TMI Tax Updates - e-Newsletter
April 28, 2017
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Insolvency & Bankruptcy
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Highlights / Catch Notes
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Income Tax:
Income accrues or arises or is deemed to accrue or arise - Mere construction of the track by Jaypee at its expense will be of no consequence. Its ownership or organising other events by Jaypee is also immaterial - Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out - TDS was required to be deducted u/s 195 on the profit portion - SC
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Income Tax:
Validity of notice issued under Section 201(1)/201(1A) - It may be a notice u/s 201 (3) of the Act but it only requires the petitioner to furnish the certain information and nothing else - there is no necessity or any justification for us to disturb or quash the above notice - HC
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Income Tax:
Assessee is entitled to adjustment of seized amount towards advance tax liability from the date of making the application in that regard. The Tribunal has rightly held that the assessee was entitled to adjustment of the said amount and no interest could be charged on that basis - HC
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Income Tax:
Bogus purchases - The assessee could not establish movement of material as well could not produce the parties before Revenue. The books of accounts were rejected by AO u/s 145(3) of 1961 Act - Additions confirmed - AT
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Income Tax:
Revision u/s 263 - deduction u/s. 80IB(10) - AO failed to apply the provisions of section 115JB - CIT was able to demonstrate that the view taken by the AO was not plausible rather it was legally unsustainable and incorrect. Besides it resulted in loss of revenue. Thus both the prerequisites were there when the CIT issued the notice u/s. 263 - AT
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Income Tax:
The assessee which was pursuing printing, publishing and distribution of Christian literature and tracts as its main activity, could be considered only as a religious one - lower authorities fell in error by applying section 2(15) to it, when said Section has no applicability on religious institutions. - AT
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Income Tax:
LTCG - since the agreement was a Development Agreement, there was no transfer of property by way of sale and even the ingredients of “Part Performance” as per Sec.53(A) of the Transfer of Property Act cannot be said to have been attracted, so as to attract the provisions of Capital Gains tax - AT
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Income Tax:
TPA - 'operating profit’ from the international transaction is compared with the operating profit margin of the comparables under the TNMM. Thus the addition based on the transfer pricing adjustment, on the strength of `net profit’ as numerator in contrast to `operating profit’, cannot be upheld - AT
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Income Tax:
TPA - corporate guarantee commission fee which is to be recovered from AE should be @ 0.50% which would meet the arms length requirement. - AT
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Income Tax:
Bogus purchases - when the hawala person himself had admitted that he had arranged the purchases from grey market and got them supplied, the addition on account of so called alleged bogus purchases cannot be added as income of the assessee - AT
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Income Tax:
Additions u/s 41(1) qua write-back of certain creditors - resulting into less depreciation claim for the assessee - depreciation is neither a loss, nor an expenditure, nor a trading liability, referred to in s. 41(1). - AT
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Customs:
Refund of customs duty - when an amount becomes refundable after a final order is passed, the same has to be refunded immediately and for such purpose, the assessee is not required to move an application u/S 27 of CA, 1962 - AT
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Service Tax:
Renting of immovable property services - The term “hotel” is not defined in the Finance Act, 1994 - buildings used for or as hotels do not amount to immovable property for the purpose of service tax - demand set aside - AT
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Service Tax:
Valuation of taxable services - assessee is collecting “other charges” and did not pay service tax on such charges - where the conditions of Pure Agent, condition of Rule 5(2) are not fulfilled, demand of service tax is to be confirmed - AT
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Service Tax:
Forward Contract Service - any amount collected in the name of transaction fee is not remitted to the exchange and is retained by the appellant, it is apparent that the same will be an additional consideration accruing to the appellant towards service rendered to the clients. The name of such consideration becomes immaterial - AT
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Service Tax:
Valuation - composite contract - 80% of the value shown to have suffered VAT with reference to supply of materials - benefit of notification no.12/2003-ST cannot be denied - AT
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Service Tax:
Refund claims - unutilized CENVAT credit - Rule 5 of CCR - remittances including by NEFT, received during a particular quarter even though related to invoices issued or export services provided for the period prior to that quarter, will definitely required to be included in the export turnover of services for that quarter. - AT
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Service Tax:
CENVAT credit - providing passive infrastructure - the appellants are not entitled to take Cenvat credit on towers, pre-fabricated shelters parts thereof etc. - AT
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Service Tax:
Refund claim - Service Tax paid under works contract service which were not taxable - unjust enrichment is not applicable as the contract price is inclusive of duty and duty payable reduced or becomes zero is immaterial. - AT
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Service Tax:
