it is the assessee who has to contribute for all these sums - The assessee can bear the cost of administrative expenses to be incurred by YRMPL or it can separately remitted the amount to YRMPL towards such cost - it is the assessee or its franchise who has to contribute this amount - CIT(A) has rightly deleted the disallowance – Decided against Revenue. Disallowance of part depreciation – Held that:- The decision in Yum ! Restaurants (India) P. Ltd. Versus Additional Commissioner of Income-tax 2011 (5) TMI 852 - ITAT DELHI] followed - The AO has highlighted certain discrepancies in the maintenance of WDV of the assets as well as identification of each asset - There may be some shortcomings but that does not mean that assessee was not having any assets and they were not used for the purpose of business - AO ought to have identified each item and find out how that item is treated in the block of assets, if it is established that those assets were not used for the purpose of the assessee’s business then he should make out a care for disallowance of depreciation - By making general observation, he cannot deny the total claim of the depreciation of the assessee - CIT(A) has already directed the AO to give effect outcome of 1999-2000 - The depreciation disallowed in asstt. year 1999- 2000 would be considered for disallowance in this year also – Decided against Revenue. Deletion on account of excess provision – Provision for marketing expenses made – Merchantile system followed - Held that:- The decision in Yum ! Restaurants (India) P. Ltd. Versus Additional Commissioner of Income-tax 2011 (5) TMI 852 - ITAT DELHI] followed - CIT(A) rightly held that the assessee has made the provision by keeping in view past experience and the possibility of certain expenses - It has filed the details exhibiting the nature of intending expenses - It is a separate issue that such occasion did not arise to incur those expenses but that does not mean that when provision was made it was not bonafide - If some amount remained unutilized it will be offered for tax in the next asstt. Year – Decided against Revenue. Disallowance of software expenses – Capital expenses or Revenue – Held that:- The expenditure of Rs.18,000/- for purchase of coral draw software and Rs.77,400/- for GIS Engine Map Info Software (single user license) were made but it is not clear whether the same was for an upgradation or it was for acquisition of a new software – thus, the matter ir remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Disallowance of R&D expenses – Held that:- The decision in Yum ! Restaurants (India) P. Ltd. Versus Additional Commissioner of Income-tax 2011 (5) TMI 852 - ITAT DELHI] followed - In its day to day operations, assessee is experimenting new dishes, where it incurred expenses on food items and spices etc. - On many of occasions, the flavor may not come to the expectation for commercialized use - Thus, these are the routine research work carried out by the assessee and no capital assets came into existence - DRP has erred in treating this amount as a capital expenditure – Decided against Revenue. Disallowance u/s 40A(2)(b) of the Act - Lease rent for free accommodation – Addition of notional interest – Income on account of security deposits - Held that:- The decision in Yum ! Restaurants (India) P. Ltd. Versus Additional Commissioner of Income-tax 2011 (5) TMI 852 - ITAT DELHI] followed -The payments have been made to the persons who are covered under sec. 40A(2)(b) of the Act - It could not be understood as to how a house property giving a rent of Rs.20,000 to the original land owner would immediately fetch a rent at Rs.1,50,000 - This much of rent has been given by the assessee after incurring a huge sum of Rs.22,50,000 on repair which gives an indication that if this sum of Rs.22,50,000 was not incurred then it would not fetch this amount of rent - assessee has extended extra benefit to its managing director – the AO is directed to allow payment of rent to the extent of Rs.20,000 per month for the accommodation taken on rent for Shri Sandeep Kohli, the balance has to be disallowed - there is no scope for disallowance of notional rent worked out on the basis of interest free security deposits – Decided partly in favour of Assessee. Disallowance of expenses – Expenses treated as personal in nature – Held that:- The expenses were personal expenditure incurred on house maintenance and computer maintenance of the employees –The assessee has failed to bring out any material to establish that this expenditure was incurred for business purposes of the assessee – thus, it cannot be treated as business expenditure of the assessee – Decided against Assessee. Disallowance of expenses – Expenses treated as capital expenses – Held that:- The disallowance has been made by treating the expenditure as capital in nature being integral part of the fixed assets - the expenditure incurred was towards the components which are forming integral part of the fixed assets – thus, the expenditure cannot be held to be revenue in nature – Decided against Assessee. Upholding of prior paid expenses – Held that:- The expenditure was disallowed on account of non-furnishing documentary evidence to establish that liability to pay for the expenses incurred and crystallized – the assessee has also made an alternate prayer that this expenditure may be allowed in the preceding Assessment Years 2003-04 - The CIT (A) has upheld the disallowance of this expenditure in Assessment Year 2004-05 which is the year under consideration and directed to allow the same in Assessment Year 2003-0 - there is no fault in the order of CIT (A) – decided against Assessee. Disallowance of settlement claim – Held that:- The assessee submitted additional evidence before the CIT (A) - The CIT (A) did not admit the evidence and confirmed the finding of the AO that assessee has entered into a sham transaction and the liability has been falsely created - the CIT (A) was not justified in not admitting the additional evidence when assessee submitted certain documents before Assessing Officer and rest of these documents support the case of assessee - The documents were relevant with regard to the expenditure claimed by the assessee in the return of income wherein even the TDS had been deducted – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Interest income treated as income from other sources – Held that:- The decision in Yum ! Restaurants (India) P. Ltd. Versus Additional Commissioner of Income-tax 2011 (5) TMI 852 - ITAT DELHI] followed - The assessee has nowhere indicated as to how this interest income is linked with its business activity - It has simply surplus fund which has been deposited in the bank giving rise to interest income - DRP has rightly treated this income as income from other sources - interest earned on FDR is not limited to the business of assessee - interest on loan to employees is also not related to assessee’s business – Decided against Assessee. 2014 (4) TMI 531 Disallowance of weighted deduction u/s 35(2AB) of the Act – In-house R&D scientific research - Nature of expenses – Capital or revenue – Held that:- The assessee has made claim for the deduction u/s 35(2AB) which is for expenditure incurred on in-house R&D facilities - The letter issued by DSIR is only for renewal of recognition of in-house R&D units - There is no formal order or approval for such inhouse R&D facilities in the prescribed form under section 35(2AB) - The assessee could not show as to whether any approval of in-house R&D facilities has been issued in prescribed form by the DSIR, even if it is signed by any authority like Scientist-G for on/or behalf of the Secretary, DSIR - in the subsequent years, if such an order is available, then the assessee has to show that the order of the approval for in-house R&D facility has been granted by the DSIR covering the present assessment year – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for verification of the fact as to whether any order of approval of inhouse R&D facilities has been issued for the relevant assessment year – Decided partly in favour of Assessee. Disallowance of bad debt – Held that:- In the case of Auribindo Pharma, the assessee had shown the amount of bad debt written of at Rs. 8,24,978 - the AO has taken the figure of Rs. 1,08,48,951, which pertained to different parties - to this extent, only the figure of Rs. 8,24,978 should be taken into consideration for the purpose of adjudication - otherwise the observation and conclusion of the CIT(A) are absolutely correct and is in accordance with the law that the AO has to examine the conditions laid down in section 36(1)(vii) and whatever amount has been written of in the books of account as bad debts the same should be allowed – Relying upon TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT – there was no infirmity in the order of the Commissioner (Appeals) – Decided partly in favour of Assessee. Claim of Deduction u/s 80G and section 80IB of the Act – Held that:- The contention of the assessee is legally tenable because at the time of filing of return of income, the net income was in loss - the claim of deduction u/s 80IB had no meaning - if the income is assessed at positive figure, then the same has to be allowed as deduction – Decided partly in favour of Assessee. 2014 (4) TMI 530 Deduction u/s 80IC of the Act – Value of the machinery is less than the maximum prescribed – Held that:- There was no merit in the contention of the Revenue that the assessee was not eligible to claim deduction u/s 80IC as it has failed to fulfill all the conditions as the value of the old machinery exceeds the prescribed percentage as provided in Section 80IC of the Act - the CIT(A) was justified in not relying on the valuation report and allowing deduction u/s 80IC. Shifting of machines - Whether the assessee has shifted old machineries from its Delhi unit to Baddi unit and obtained accommodation entry for machinery – Held that:- The CIT(A) has examined the statements of accounts of these suppliers and he could identify same suppliers from whom accommodation bills have been taken by observing a peculiar pattern of payment - The payment for these suppliers were unduly delayed extending to more than two years, which CIT(A) has rightly held to be not normal feature of the business - some of the old plant and machinery from Delhi unit has been shifted to the Baddi unit and in lieu thereof the assessee has obtained accommodation bills – the CIT(A) was justified in holding that some of the plant and machinery has been shifted from Delhi unit to the Baddi unit. Extent and value of old plant and machinery - Held that:- CIT(A) rightly held that a general observation in a mechanical way has been made by the valuer that the condition of the machineries are more than three to five years old - From the inspection report, it does not come out on what basis the valuer has stated that the machines are more than three to five years old – the inspection was carried out in the month of