Classification of service - when the agreement is for transfer of exclusive/non-exclusive technical know-how the consideration received cannot be taxed under consultancy service - AT
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Central Excise:
Classification of manufactured goods - A mere non-mention of the item in the Schedule to the Insecticides Act 1968 will not change the situation and cannot automatically gives the conclusion that because of the non-mentioning of subject item in the said Schedule, the item is not an “insecticide‟ - AT
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Central Excise:
Valuation - Since the repairing activity is carried out on the old card clothing which also includes the goods initially supplied by some other manufacturer, therefore the said repairing activity has no relation to the manufacture and clearance of new card clothing manufactured by the appellant - AT
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Central Excise:
SSI exemption - the clearance against Form H has to be treated as clearance of export and same is not includable in the aggregate value for the purpose of SSI exemption N/N. 8/2003-C.E - AT
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Central Excise:
Abatement - suo-moto calculation - Pan Masala containing Tobacco - assessee could on their own calculate duty and set off same against duty payable in the next month and such action of the assessee is not violative of any rule or any provision of law - AT
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2017 (4) TMI 1103
Reopening of assessment - addition to income to the tune of 9% of the purchase - benami transactions - Held that:- On the basis of information received and if the assessing officer is satisfied that reasonable ground exists to believe, then in that case the power of the assessing authority extends to re-opening of assessment, which in the instant case the conditions are duly met for reopening based on factual matrix of the case. The tangible and material incriminating information so received by the AO from DIT(Inv.), Mumbai as detailed above is so obvious that to say that the AO has not applied his mind to reach satisfaction in forming reasons to believe that income of assessee has escaped assessment to initiate re-opening u/s 147 of 1961 , is too farfetched and such contention of the assessee is out-rightly rejected. There is live link between material and tangible incriminating information received by the assessee and formation of reasons to believe that income of the assesse has escaped assessment in the instant case under appeal before us. Thus, Respectfully following the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited (2007 (5) TMI 197 - SUPREME Court) we hold that reopening of the assessment as done in the instant case by the AO u/s 147 of 1961 was valid and legal which is upheld by us , and the contentions of the assessee are , hereby, rejected.
We have observed that notice u/s 133(6) of the Act were issued by the A.O. to four benami concerns of Mr Bhanwarlal Jain from whom the assessee allegedly obtained bogus bills for purchase of diamonds against which they only gave part replies. The assessee failed to produce these four parties before the AO despite being called upon by Revenue to produce them. The assessee also could not prove the movement of material so purchased from these alleged entry providers. These are information which are especially in the knowledge of the assessee and the onus is on the assessee to prove that purchases made by him are genuine as these purchases are recorded in the books of accounts of the assessee.
In the instant case learned CIT(A) made an honest attempt to estimate net margin on total turnover by adding to income 9% of bogus purchases which led to net margin of 7.22% on total turnover as against net margin of 4.52% on total turnover declared by the assessee , which net margin arrived at 7.22% on total turnover was based on average net margin of the assessee itself for assessment year 2008-09 to 2012-13, which in our considered view was an honest, realistic and rational attempt made by learned CIT(A) and does not fall in the arena of arbitrariness and perversity requiring our interference, and hence we decline to interfere with the well reasoned appellate order of learned CIT(A). The right of cross examination is not absolute.
There was an incriminating tangible and material information with the Revenue against the assessee that the assessee has obtained bogus invoices from benami concerns of Mr Bhanwarlal Jain who were engaged in providing accommodation entries through front companies/concerns opened in the name of his benamis .
The assessee failed to produce these four parties from whom purchases were made by the assessee before Revenue. The entries for purchase are appearing in books of the assessee and it was incumbent on the assessee to bring on record cogent material to substantiate that purchases were genuine. The assessee is in possession of the facts which were especially in the knowledge of the assessee w.r.t. these bogus purchases and burden of proof lay on the assessee to substantiate that purchases are genuine. The assessee could not establish movement of material as well could not produce the parties before Revenue. The books of accounts were rejected by AO u/s 145(3) of 1961 Act. Thus, we are inclined to confirm the appellate order of learned CIT(A) and this appeal filed by the assessee is dismissed. It is not brought on record before us that Revenue is in appeal before the tribunal against the part relief given by learned CIT(A) to the assessee. - Decided against assessee.
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2017 (4) TMI 1109
Royalty receipt - income accrues or arises or is deemed to accrue or arise - business connection - 'Double Taxation Avoidance Agreement' between the Government of United Kingdom and the Republic of India - 'Permanent Establishment' (PE) in India - whether any part of the consideration received or receivable by FOWC from Jaypee outside India was subject to tax at source under Section 195? - Held that:- As per Article 5 of the DTAA, the PE has to be a fixed place of business ‘through’ which business of an enterprise is wholly or partly carried on.Twin conditions which need to be satisfied are: (i) existence of a fixed place of business; and (b) through that place business of an enterprise is wholly or partly carried out.