March, 2008 i.e. after a period of about three years when these machineries were acquired - Apparently these machineries cannot be said to be new at the time of inspection - CIT(A) has also taken note of the fact that the valuation report is not supported by any material, documents or evidence for estimating the value as on the date of the inspection - the correct approach would have been to find out the value of the machinery, the time of purchase and the date when assessee has acquired these machineries was relevant rather than valuing on a later date and then discounting back the same with wholesale price index - Assessee has carried out such exercise - The calculation of the same has not been disputed by the AO in its remand report - The revenue has failed to clarify the specific issues raised with regard to relevancy of the valuation report – thus, the order of the CIT(A) upheld. Valuation of new plant and machinery – Held that:- The CIT(A) was correct in holding that the value of old plant and machineries is Rs.20,42,750 - Thus the value of the new machinery comes to Rs.2,04,41,510/- and the value of the old machineries shifted from Delhi unit to Baddi unit comes to Rs.20,42,750/- and total value of the machinery comes to Rs.2,24,84,260 - the value of the old machinery is less than 20% of the total value of the machinery – thus, it cannot be said that the assessee has failed to comply with the condition laid down in section 80IC of the Act - the CIT(A) was justified in holding that the value of the old machinery is less than 20% and assessee is eligible for deduction u/s 80IC. Denial of deduction on discrepancies in Form 10CCB – Held that:- The law for claiming exemption u/s 80IC assessee is required to get the accounts audited and submit the report in the prescribed form - the assessee has got the accounts audited and submitted the report in the prescribed form - the deduction cannot be denied merely on the ground that during the course of the hearing, AO noticed certain errors or discrepancies in the audit report - Having complied the conditions of obtaining report and submitting along with returns, the deduction on this reasoning cannot be denied – thus, the order of the CIT(A) allowing deduction u/s 80IC of the Act. Addition on account of accommodation bills – Restriction of amount @ 2% on total bills – Held that:- The findings of the CIT(A) that assessee had taken accommodation bills to the extent of Rs.54 Lakh while deciding issue of 80IC claim - while taking accommodation bills, the assessee has first credited the bills in the books of account and thereafter he has made payment from the books of account to the accommodation entry providers - the assessee would not have made any actual payment - the AO was not right in making addition on account of the payment made for accommodation bills as these payments have been made from the regular books of account - the CIT(A) rightly held that the assessee would have definitely incurred certain expenditure in taking such accommodation bills - CIT (A) has estimated the same at 2% and the estimation as fair and reasonable – thus, there is no reason to interfere with the order of the CIT (A). Deletion made on account of suppression of wages – Held that:- The CIT(A) has rightly observed that this is related to the assessment year 2008-09 and not to earlier assessment years - the AO has made a tabulated chart of the wages paid in Delhi and wages paid at Baddi in absolute terms but he has ignored the fact that the wages scale of Delhi and Baddi are not comparable - If the facts are taken into consideration the very basis for making the addition by the AO becomes unsustainable - the CIT(A) rightly that the assessee has submitted necessary documents relating to PF and ESIC in respect of the 96 workers who were found working during the course of the survey - The explanation given by the assessee has not been understood by the AO in the right perspective - the order of the CIT(A) is upheld. Deletion on account of suppression of production – Held that:- The assessee has explained its production process in detail and the wastage/loss arising in the process has been quantified at each level - During the course of the hearing, revenue could not point out any error or defect in the explanation given by the assessee - it is also a matter of fact that no adverse material or evidence was found during the course of search or survey that the assessee has suppressed any production nor any material was found with regard to any sale of such production outside the books of account – the order of the CIT (A) is upheld. Denial of deduction u/s 80IC of the Act – Job work income from manufacturing activity – Held that:- The assessee is engaged in the in the manufacturing activity at the Baddi unit and there is no dispute about this fact - assessee has carried out job work and necessary details about the same including name and address of the parties for whom these job works have been done were filed before the AO - The major work has been done by the assessee for a pharmaceutical company, CIPLA Ltd - The assessee has also submitted complete details of the process and the work starting from the conversion of power to tablets and capsules - Thus the assessee has done complete manufacturing process - Only raw material was supplied by the respective parties - This nature of job work is as good as manufacturing – the order of the CIT(A) is upheld. Deletion of unexplained investment in plant and machinery – Held that:- The addition of the AO contradicts his own stand which he has taken while denying the benefit of deduction u/s 80IC on the ground that the machinery installed at the Baddi unit are old machineries - the valuation methodology adopted by the valuer is not a correct method - the CIT(A) rightly was of the view that there are several deficiencies in the valuation made by the department valuer - the same cannot be taken as correct and reliable for any addition that too when the bills for the purchase of plant and machinery installed at Baddi unit has been placed on record with evidences in support - each of these bills the value of the machinery, description has been mentioned – the order of the CIT(A) upheld. Depreciation claim in baddi unit and at Delhi unit – Held that:- As per the AO the assessee has taken accommodation bills of Rs.54 Lakh - It is also the allegation of the AO that the old machineries from Delhi unit have been shifted to Baddi unit - The assessee having shifted the machinery from Delhi unit to Baddi unit, such machinery will be eligible for depreciation - The value of such machinery needs to be deducted while making disallowance - the CIT(A) was justified in restricting the disallowance to the net of the amount of accommodation bills i.e. Rs.54 Lakh - value of the machinery shifted to the Baddi unit. Deletion of unexplained investment and expenses – Held that:- The AO has referred the matter to the District Valuation Officer, who has valued the investment at Rs.48,75,092/- as against Rs.45,62,763/- as per the books of account - The difference in the value as per valuer's report and the value as per books of account is less than 6% - Valuation after all is not a science and this difference being less than 10% - the CIT(A) was justified in setting aside the addition. Deletion on account of income of Delhi unit – Held that:- The AO has made the addition without bringing any material or evidence to substantiate the net profit rate of 2.5% - On going through the assessment order we also note that except the allegation of shift of some of the machineries from Delhi unit to Baddi unit there is no other allegation so far as Delhi unit is concerned - There is no material and evidence against assessee for inflating the purchases or suppressing the sales - the CIT(A) was justified in deleting the addition. Deletion made on account of scrap sales – Held that:- Evidences were found during the assessment year 2008-09 to the extent of Rs.7,30,355 - it cannot be assumed that there was no scrap in the preceding two years i.e. 2006-07 and 2007-08 - The scrap having been generated, the assessee was duty bound to account for the same in the books of account - as regards estimation at Rs.12 Lakh each in the preceding two years, when the scrap value in the assessment year 2008-09 was Rs.7,30,355 it shall not be appropriate to estimate the value in preceding years at Rs.12 Lakh each – the grounds in assessment years 2006-07 and 2007-08 in the Revenue appeal is partly allowed. Disallowance u/s 14A of the Act r.w Rule 8D of the Rules – Held that:- The assessee has got its own funds which are quite substantial as compared to the investment made - The fact has been recognized by the CIT(A) in the preceding assessment year where he has held that no disallowance is called for on account of interest - the computation of the investment needs to be done by excluding those investments whose income or loss shall be chargeable to tax - the AO is directed to verify the contention of the assessee and to exclude such investment while computing disallowances on account of administrative expenses under Rule 8D. Deletion on account of inflated income – Held that:- The addition has been made by the AO by indulging into surmises and without bringing any material or evidence in support of the addition - the assessee has made sales to various parties - All the sales are fully vouched and accounted for - During investigation nothing has been found to indicate that assessee has inflated its sales - the assessee has given detailed explanation regarding its profitability at Baddi unit and AO has not been able to point out any error or discrepancy in such explanation - the CIT(A) was justified in deleting the addition. Validity of assessment framed u/s 153A of the Act – Held that:- The addition has been made merely on the basis of a difference in valuation and that this difference is less than 10% - on a similar addition in assessment year 2006-07 where the difference was almost same, the CIT(A) has deleted the addition - the issue of valuation of the machinery was a different issue as compared to the issue of investment in the property and after going through the assessment order we could not find out any evidence found during the course of the search indicating any unexplained investment in this property - the difference in the valuation as per the DVO and as per the books of account is less than 10%. 2014 (4) TMI 529 Scope of the term business connection u/s 9(1)(i) of the Act – Indo -German treaty - Whether assessee's Indian subsidiary constitute its business connection in India u/s. 9(1)(i) of the Act or a Permanent Establishment ('PE') in India under India-Germany Tax Treaty – Held that:- The decision in Assistant Commissioner Of Income-Tax. Versus Epcos Ag, Germany [2008 (6) TMI 288 - ITAT PUNE-B] followed - Nothing contrary was brought to our knowledge on behalf of revenue - the assessee did not have any PE in India, much less a PE to which subject royalties and fees for technical services could be attributed - In terms of India-German DTAA, India does not have right to tax these receipts as business profit under Article 7 - no revenue earned by the assessee could be said to be attributable to PE, even if one was to come to the conclusion that a PE existed, no taxability could arise under Article 7 - The assessee has offered the royalties and fees for technical services for taxability in India under Article 12A and to that extent, admitted tax liability exists – Decided in favour of Assessee. Non attribution of income deemed to accrue or arises in India – Taxability @ 20 per cent u/s 44DS r/w s.115A in case PE is found to be in existence - Held that:- The decision in Assistant Commissioner Of Income-Tax. Versus Epcos Ag, Germany [2008 (6) TMI 288 - ITAT PUNE-B] followed - the amounts received by the assessee company meet the definition of 'royalties' and of fees for technical services' u/s 44D which, in turn, refers to Expln.2 to s. 9(l)(vi) respectively - the taxability of amounts received by the assessee company on account of 'royalties' and 'fees for technical services' will be @ 20 per cent on gross basis - Nothing contrary was brought to our knowledge on behalf of revenue - taxation at gross basis at higher rate of 20% under section 115A r.w.s. 44D of Act are unwarranted and taxation has to be at 10% on gross basis under article 12(2) of the Tax Treaty as offered in the return of income – Decided in favour of Assessee. 2014 (4) TMI 528 Validity of Revision u/s 263 of the Act – Explanation for debit and credit entries – Held that:- The AO himself can find his order as erroneous and prejudicial to the interest of the Revenue and can make such proposal to the CIT u/s the Act - The power of revision vests in Commissioner who may call and examine the record of any proceeding under the Act and if he considers that any order passed by the AO is erroneous and prejudicial to the interest of the Revenue - He may after giving the assessee an particular opportunity of being heard or after making any such enquiry revise that order - the AO has to examine the record himself to come to a conclusion that the order is erroneous and prejudicial to the interest of the Revenue - There is no such procedure laid under the Section wherein the AO himself can propose the order to file u/s 263 of the Act - the action of the AO is unwarranted and not legal - On the basis of such proposal, the CIT cannot take action as he has taken in this regard –Relying upon Rajeev Arora vs. CIT [2010 (7) TMI 641 - ITAT JAIPUR] -the AO cannot propose his own order by treating it as erroneous and prejudicial to the interest of Revenue for getting it revised by the Commissioner u/s 263 of the Act. The assessee has clearly explained the debit and credit entries as discussed in the written submission and also explained the cost of improvement shown by the assessee and the status of the land etc. - this is not a case of no verification or no proper verification - The verification done by the AO is also to be treated as proper unless some specific instruction or prescription of a particular section of the Act has not been carried out by the AO or else the AO has not conducted enquiry as demanded by law - The twin conditions of Section 263 are not found to co-exist – thus, the order of the CIT(A) set aside – Decided in favour of Assessee. 2014 (4) TMI 527 Applicability of Explanation 3 to section 43(1) of the Act – Claim of depreciation @ 25% - Actual cost of the copy rights and trademarks - Whether the CIT(A) erred in holding that Explanation 3 to Section 43(1) is not applicable with regard to claim of depreciation on the assets covered in the deed of assignment between the assessee and Bennett, Coleman & Co. Ltd. – Held that:- The goodwill can be in the form of copy rights, patent, trade mark, marketing rights, particular customers, franchisee, brand value, etc. - the assessee has only taken the part of the goodwill in the form of trade mark and copy right, however, that alone cannot be said to be a part of goodwill, especially when the assessee has acquired such a high end brand products in the form of one of the most popular magazine and right to organize mega events under such brand name - part of the acquisition cost can also be said to be for goodwill of the brand product - the manner in which the AO has adopted the value of the goodwill is absolutely incorrect and without any method, which is generally adopted for evaluating the goodwill - once there is no dispute that the total consideration for tangible and intangible assets is for '91 crores, which has also been accepted by the AO - then it is presumed that such consideration also includes goodwill on account of brand or product besides trade mark and copy rights. The decision in Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] followed - the depreciation is to be allowed on such intangible assets which constitute goodwill - Once the depreciation allowable on goodwill at the same rate on which the assessee has claimed depreciation on trade mark and copy right, then it is immaterial to disallow the entire claim of depreciation made by the assessee on intangible assets - the depreciation is to be allowed on goodwill also as any other intangible asset - Thus, it will not make any difference to segregate the various intangible assets for the purpose or making any disallowance on account of depreciation – Decided against Revenue. Deletion on account of provision towards unsold magazines and discount on advertisement income –Computation u/s 115JB of the Act - Held that:- The AO has considered the provision of the month of March 2005 as eligible for deduction, then there is no reason for not allowing the remaining portion which pertains to the prior period to March 2005 - Once such scientific basis has been adopted for making the provisions in the earlier years, as well as in the subsequent years, there is no reason to uphold the reasoning given by the AO – thus, the order of the CIT(A) upheld – Decided against Revenue. Disallowance u/s 36(1)(va) of the Act - Deduction of EPF contribution – Held that:- The decision in CIT v/s Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] followed - if the employees' P.F. contribution is paid within the due date of filing of the return of income, the same is an allowable expenditure – Decided in favour of Assessee. Disallowance u/s 14A of the Act – Held that:- The decision in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] followed - rule 8D is not applicable prior to the assessment year 2008-09 – thus, the order of the CIT(A) set aside and the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. 2014 (4) TMI 526 Penalty u/s 272A(2)(g) of the Act - Failure to furnish certificate of TDS u/s 203 of the Act – Whether the failure of the assessee to furnish the certificate in respect of tax deducted at source within the time prescribed under the relevant section 203 read with Rule 31 discloses an offence for the purpose of Section 272A(2)(g) of the Act - Held that:- The decision in CIT V. Harsiddh Construction Pvt. Ltd. [1999 (12) TMI 30 - GUJARAT High Court] followed - The failure to furnish the aforesaid certificate within the prescribed time is not an offence which is punishable under the provisions of the Section 272A(2)(g) - the default was committed under a bona fide belief that the certificate in question was to be issued after the close of the financial year - a consolidated certificate was issued to the deductee - instead of holding that it was merely a technical or default of a venial in nature, it has been held that the failure referred was because of a reasonable cause – thus, no penalty is imposable on the assessee u/s 272A(2)(g) of IT Act – Decided against Assessee. 2014 (4) TMI 525 Cancellation of Registration u/s 12AA(3) – CIT(A) held that activities of applicant are not charitable in nature and applicant Institution does not qualify to be treated as Charitable Institution u/s 2(15) – Held that:- activities of assessee aimed at earning profit as it is carrying on activity in nature of trade, commerce or business - Main pre-dominant purpose of assessee is making profit, it is real object of assessee and also there is no spending of income exclusively for purpose of charitable activities - Profits of assessee not used for charitable purpose under terms of object and there is no obligation on part of assessee to spend it on 'charitable purposes' only – Apex Court in case of Asstt. CIT v. Thanthi Trust [2001 (1) TMI 80 - SUPREME Court] held that where certain activities of an assessee claiming exemption u/s 12AA of Act are such where profit motive is involved and where no charity towards general public is being done, applicability of section 2(15) is certainly established and benefits of exemption u/s 12AA of Act are not allowable to such an assessee - CIT, Bathinda, rightly cancelled registration granted to assessee under Section 12AA by passing impugned order under Section 12AA(3) of Act - Uphold impugned order passed by learned CIT, Bathinda – Decided against Assessee. 2014 (4) TMI 524 Reopening of assessment u/s 147 – CIT(A) reopened of assessment u/s 147 and confirmed disallowance made by AO against deduction on account of de-bonding interest on capital goods – Held that:- letter dated 19.09.2007 indicates that assessee has provided all details on impugned claims of deduction and after opining on said details assessment has been completed by AO on 20.12.2007 - Reasons recorded for reopening said assessment do not suggest that any tangible material has come for concluding that there is escapement of income from assessment - Applying ratio of Apex Court in case of CIT vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA], CIT(A) is not justified in confirming reopening of assessment made by AO u/s 147 of Act - Reopening of assessment made under section 147 is bad in law and the same is quashed - Original assessment order passed under Section 143(3) is restored – Decided in favor of Assessee. 2014 (4) TMI 523 Addition made u/s 68 of the Act – Genuineness of the donations – Benefit of exemption u/s 11 and 12 of the Act – Applicability of section 115BBC of the Act - Held that:- The receipts are to be governed by sec. 11 and 12 of the Act. The moment assessee has treated the donations as its income and it is deemed to be an income derived from the property held under the trust as per sec. 12(1) - the only aspect remained is to verify whether such amounts have been applied for the objects of the society to the extent of 85% or not – Relying upon Director of Income-Tax (Exemption) Versus Keshav Social And Charitable Foundation [2005 (2) TMI 84 - DELHI High Court] – the benefit of sections 11 & 12 in computing the income received on account of donations from identified donors cannot be denied – thus, the AO is directed to to verify the facts that assessee has applied 85% of its income during the year including these donations on its objects – Decided in favour of Assessee. 