We are of the firm opinion, and it cannot be denied, that Buddh International Circuit is a fixed place. From this circuit different races, including the Grand Prix is conducted, which is undoubtedly an economic/business activity.
The Buddh International Circuit, is defined in Clause 1(q), as one suitable in every respect for the staging of the event, including permanent buildings, permanent structure, track laid-out, amenities, spectator viewing facilities, paddock building, media centre, car parks, helipads, garages, race control and administration, office administration, fuel and storage, tyre store, utilities, including backup power supplies, concrete-based areas suitable to host competitors and sponsor, vending and exhibition areas, international TV compounds etc. These specifications are more elaborately spelt out in Clause 5(e) which states that a circuit shall be constructed, laid out and prepared in accordance with the agreement, i.e. RPC, "in a form and manner approved by the FOWC and the FIA. We are also of the opinion that the High Court [2016 (12) TMI 123 - DELHI HIGH COURT] has rightly concluded that having regard to the duration of the event, which was for limited days, and for the entire duration FOWC had full access through its personnel, number of days for which the access was there would not make any difference.
It is difficult to accept the arguments of the appellants that it is Jaypee who was responsible for conducting races and had complete control over the Event in question. Mere construction of the track by Jaypee at its expense will be of no consequence. Its ownership or organising other events by Jaypee is also immaterial. Our examination is limited to the conduct of the F-1 Championship and control over the track during that period. Specific arrangement between the parties relating to the aforesaid, which is elaborated above and which FOWC and Jaypee unsuccessfully endeavoured to ignore, has in fact turned the table against them. It is also difficult to accept their submission that FOWC had no role in the conduct of the Championship and its role came to an end with granting permission to host the Event as a round of the championship. We also reject the argument of the appellants that the Buddh International Circuit was not under the control and at the disposal of FOWC.
No doubt, FOWC, as CRH of these events, is in the business of exploiting these rights, including intellectual property rights. However, these became possible, in the instant case, only with the actual conduct of these races and active participation of FOWC in the said races, with access and control over the circuit.
We are of the opinion that the test laid down by the Andhra Pradesh High Court in Visakhapatnam Port Trust case [1983 (6) TMI 31 - ANDHRA PRADESH High Court] fully stands satisfied. Not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-1 (i.e. FOWC) on the soil of this country. It is already noted above that as per Philip Baker (A Manual on the OECD Model Tax Convention on Income and on Capital), a PE must have three characteristics: stability, productivity and dependence. All characteristics are present in this case. Fixed place of business in the form of physical location, i.e. Buddh International Circuit, was at the disposal of FOWC through which it conducted business. Aesthetics of law and taxation jurisprudence leave no doubt in our mind that taxable event has taken place in India and non-resident FOWC is liable to pay tax in India on the income it has earned on this soil.
It cannot be disputed that a person who makes the payment to a non-resident is under an obligation to deduct tax under Section 195 of the Act on such payments. Mr. Rohatgi had submitted, and rightly so, that this issue is covered by the judgment in the case of GE India Technology Centre Private Limited (Refer Footnote 23). Precisely this very judgment is taken note of and relied upon by the High Court also in holding that since payments made by Jaypee to FOWC under the RPC were business income of the FOWC through PE at the Buddh International Circuit, and, therefore, chargeable to tax, Jaypee was bound to make appropriate deductions from the amounts paid under Section 195 of the Act.
We are, however, inclined to accept the submission of Mr. Datar that only that portion of the income of FOWC, which is attributable to the said PE, would be treated as business income of FOWC and only that part of income deduction was required to be made under Section 195 of the Act. In GE India Technology Centre Private Limited (Refer Footnote 23), this Court has clarified that though there is an obligation to deduct tax, the obligation is limited to the appropriate portion of income which is chargeable to tax in India and in respect of other payments where no tax is payable, recourse is to be made under Section 195(2) of the Act. It would be for the Assessing Officer to adjudicate upon the aforesaid aspects while passing the Assessment Order, namely, how much business income of FOWC is attributable to PE in India, which is chargeable to tax. At that stage, Jaypee can also press its argument that penalty etc. be not charged as the move on the part of Jaypee in not deducting tax at source was bona fide. We make it clear that we have not expressed any opinion either way.
Insofar as the argument of Mr. Datar on the powers of the High Court under Article 226 of the Constitution of India is concerned, we are not impressed by the said argument. It is Jaypee itself which had filed the writ petition (and for that matter FOWC as well) and they had challenged the orders of AAR on certain aspects. The High Court has examined legal issues while delivering the impugned judgment, of course having regard to the facts which were culled out from the documents on record.
Appeals preferred by the FOWC and Jaypee are dismissed, subject to observations as made above.