2014 (4) TMI 522 Transfer u/s 2(47) - Exemption u/s 47(xiii) - partnership firm succeeded by a private limited company. - The revaluation amount was shown as loan instead of treating the same as shares in the hands of the erstwhile partners / shareholders. - Whether, when no transfer within meaning of section 2(47) of Act, there cannot be any capital gain – Held that:- assets and liabilities of partnership firm as it existed at time of succession was not treated as shares of respective partners / shareholders - Treating value of land as loan in hands of company amounts to an indirect transfer of property to the partners - This is an accounting technique adopted by the partnership firm to avoid capital gain tax – Provisions of section 47(xiii) cannot be ignored when there is an indirect way of avoiding tax by applying accounting techniques against provisions of Income tax Act - Do not find any error, much less, a prima facie error – order of ITAT sustained - Decided against the assessee. Indexation of cost of acquisition – Held that:- assessee has not raised indexation issue before assessing officer - Though a ground was raised before CIT(A) with regard to indexation, this was not apparently disposed of by CIT(A) - Therefore, ground raised by assessee with regard to indexation is not arising out of order of CIT(A) - Assessing officer shall consider issue of indexation with regard to cost of property on merit in accordance with law after giving reasonable opportunity to assessee – Decided partly in favour of Assessee. Levy of interest u/s 234B and 234C - In respect of capital gain tax, there cannot be any levy of interest u/s 234B and 234C – Held that:- levy of interest u/s 234B and 234C on capital gain has to be computed in accordance with law while giving effect to order of this Tribunal - This Tribunal, at this stage, cannot compute interest - Assessing officer shall consider whether assessee is liable to pay interest u/s 234B and 234C on capital gain and thereafter compute same in accordance with law – Decided partly in favour of Assessee. Name of assessee in cause title – Held that:- in cause title, assessee has mentioned name as ‘K.T.C. Automobiles’ - However, at column No.10 of appeal memo assessee mentioned name as ‘K.T.C. Automobiles (P) Ltd’ - This may be reason for incorporating name of assessee as ‘K.T.C. Automobiles (P) Ltd’ - Name in cause title shall only be ‘K.T.C. Automobiles’ - Mentioning of the ‘K.T.C. Automobiles (P) Ltd’ in the cause title is an error – Decided in favour of Assessee. 2014 (4) TMI 521 Best judgement assessment - CIT(A) deleted addition made by Assessing Officer on account of bogus claim of shortage, difference in closing balance in account of IOC, cash payment of unexplained liability and estimated income from tanker lorry – Deletion of additions u/s 44AE - Held that:- once gross profit is estimated and books of accounts were rejected, there is no case for such an addition - In case of addition for bogus purchase, Assessing Officer himself has admitted in remand report that parties had confirmed sales Vis-a-vis addition made for difference in accounts of IOC Ltd. - CIT(Appeals) accepted claim of the assessee that balance-sheet filed alongwith return stood reconciled - As for addition made for unclaimed liability CIT(Appeals) had deleted after giving clear finding that it was a balance carried forward from an earlier year - As for addition made under section 44AE of Act, it is not disputed that lorry was utilized for business purposes and never given on hire - CIT(A) had deleted this addition rightly relying on decision of Allahabad High Court in case of Banwari Lal Banshidhar [1997 (5) TMI 37 - ALLAHABAD High Court] – No reason to interfere with order of CIT(A) – Decided against Revenue. 2014 (4) TMI 520 Restriction of assessee's claim for excess deduction u/s 80IB/80IC of Act – Held that:- Re-allocation made by A.O. on adhoc basis cannot be sustained having regard to all facts that expenditure on advertisement & publicity and schemes was in nature of selling expenses - Allocation made by assessee of said expenses on basis of turnover was quite reasonable - Allocation so made by assessee also cannot be said to have resulted in allocation of large amount of expenses to non-eligible business as alleged by A.O. - Since gross profit ratio as shown by assessee in trading segment was 12.92% and even after allocating advertisement, schemes and promotions expenses on basis of turnover, profit of trading segment was 6.59%. - Reallocation of said expenses made by A.O. on adhoc basis was not supported or substantiated by him and same, cannot be accepted as reasonable basis - Keeping in view decision of Supreme Court in Consolidated Coffee Ltd. v. State of Karnataka [2000 (11) TMI 136 - SUPREME Court] allocation of expenses made by assessee between eligible business and non-eligible business for purpose of computing deduction u/s 80IB/80IC of Act was reasonable - No justifiable reason for A.O. to disturb same and make re-allocation on adhoc basis – Delete addition made by A.O. by restricting claim of assessee for deduction u/s 80IB/80IC of Act by re-allocating common indirect expenses - Decided partly in favour of Assessee. Transfer pricing adjustment - Transfer pricing adjustment in respect of guarantee given by Appellant on behalf of its Associated Enterprises – Held that:- Similar issue relating to determination of Arm's Length Rate of guarantee commission was involved in case of M/s Nimbus Communications Ltd. [2013 (9) TMI 204 - ITAT MUMBAI] - A.O. is accordingly directed to recompute addition to be made on account of transfer pricing adjustment in respect of guarantee commission by taking Arm's Length Rate of guarantee commission at 0.5% - Decided partly in favour of Assessee. 2014 (4) TMI 519 Withdrawal of registration u/s 12AA of the Act – Applicability of section 2(15) of the Act – Premises let out occasionally – Held that:- The main object of the trust was to promote educational activities and in that process the entire premises was let out to others who are running educational institutions - The claim of the assessee that it was let out on nominal rent, is not refuted by the Director of Income-tax (Exemption) or the Departmental representative - Even the sixth and seventh floors were let out to enable them to run the educational activity, i. e., running a management institute. The auditorium was meant to be utilized by the educational institutions free-of-cost and was not let out whenever the educational institutions needed it - the auditorium was utilized for other activities even on occasions when the educational institutions required it – the letting out of auditorium is not the dominant object of the trust - Once it is shown that the object of the trust was advancement of education, merely because the auditorium was incidentally let out to outsiders for commercial purpose, the case would not fall in the category of "advancement of any other object of general public utility" – thus, the withdrawal of registration is not in accordance with law – the order of the DIT(E) set aside – Decided in favour of Assessee. 2014 (4) TMI 518 Deduction u/s. 80IB(10) – legal relationship between the assessee and the end user of units - works contract - Held that:- Following decision in the case of Radhe Developers India Ltd. [2009 (4) TMI 21 - GUJARAT HIGH COURT], once the matter is going back for reconciliation, then the agreements connected to the land and the details of the approval granted by the local authority permitting to develop the housing project can also be examined if deem fit. Since the Hon'ble High Court has given the verdict in favour of the assessee after due ascertainment of these basic facts, therefore it is appropriate first to place on record all these information and then if facts are identical consequently thereupon, the cited decision has to be followed to dispose of the issue. - For such compliance matter is restored back to file of ld. CIT(A) – Decided in favour of Revenue. 2014 (4) TMI 517 Disallowance – Disallowance of interest under Rule 8D(2)(ii) - Held that:- before making any disallowance u/s 14A, AO must record satisfaction having regard to accounts of Assessee that claim of Assessee that expenditure incurred is not related to income forming part of total income is incorrect - AO only discussed provisions of Sec. 14A(1) and has not made out any satisfaction – No whisper which proves that AO was not satisfied with correctness of claim of Assessee in respect of expenditure which Assessee claims to have incurred in relation to income which does not form part of total income having regard to accounts of Assessee - AO instead of discharging his obligation, straightaway applied Rule 8D and made disallowance - Case of Assessee is covered by decision in case of Sesa Goa Ltd. vs. JCIT [2013 (9) TMI 233 - ITAT PANAJI] - Delete disallowance made u/s 14A – Decided in favour of Assessee. CIT(A) confirmed addition of Rs. 6,98,926/- made by AO on account of difference in creditor account in spite of providing reconciliation before AO – Held that:- details of deposit account kept by Assessee over period of time from 1999 to 2008 for by passing minimum Franchise payable to M/s. Hiralal Khodidas - It is fact that Assessee has debited sum of Rs. 6 lacs and Rs. 1 lac on 23.3.1999 and 31.3.2001 - If credit of these amounts is given by M/s. Hiralal Khodidas, there will be just negligible difference - In view of fact delete the addition – Decided in favour of Assessee. Addition made on account of unpaid sundry creditors - CIT(A) confirmed disallowance amounting to Rs.2,52,064/- Held that:- Assessee did not produce any evidence except relying on provisions of Sec. 41(1) that liability has not ceased and that until liability is not ceased, sum of Rs.2,52,064/- cannot be treated to be income of Assessee - Sum of Rs. 30 lacs included in Sundry Creditors as on 31.3.2009 has been paid by Assessee to M/s. Mayur Minerals - In view of this undisputed fact, confirm deletion of addition by CIT(A) to extent of Rs. 30 lacs - So far balance sum of Rs. 2,52,064/- is concerned, no evidence has been filed by Assessee whether these creditors still exist - Assessee has also not written off these creditors so that it may be treated as cessation of liability and made chargeable to tax u/s 41(1) - Assessee has not even given dates as well as addresses of these parties so that it can be ascertained whether Sundry Creditors are genuine or not – No interfere with order of CIT(A) confirming addition of Rs.2,52,064/- - Confirm addition of Rs. 2,52,064/- as well as deletion of addition of Rs. 30 lacs – Decided partly in favour of Assessee. Bad Debts written off pertaining to ex-staff and others – Held that:- not denied by Revenue that Rajendra S. Kakodkar was an employee of Assessee - Advances were given by Assessee during course of business - These advances have not been recovered by Assessee - Rajendra S. Kakodkar has left services of Assessee and is no more an employee of Assessee - Under these facts, Assessee has written off advance - So far as other advances are concerned, other advances were given by Assessee company during course of business for purpose of business of Assessee - Since advances could not be recovered, Assessee has written off these advances - Advances are under facts and circumstances of case, incidental to business of Assessee and are allowable u/s 29 as loss incidental to business – Decided partly in favour of Assessee. Sustenance of addition on account of handling loss – Held that:- force in submission of ld. AR that ore which is to be transported from Colomba mine to Cuddegal plant had to travel about 36 kms. and it is quite natural that some loss is incurred during transit and during handling of ore - Cannot be said that there cannot be any loss - Assessee is maintaining regular books of accounts - Stock record has duly been maintained - There is no allegation that Assessee has sold iron ore outside books of accounts - Under these facts and circumstances of case, loss has to be accepted as being incidental to business – Decided in favour of Assessee. Sustenance of addition of Rs.42,93,066/- by CIT(A) – Held that:- not denied by Revenue authorities that there has to be ground loss when iron ore has to be handled - It is also not denied that distance between Cuddegal to Capxem and Cuddegal to Maina and Capxem to Berth no. 9 and Maina to Berth no. 9 are different - Handling loss and loss in transit are bound to vary due to distance - No thumb rule can be laid down that ground loss has to be incurred at a particular percentage - AO himself has accepted ground loss @ 2.54% in respect of SFI unit as well as Greater Ferromet - Both AO as well as CIT(A) were not correct in appreciating facts of case and just allowing ground loss in respect of SFI unit at same percentage at which it has been incurred in respect of Greater Ferromet unit - Ground loss has to vary with distance - No allegation that Assessee has sold inventory of iron ore outside books of accounts - Set aside order of CIT(A) and delete addition made by AO – Decided in favour of Assessee. Deletion of addition on account of loss due to forward booking of US$ and by way of contribution for construction of Usgao bridge – Held that:- It is a social obligation demanded by the local community which cannot be overlooked by the assessee. - no material or evidence was brought to our knowledge which may prove that the project belonged to the Assessee and it represents capital expenditure incurred by the Assessee. – Decided against Revenue. Disallowance of expenses out of Community Development - CIT(A) deleted disallowance – Held that:- AO himself accepted, considering nature of business activity carried out by Assessee and obstacle from public, that incurrence of this expenditure cannot be ruled out but restricted allowance of this expenditure to 50% considering involvement of inflation of expenditure - Not denied that Assessee is maintaining regular books of accounts and accounts are being audited - Even though nature of expenses were clearly brought to notice of AO, Revenue did not bring any instance which may prove that expenses are person expenses, capital expenditure or have not been incurred for purpose of business - No interference is called for in order of CIT(A) - CIT(A) has rightly deleted disallowance – Decided against Revenue. Consideration received under the head ‘Capital Gains’ – Held that:- moment Assessee became partner in partnership firm, he got valuable right being partner of firm and this right tantamount to be capital asset in hands of Assessee - Relinquishing partnership right tantamount to transfer of a capital asset - Revenue itself has accepted consideration so received by other partner, Shri Thakur Dilip Singh to be capital receipt in his hand - Decision of Madras High Court in case of A.K. Shrafuddin vs. CIT, [1960 (2) TMI 49 - MADRAS HIGH COURT] applicable to this case – In said decision it was held that compensation received by one partner of partnership firm from another partner for relinquishing his right in partnership is compensation for loss of capital asset and is not a trading receipt - No interference is called for in order of CIT(A) - CIT(A) rightly treated consideration received under head ‘Capital Gains’ - Confirm order of CIT(A) – Decided against Revenue. 2014 (4) TMI 511 Rejection of application of registration u/s 12AA of the Act – Scope of the term Charitable purpose u/s 2(15) of the Act – Educational facilities – Held that:- At the time of consideration of application for registration u/s. 12AA, the Commissioner is only required to satisfy himself about the objects of the assessee and genuineness of its activities - The definition of charitable purposes includes relief for poor, education and medical relief - the Commissioner on irrelevant and extraneous consideration wrongly rejected the application of assessee for grant of registration – the assessee is imparting education - providing educational facilities is part of the charitable purposes as per section 2(15) of the IT Act. The objects of the assessee were charitable in nature and were conducting genuine activities - Other considerations, noted by the Commissioner are irrelevant for the purpose of enquiry for grant of registration - the assessee is running Nursing Training Institute to impart education in the Bundelkhand Region and also held free health check-up camps – the Commissioner should have satisfied himself about the genuineness of the objectives and activities of the assessee-society, which were meant for the benefit of general public - as such, rejection of the application u/s. 12AA of the IT Act is clearly unjustified - the assessee satisfied all the necessary conditions for grant of registration u/s. 12AA of the IT Act and is entitled for registration – thus, the order is set aside and the CIT-II is directed to grant registration of the assessee u/s. 12AA of the Act – Decided in favour of Assessee. Customs 2014 (4) TMI 515 Waiver of pre deposit - Penalty - Held that:- deposit of ₹ 3 crore and furnishing of security for ₹ 9 crore in view of the interim order be treated as sufficient and the appeal be heard on merit - appellant is directed to file an affidavit before the Tribunal for the deposit of amount of ₹ 3 crore and for furnishing security of ₹ 9 crore within a period of one week - Decided partly in favour of assessee. 2014 (4) TMI 514 Duty demand - Redemption fine - CBEC Circular No.56/2004-Cus dt. 18.10.2004 & 450/108/2004-Cus-IV dt. 15.09.2005 - Genuineness of preshipment inspection certificate doubted - Held that:- Preshipment inspection certificate was issued by an agency which was prescribed by the competent authority. The said certificate was given to the appellant by the original importer who sold the goods to the appellant on high sea sales basis. It is not the case of the revenue that appellant was instrumental in arranging a forged preshipment inspection certificate. Revenue was also aware of the doubtful nature of such certificate and would have done 100% examination of M.S. Scrap before allowing provisional clearance to ensure that the imported cargo does not contain any arms or ammunitions related material etc. Even if the preshipment inspection certificate produced by the appellant could be held to the non-production of preshipment inspection certificate then also 100% examination could be done - Following decision of Madhu Sudan Metals Vs. Commissioner of Cus. (Import), Nhava Sheva (2011 (3) TMI 233 - CESTAT, MUMBAI) and Commissioner of Customs Vs. Senor Metals Pvt. Ltd. [2008 (8) TMI 238 - GUJARAT HIGH COURT] - Decided in favour of assessee. 2014 (4) TMI 513 Valuation of goods - Enhancement in valuation - Import of glassware - rejection of transaction value under Rule 10A of the CVR 1988 - Held that:- importer was asked to produce a copy of the manufacturer's price-list. However, the respondent-importer failed to produce any such document. It was merely stated that the goods were shipped on the basis of a sight draft and not against LC. There is also no written contract in existence and that the supplier has not favoured the importer with the manufacturer's invoice. A copy of the manufacturer's invoice was procured by the Customs authorities and shown to the importer and he was asked to comment on the same. In spite of giving such opportunities, the respondent-importer was not able to lead any evidence as to how they could obtain the impugned goods, namely, glassware, at lower price when compared to the manufacturer's own price-list. IN these circumstance, it has to be held that the Customs authorities have made out a case for under valuation and, therefore, the onus of proving that there was no undervaluation shifts to the respondent-importer and this onus has not been discharged by the respondent-importer. Therefore, the department was justified in enhancing the value on the basis of the manufacturer's price-list - Following decision of Sharp Business Machines Pvt. Ltd. [1990 (8) TMI 144 - SUPREME COURT OF INDIA] and Vimal Enterprises Pvt. Ltd. [2000 (12) TMI 149 - CEGAT, MUMBAI] - Decided in favour of Revenue. Corporate Laws 2014 (4) TMI 512 Arbitration agreement - a contract was entered into between the appellant-company and the respondent for establishing 2x8 MVA, 66/11 Sub-stations which included the supply materials, erection and civil works on partial turnkey basis - During the performance of the contract, the respondent raised a claim before the engineer as per clause 48 of the general conditions of the contract and called upon the engineer to settle certain disputes arising in connection with the contract - Since no action was taken by aribitrator, Respondent filed claim in High court under Arbitration Act - Appellant took objection that there was no arbitration agreement. Held that:- On a careful reading of the clause 48 of the agreement, it is demonstrable that it provides for the parties to amicably settle any disputes or differences arising in connection with the contract. This is the first part. The second part, as is perceptible, is that when disputes or differences of any kind arise between the parties to the contract relating to the performance of the works during progress of the works or after its completion or before or after the termination, abandonment or breach of the contract, it is to be referred to and settled by the engineer, who, on being requested by either party, shall give notice of his decision within thirty days to the owner and the contractor. There is also a stipulation that his decision in respect of every matter so referred to shall be final and binding upon the parties until the completion of works and is required to be given effect to by the contractor who shall proceed with the works with due diligence. To understand the intention of the parties, this part of the clause is important. On a studied scrutiny of this postulate, it is graphically clear that it does not provide any procedure which would remotely indicate that the concerned engineer is required to act judicially as an adjudicator by following the principles of natural justice or to consider the submissions of both the parties. That apart, the decision of the engineer is only binding until the completion of the works. It only casts a burden on the contractor who is required to proceed with the works with due diligence. Besides the aforesaid, during the settlement of disputes and the court proceedings, both the parties are obliged to carry out the necessary obligation under the contract. The said clause, as we understand, has been engrafted to avoid delay and stoppage of work and for the purpose of smooth carrying on of the works. It is interesting to note that the burden is on the contractor to carry out the works with due diligence after getting the decision from the engineer until the completion of the works. Thus, the emphasis is on the performance of the contract. The language employed in the clause does not spell out the intention of the parties to get the disputes adjudicated through arbitration. It does not really provide for resolution of disputes - Thus clause 48, as we have analysed, read in conjunction with clause 4.1, clearly establishes that there is no arbitration clause in the agreement - In fact, clause 48, even if it is stretched, cannot be regarded as an arbitration clause. The elements and attributes to constitute an arbitration clause, as has been stated in Jagdish Chander (2007 (4) TMI 624 - SUPREME COURT), are absent. Therefore, the irresistible conclusion is that the High Court has fallen into grave error by considering the said clause as providing for arbitration - Decided in favour of appellant. FEMA 2014 (4) TMI 516 Violation of the Foreign Contribution (Regulation) Act, 1976 - Donations made to political parties for the period up to the year 2009 - Violation of Section 293(a) of the Companies Act, 1956 - Receipt of donations from the State Trading Corporation and Metals & Minerals Trading Corporation of India - Respondent contends that M/s Sterlite Industries India Ltd and M/s Sesa Goa Ltd. are not foreign companies and are Indian companies - Held that:- The Foreign Contribution (Regulation) Act, 1976 was enacted by the Parliament to serve as a shield in our legislative armoury, in conjunction with other laws like the Foreign Exchange Regulation Act, 1973, and insulate the sensitive areas of national life like - journalism, judiciary and politics from extraneous influences stemming from beyond our borders - The interpretation of the term Foreign Source as defined under Section 2(e) lies at the heart of the present controversy and begs for judicial consideration - The term Foreign Source is not exhaustively defined under the Act and it assumes significance that the legislature has chosen to employ the word includes, which signifies that the entries contained in the said provision are only illustrative of what could constitute a Foreign Source. Section 2(e)(iii) of the Foreign Contribution (Regulation) Act, 1976 treats Foreign Company within the meaning of Section 591 of the Companies Act, 1956, its subsidiaries and multi-national corporations as a Foreign Source for the purpose of the Act. The term Foreign Company is not defined in the Foreign Contribution (Regulation) Act, 1976, however it prescribes that a Foreign Company within the meaning of Section 591 of the Companies Act, 1956 would be treated as a Foreign Source for the purpose of the Act - A company, incorporated outside India, however in a sense domiciled within the territory of India by establishing a place of business therein, should be brought within the regulatory framework of the Companies Act, 1956 and in public interest be saddled with some rudimentary obligations. In light of the legislative mandate flowing from clause (1) of Section 591 of the Companies Act, 1956, Vedanta is unquestionably a Foreign Company by virtue of the fact that Vedanta is incorporated outside India, i.e., in the United Kingdom and has established its place of business in India, as it operates in the territory of India through its subsidiary companies like Sterlite and Sesa - A careful analysis of Section 591(2) reveals that if more than one-half of the share-capital of a company incorporated outside India and having an established place of business in India (A 'Foreign Company', within the meaning of section 591(1) of Companies Act, 1956) is held by one or more citizens of India or by one or more bodies corporate incorporated in India, or by one or more citizens of India and one or more bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with such of the provisions of this Act as may be prescribed with regard to the business carried on by it in India, as if it were a company incorporated in India. Therefore, by virtue of the fulfilment of the conditions prescribed in clause (2) of Section 591 of the Companies Act, 1956, a fiction of law operates, and even a Foreign Company as defined is clause (1) is obliged to scrupulously comply with all the provisions of the Companies Act, 1956 as if it were a company incorporated in India and not merely comply with sections 592 to 602 of the 1956 Act - The nationality of a company is determined exclusively on the touchstone of the situs of its incorporation and there exists a profusion of judicial authorities to this effect. The nationality of its shareholders or directors have no bearing upon the nationality of a company, the company being a distinct jural entity having an existence independent of its constituents. Thus, Vedanta is a Foreign Company within the meaning of Section 591 of the Companies Act, 1956 and therefore, Vedanta and its subsidiaries – Sterlite and Sesa are a Foreign Source as contemplated under Section 2(e)(iii) of the Foreign Contribution (Regulation) Act, 1976. However, in view of the operation of clause (2) of the Section 591 of the Companies Act, 1956, Vedanta would be required to comply with the provisions of the Companies Act, 1956 like a company incorporated in India. Since more than one-half of the nominal value of the share-capital of Sterlite and Sesa is held by Vedanta and Vedanta is a corporation incorporated in a foreign country or territory within the meaning of section 2(e)(vi)(c) of the Foreign Contribution (Regulation) Act, 1976, the present case is also squarely covered under Section 2(e)(vi)(c) of the Foreign Contribution (Regulation) Act, 1976 - Prima-facie the acts of the respondents inter-se, as highlighted in the present petition, clearly fall foul of the ban imposed under the Foreign Contribution (Regulation) Act, 1976 as the donations accepted by the political parties from Sterlite and Sesa accrue from 'Foreign Sources' within the meaning of law – Decided in favour of appellants. Service Tax 2014 (4) TMI 542 Demand of service tax - Management Consultancy and Business Auxiliary Services - Held that:- The major component of the service tax demand in these appeals is under manpower supply service on the payments made by the appellant to their holding company in USA in respect of expatriate employees, who were originally the employee of the holding company based in USA and who have been deputed to the appellant company in India. It is not disputed that their salaries have been paid in India and income tax has also been deducted at source in India. Only the amount payable towards social security in respect of these employees has been paid by the holding company in USA and the same has been reimbursed by the appellant to the holding company in foreign exchange. Just because the social security contribution in respect of the expatriate employees was paid by the holding company, the expatriate employees cannot be treated as the employees of the holding company provided to the appellant company on manpower supply basis - Following decision of Volkswagen India Pvt. Ltd. (2013 (11) TMI 298 - CESTAT MUMBAI) & Paramount Communication Ltd. [2013 (3) TMI 134 - CESTAT NEW DELHI] - Decided in favor of assessee. 2014 (4) TMI 541 Rate of tax - revenue contended that consideration amounts were received when the rate of tax was increased from 5% to 8%, therefore, the respondents are liable to pay 8% and not 5%. - Held that:- Following decision of Vistar Construction Pvt. Ltd. [2013 (2) TMI 52 - DELHI HIGH COURT] - taxable event insofar as the service tax is concerned is the rendering of service - Decided against Revenue. 2014 (4) TMI 540 Cenvat Credit - GTA Service - Held that:- so long as the service tax payment by the service provider has not changed and no part of the service tax paid by him has been refunded to him, the Cenvat Credit on the basis of the invoices issued by the service provider cannot be denied to the service recipient. Even if there is dispute over the mode of payment of service tax by the service provider alleging that the service tax has been paid by wrong utilization of Cenvat Credit, this is not the ground on which the Cenvat Credit can be denied to the service recipient who had availed the Cenvat Credit on the basis of the invoices issued by service provider. The only situation in which the Cenvat Credit could be denied to the service recipient is when the service tax paid by the service provider and whose Cenvat Credit taken by the service recipient has been refunded to the service provider - Decided against Revenue. 2014 (4) TMI 539 Rejection of refund claim - Bar of limitation - Commissioner (Appeals) allowed refund claim - Held that:- in terms of Clause (e) of para 2 of the Notification No.17/09-ST dt.07.07.09 a manufacturer exporter registered with Central Excise or an exporter not so registered can file the refund claim in the office of Assistant Commissioner/Deputy Commissioner Central Excise having jurisdictional over his factory of manufacture, registered office /head office, as the case may be. When the assessee have their factory at Udyog Vihar, Phase-I, Sector-36 Gurgaon(Haryana)and are a manufacturer exporter, they had correctly filed the refund claim before the Assistant Commissioner/Deputy Commissioner Central Excise, Gurgaon. In any case, if the Assistant Commissioner/Deputy Commissioner Central Excise, Gurgaon was of the view that the refund claim should be filed before the Assistant Commissioner having Jurisdiction over the Registered Office of the assessee, he should have forwarded the claim to that office - Refund filed in time - Decided against Revenue. Lack of co-relation between the service - Held that:- since the shipping bills did not mention in the service provider s invoices, attempt should have been made to correlate the service provider’s invoices with the shipping bills on the basis of the export invoice numbers. Moreover, when there is provision of self certification and certification regarding availment of the services, in question, has been given by the assessee, the same has to be accepted unless there are serious doubt about the correctness of the same. Terminal Handling and Account Management charges etc - Held that:- When service tax by the Jurisdictional Authorities has been charged in respect of these services under the Heading ‘Port Service’ and ‘Custom House Agent service’ respectively, the Assistant Commissioner while considering refund claim of assessee under Notification No. 17/09-ST cannot review, the assessment of service tax done by the Jurisdictional Service Tax Authorities - Decided against Revenue. 2014 (4) TMI 507 Denial of refund claim - Refund of service tax paid under the mistake of law - Appellants paid the service tax on the value of foreign agency commission which they realized - Refund claim filed on the basis of circular of February, 1999 issued by the Central Board of Excise and Customs - assessee paid tax under bona fide belief that such services are covered under Business Auxiliary Services - Held that:- Decision in the case of KVR Construction [012 (7) TMI 22 - KARNATAKA HIGH COURT] distinguished - The last paragraph or some sentences therein cannot be read in isolation. - the Division Bench in upholding the learned Single Judge's observations relied upon the principle that when the amount is deposited with the Department and it does not constitute any demand or payment in accordance with law, then, same deserves to be refunded and while granting and awarding such claim a technical plea of limitation cannot be raised. If the matter was outside the purview of Section 11B, then, the rule of limitation prescribed therein could not have been applied. This judgment is, therefore, clearly distinguishable on facts. The undisputed position is that the amount was paid by the Appellant as service tax. That tax was not imposable or leviable on export of services was a clarification made by the Department and relying on that clarification, the refund of duty or service tax was claimed. This was squarely a case falling within the provisions of the Central Excise Act, 1944 and therefore, the rule of limitation under Section 11B was applied. - That was applied when the application for refund was made invoking Section 11B of the Central Excise Act, 1944. We have no manner of doubt that when this was the provision invoked, same applies with full force including the rule of limitation prescribed therein. - No substantial question of law arises - Decided against assessee. 2014 (4) TMI 505 Confirmation of demand by the tribunal on merit after concluding that extended period of limitation cannot be invoked - valuation - tribunal concluded that that since storage of goods in the cold storage was an essential part of the clearing and forwarding operations of the assessee, cold storage charges are required to be added in the taxable value of services rendered. - Held that:- the Supreme Court has held that the burden of proof of proving mala fide conduct under the proviso to Section 28 of the Customs Act, 1962, which is an equivalent provision, is on the Revenue and specific averments must be made in the show cause notice for initiation of an action under the proviso. In the present case, the Tribunal was justified in coming to the conclusion that the facts had been duly disclosed by the assessee to the Department and were within the knowledge of the Department in 2002. - Decided against Revenue. Tribunal having came to the conclusion that the extended period of limitation could not have been validly applied, acted outside its jurisdiction in entering upon the merits of the dispute on whether the demand for duty should be confirmed. Once it is held that the demand is time barred, there would be no occasion for the Tribunal to enquire into the merits of the issues raised by the Revenue. - Decided in favor of assessee. Central Excise 2014 (4) TMI 510 CENVAT Credit - GTA Service - whether the respondent is eligible to avail CENVAT credit on service tax paid on outward transportation service during the period from April 2007 to January 2008 - Held that:- Commissioner (Appeals) following the decision of the Tribunal in the case of India Cements Ltd. Vs. CCE - [2007 (8) TMI 501 - CESTAT, BANGALORE] set aside the adjudication order. The Larger Bench of the Tribunal in the case of ABB Ltd. Vs. CCE - [2009 (5) TMI 48 - CESTAT, BANGALORE] held that CENVAT credit is eligible on service tax paid on outdoor transportation service. The Hon’ble Karnataka High Court upheld the decision of the Larger Bench of the Tribunal subject to benefit applicable prior to 1.4.2008. Revenue in the grounds of appeal stated that the decision of the Larger Bench of the Tribunal in the case of ABB Ltd. (supra) is still pending before the Hon’ble Karnataka High Court. I find that the Hon’ble Karnataka High Court has already decided the issue in favour of the respondent. Hence, there is no reason to interfere with the order of the Commissioner (Appeals) - Decided against Revenue. 2014 (4) TMI 509 CENVAT CRedit - whether the respondents are eligible to avail CENVAT credit for the service tax paid on freight for outward transportation from the place of removal during the period March 2007 - Held that:- Calcutta High Court in the case of Vesuvious India Ltd. (2013 (12) TMI 1025 - CALCUTTA HIGH COURT) had also granted temporary stay. Respectfully following the decisions of the Hon’ble Karnataka High Court in the case ABB Ltd. (2011 (3) TMI 248 - KARNATAKA HIGH COURT) and Hon’ble Gujarat High Court in the case of Parth Poly Wooven Pvt. Ltd. (2011 (4) TMI 975 - GUJARAT HIGH COURT), I do not find any infirmity in the order of the Commissioner (Appeals) - Decided against Revenue. 2014 (4) TMI 508 CENVAT Credit - final product is exempted from payment of duty - The appellant availed exemption on clearance of waste and scrap under notification no.89/95-CE dated 18th of May, 1995 - SC dismissed the appeal against the decision of High Court [2013 (8) TMI 66 - ALLAHABAD HIGH COURT] wherein it was held that, CENVAT credit can be utilized for payment of duty on waste and scrap for the simple reason that waste and scrap are "final products" within the definition under Rule 57 AA (c) - Appellant was entitled for CENVAT Credit under Rule 57AA of the Central Excise Rules on proportionate plastic granules which generated the scrap in the manufacturing process of intravenous fluids (IV Fluids) - Decided against the revenue. 2014 (4) TMI 506 Waiver of pre deposit - Duty demand - Held that:- On merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of in a routine matter unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens' faith in the impartiality of public administration, interim relief can be given - However, looking to the fact that from 10.5.2008, according to the own submission of the learned counsel for the appellant, duty became payable on Printed Laminated Plastic, the present was not a case of waiver of the entire amount - Order modified by directing assessee to deposit 25% of the duty component assessed by the order passed by the Commissioner and compounding interest under section 11-AB - Decided partly in favour of assessee. 2014 (4) TMI 504 Intention to evade duty - CENVAT Credit - assessee was not aware of the same, therefore, reversed the credit on the basis of the transaction value of the inputs, paid the differential amount in October 2003 - Equivalent penalty u/s 11AC - Suppression of facts - whether equal penalty is leviable on the ground that although the amendment to Rule 3(4) of the Cenvat Credit Rules, 2002 was introduced on 01.03.2003 - Held that:- The Tribunal, after examining the facts pointed out that Rule 3(4) of the Cenvat Credit Rules, 2002 came into effect on 01.03.2003 and the assessee's plea that they were ignorant about such an amendment for some period of time was found to be acceptable. Furthermore, the Tribunal noticed that though the amendment came into effect from 01.03.2003 and the Department did not act immediately by issuing a show cause notice within the period of limitation prescribed under the Act. Further on perusal of the allegations made in the show cause notice, it is evidently clear that there is no material placed by the Department to establish that the conduct of the assessee in reversing the credit on the basis of the transaction value of the inputs, though the amendment came into effect from 01.03.2003 was with an intention to evade payment of duty. Thus in the absence of such a finding that there was intention to evade payment of duty, the Tribunal rightly deleted the penalty under Section 11AC of the Act - Decided against Revenue. 2014 (4) TMI 503 Waiver of pre deposit - Denial of benefit of exemption Notification No. 3/2007 - Held that:- precedent interim order should normally be followed but we also take note of the plea of the ld. Advocate that the amounts involved in the earlier stay order were much on the lower side and was within their financial capacity. Accordingly they could deposit the same in toto. As the amount involved in the present appeal is on the higher side, and as the issue is of recurring nature and keeping in view the appellants plea that there are many cases in the pipeline and requirement of pre-deposit of duty in each and every case would admittedly lead to financial hardship - Conditional stay granted. 2014 (4) TMI 502 Whether the main applicant, a textile processor was eligible for the Compounded Levy Scheme (CLS) as notified under Notification No.16/2000-CE, dated 30.04.2000, which came into effect from 01.05.2000 - Held that:- there is a strong prima facie case in favour of the applicant for the period after 01.11.2001 since from that date the applicant-assessee was not having any open-air stentor. However, for the period prior to 31-10-2001 the matter is arguable. We rely on the Explanation II of Rule 96ZNA, which is reproduced in para 2 of this order and prima facie, we are of the view that for the period 01.05.2001 to 31.10.2001, the applicant was hit by Explanation II - there is also a very strong case in the pleading for extending 'deemed CENVAT credit' for the period for which CLS is being denied. - Conditional stay granted. 2014 (4) TMI 501 Availment of CENVAT Credit - Credit taken in respect of the goods received from a 100% EOU - Held that:- appellant had been doing the calculation based upon the formula which has been mentioned in sub-rule (7) of Rule 3 of CENVAT Credit Rules, 2004 for the period June 2007 to February 2010. Revenue authorities are not convinced with the formula which has been put into use by the appellant and has held that the appellant has availed excess CENVAT Credit. On perusal of the the Notification No.23/2003-CE dt.31.3.2003 during the relevant period and also the provisions of Rule 3 of CENVAT Credit Rules, 2004, we find that the there is a formula prescribed under the said rule for availment of CENVAT Credit of the Excise duty paid by an 100% EOU under the provisions of Section 3 of Central Excise Act, 1944. The calculation given by the ld. Counsel as regards their submission that they have correctly availed CENVAT Credit, needs to be gone in detail after considering the provisions of CENVAT Credit Rules, 2004 read with said Notification No.23/2003-CE. In our considered view, the issue is contentious one and needs some time for disposal. In view of this, we find that the main appellant-assessee has not made out a prima facie case for complete waiver of pre-deposit of the amount of the duty demanded by the adjudicating authority - Conditional stay granted. 2014 (4) TMI 500 Valuation of goods - addition of 1% charges recovered by the respondents from their clients and shown separately in the bills as insurance charges - Held that:- Admittedly, prior to the 01.10.96, all the invoices reflecting upon collection of 1% insurance charges was being placed before the Revenue. If the law changed and there was no requirement of annexing the invoices with RG-1 returns, it cannot be said that the appellant contravened any provisions of law with an intent to evade payment of duty so as to invoke the extended period - Decided against Revenue. 2014 (4) TMI 499 Penalty under the provision of Rule 26 of Central Excise Rules, 2002 - Assessee abated in clearance of the Cigarettes under the guise of Cigar and correct duty was not discharged - Held that:- Partial stay granted. CST, VAT & Sales Tax 2014 (4) TMI 546 Consideration of Sales tax revision petition u/s 86 of the Rajasthan Sales Tax Act, 1994 - petition pending for want of prosecution for 11 years – whether the assessee would be liable to pay the interest u/s 11B(1)(f) when the liability of the assessee to pay tax arises by virtue of the notification having retrospective effect - Held that:- The ground of 11 years pendency alone in prosecuting this revision petition renders it non- deserving for consideration - Revenue to prosecute further - the Board has allowed the appeal of the respondent-assessee partly on the ground that the interest could not be made chargeable in case of the retrospective levy of tax, as per the earlier judicial pronouncements of the Board referred to, and relied upon in the impugned order - the Revenue has failed to point out any judgment laying down the legal position contrary to the decision of the Board dealing whether the assessee would be liable to pay the interest under Section 11B(1)(f) of the said Act, when the liability of the assessee to pay tax arises by virtue of the notification having retrospective effect – Decided against Revenue. 2014 (4) TMI 545 Whether Addl. CCT(R) was justified in denying the registered dealer purchases and thus rejecting the input tax claim made by assessee u/s 10 of the Act - Bonafide Registered dealer – Section 10 of the Karnataka Value Added Tax, 2003 - Held that:- For the assessment year 2005-06 the TIN number of M/s. Healthy Life Agro Foods, Bangalore was not in existence - Only on 19-02-2014, the HEALTHY LIFE, and others of HEALTHY LIFE was registered under the Act with different TIN number – Therefore, the dealer has failed to establish that the selling dealer M/s. Healthy Life Agro Foods, Bangalore is a bonafide registered dealer borne on the file of any local VAT office - Section 70 casts burden on the appellant to prove that any transaction of the dealer for the purposes of payment of tax or assessment of tax or any claim to input tax under the Act - However, the appellate had not discharged the burden cast upon it by producing necessary documents - Hence appellant is not entitled for input tax credit in respect of edible oil purchased from M/s. Healthy Life Agro Foods, Bangalore – Decided against assessee. Input Tax Credit – Entitlement for Deduction of input tax - Input tax in respect of capital goods - Held that:- The assessee had purchased edible oil both from domestic market so also from outside Karnataka State and was paying Tax separately under CST Act, 1956 - The purchase of goods vehicle is a capital goods purchased for the purpose of business - Section 12 provides for deduction of input tax in respect of the capital goods - Hence, assessee is entitled for deduction of input tax in respect of purchase of a Canter fitted with Tanker – Decided in favour of Assessee. Input Tax Credit – Entitlement for Deduction of input tax - Input tax in respect of other capital goods – Lack of Evidence - Held that:- AO had disallowed the input tax on the ground that no such claim is made by the appellant by filing Form VAT 100 and the purchases were not supported by relevant records - Hence, the appellant is not entitled for claiming deduction of input tax in respect of the said capital goods - Accordingly, the appellant is entitled for the relief only insofar as the purchase of capital goods i.e. Canter fitted with Tanker and the claim of the appellant in respect of edible oil and other capital goods the appellant is not entitled for any relief - Hence, the first and third questions of law are held against the appellant and the second question of law is held in favour of the appellant - Decided against assessee. 2014 (4) TMI 544 Withdrawal of interest - Withdrawal of interest on the refund granted - Extent of the power and jurisdiction of the appellate authority (both in the first appeal and the second appeal) u/s 55 (7) (b) and 55 (7) (c) of the BST Act – Held That:- Judgment in Bombay Electric Supply & Transport (Best) Undertaking vs. State of Maharashtra Commissioner of Sales Tax, Mumbai [2005 (4) TMI 554 - BOMBAY HIGH COURT] followed - Whilst interpreting a statute, meaning has to be given to every word, and an interpretation that would render any provision surplus is to be avoided - It is therefore not possible to accept the contention of Revenue that even u/s 55(7)(c) the appellate authority has the power to enhance the assessment - Tribunal was correct in coming to the conclusion that it had no power of enhancement of the assessment whilst exercising powers in appeal against orders u/s 55 (7)(b) or 55(7)(c) - Thus, Tribunal was fully justified in dismissing the reference applications filed by Revenue. The powers of the appellate authority are very wide and are not confined to considering only the points raised in the grounds of appeal - However, an appeal being a creature of a statute, the powers of the appellate authority are still circumscribed by the limitations set out in the statute - - The subject matter of the order appealed against admittedly does not fall within section 55 (7) (a) which gives the power to the appellate authority to enhance, reduce, confirm or annul the assessment - No such power has been conferred on the appellate authority in sections 55 (7) (b) or 55 (7) (c) – There is no hesitation in holding that even assuming that the second appeal was covered u/s 55(7)(c), the appellate authority had no power or jurisdiction to confirm, enhance, reduce or annul the assessment as the said power could be exercised only in an appeal against an order of assessment as more particularly set out in section 55 (7) (a) - The order of Tribunal rejecting the reference applications of the Applicant does not suffer from any error - No case for interference is made out- Sales-Tax Applications are accordingly dismissed – Decided against Revenue. 2014 (4) TMI 543 Whether Tribunal was correct in holding the sales of mineral water by way of service in the restaurant as the sales of non-alcoholic drinks falling under Schedule Entry C-II-14, when there is a specific Schedule Entry C-II-17 for mineral water - Mineral water - Classification – Interpretation of Statute - Sales by way of service as the sales of non-alcoholic drinks in the restaurant – Held that:- Mineral water does fall under entries C-II-17 - However, it also falls under entry C-II-14 for mineral water is undoubtedly a non-alcoholic drink - Qua mineral water entry C-II-14 is a specific entry, deals with mineral water not generally but mineral water served for consumption inter-alia at or in the immediate vicinity of any public restaurant or in any club or supplied by a public restaurant or club. Firstly, this contention was not even raised before Tribunal - As noted in the order of Tribunal, no reason whatsoever was given for denial of the benefit as far as mineral water was concerned - The notification entry A-13(3) was applicable inter-alia in respect of non-alcoholic drinks served in restaurants - Had the issue been raised before the authorities under the BST Act, the respondent may well have furnished an answer to the same. It would be unfair to the respondent to permit such a contention to be raised in a reference u/s 61, although it was not raised before Tribunal - Secondly, there is no material on record to establish that in common parlance mineral water would not be included within the ambit of the words "non-alcoholic drinks" - It is not Revenue`s case that mineral water served by the respondent was an alcoholic drink - Revenue admits that it was non-alcoholic drink - That the plain meaning of the words "non-alcoholic drinks" includes mineral water is not and indeed cannot be denied - Thus absent any material, it is not possible to uphold the contention on the basis of the common parlance test - matter, therefore, does not raise a substantial question of law – Application dismissed – Decided against Revenue. Indian Laws 2014 (4) TMI 538 Contravention of the order of the Commission and the Tribunal - The applicant has stated that the "cease and desist" order passed by the Commission and confirmed by the Tribunal was binding on the opposite party - Held that:- The plea is thoroughy misconceived. It is no doubt true that after passing of final orders in terms of the provisions contained in section 27 of the Act, the inquiry conducted by the Commission comes to an end. However, the proceedings contemplated under section 42 of the Act, by very nature, will arise post passing of the orders by the Commission. The inquiry envisaged under section 42 of the Act may be initiated by the Commission either suo moto or on an application moved by any member of the public bringing to the notice of the Commission the alleged contravention by a party against whom an order was issued by the Commissions - The Commission has noticed the various orders passed by COMPAT in those proceedings. No stay on the cease and desist order passed by the Commission has been granted by COMPAT. In fact, when the applicant approached COMPAT with an application seeking stay on the impugned demands, COMPAT requested the Commission to dispose of the said application instead. Opposite party No. 1 had contravened the order of the Commission dated 31.01.2012 by issuing the impugned demand letters dated 28.11.2012. The opposite party No. 1 has failed to show any cause, much less any reasonable cause, for non-compliance of the aforesaid order. It is made clear that order passed by the Commission need to be complied with by the parties and the same cannot be permitted to be opted out by the parties through negotiations. No stay on the cease and desist order passed by the Commission was operating when the non-compliance occurred. The said demand letter has not been withdrawn till date - opposite party No. 1 is directed to pay the fine accordingly - Decided in favour of appellant.
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