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2017 (4) TMI 1108
Condonation of delay - SC dismissed the SLP against the decision of HC where it was held that, No reason to condone the delay of 484 days in filing the appeal. HC order confirmed.[2017 (4) TMI 1061 - BOMBAY HIGH COURT]
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2017 (4) TMI 1107
Explanation (baa) to Section 80HHC application to the Sales Tax Subsidy received by the Appellant - Held that:- Applying the ratio in Ravindaranathan Nair's case [2007 (11) TMI 10 - Supreme Court of India] to the fact situation prevailing in the present case, the refund of Sales Tax obtained by the Assessee has no direct bearing or attribute of the export component of the business carried on by the Assessee and hence the Assessee cannot seek to retain the same by deriving the benefit spelt out in Section 80HHC.
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2017 (4) TMI 1102
Revision u/s 263 - computation of book profit the assessee had incorrectly reduced deduction u/s. 80IB(10) - claim of the assessee was accepted by the AO without applying the provisions of section 115JB correctly - Held that:- Principles of primary estoppel will not have any role to play when MAT provisions are to be applied. The assessee can claim its due deduction. But in the name of liberal interpretation or legitimate expectation deduction u/s. 80IB(10) cannot be brought within the fold of the section 115JB. It is a non obstante clause and provisions of section 80IB(10) cannot dilute the rigor encompassing it. As the AO had not given full effect to the provisions of section 115JB so his order would fall in the category of erroneous order. Computation made by him was not as per clear mandate of the law. The assessee itself had in the subsequent two years followed the method as suggested by the CIT in her revisionary order. No reasonable cause was brought on record for not claiming any deduction u/s. 80IB (10) while computing the income under the MAT provisions for the immediate succeeding two AY's.
We do not find that there was any change in the provisions of both the sections for the year under appeal and for the subsequent two AY's. Thus there existed the first pre- condition for invoking the provisions of section 263 of the Act as the view taken by the AO was unsustainable in law. The AO had not applied his mind before allowing the deduction to the assessee. We are of the opinion that the CIT was able to demonstrate that the view taken by the AO was not plausible rather it was legally unsustainable and incorrect. Besides it resulted in loss of revenue. Thus both the prerequisites were there when the CIT issued the notice u/s. 263 of the Act. She had decided the issue after considering the available material and legal position prevailing at that point of time. So we hold that the order passed by the CIT does not suffer from any legal or factual infirmity. - Decided against assessee
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2017 (4) TMI 1101
Denied exemption claimed u/s.11 - whether activities of the assessee society could be classified as one of general public utility or as religious - Held that:- It is interesting to note the argument advanced by the assessee as to why it was distributing books other than religious ones. As per the assessee such books were displayed so as to attract general public to the Christian religious books. It is not disputed by either party that major receipts of the assessee came from distribution of Christian religious books, though this was supplemented by realizations from sale of other books. In my opinion sale of other books in the nature of dictionaries, history, social science, literature etc can only be considered as incidental to its major activity which was publishing and distributing religious books and tracts. Such incidental activity alone, in my opinion cannot jacket the assessee as one pursuing an object, different from distribution of religious books. Thus, the claim of the assessee that it’s main activity was confined to object clauses (b) and (c), in my opinion carries much strength. Object clause (d) onwards can be considered only as incidental to clause (b) and (c).
Whether publication and distribution of religious books can be considered a religious activity? - Held that:- In my opinion assessee which was pursuing printing, publishing and distribution of Christian literature and tracts as its main activity, could be considered only as a religious one. In my opinion lower authorities fell in error by applying section 2(15) to it, when said Section has no applicability on religious institutions.
In respect of Cochin branch, there was a suit filed by the assessee against its Manager who claimed ownership to the said branch. As for the Trivandrum branch, assessee had entrusted its operation to CSI Diocese of South Kerala through an MOU dated 01.04.2004. It has also not been disputed by the Revenue that the said branch was running in a loss. In any case accounts of these branches were not incorporated since 31.03.2005 and the position continued so since many years. In other words, Revenue had accepted the factual position with regard to these branches in the earlier years and the claim for exemption u/s.11 of the Act was granted to the assessee in such earlier despite similar comments in the audit report. In any case non incorporation of the accounts of the branches was not due to any fault of the assessee but due to factors beyond its control.
Claim of depreciation - Held that:- Assessee can take advantage of judgments which went in its favour. Claim of depreciation has to be allowed.
In the result, set aside the orders of the lower authorities and direct that the assessee be granted exemption claimed by it u/s.11 of the Act and also allowed depreciation. - Decided in favour of assessee
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2017 (4) TMI 1100
Unexplained deposits in bank account - sale proceeds of the agricultural land sold by assessee's brother-in-law - Held that:- As from the bank account and the document placed on record from which a cash flow statement is prepared and available at page 19 of the assessee's paper book in which it is mentioned that the amount the of ₹ 25 lacs has been withdrawn by the assessee from his bank account out of which ₹ 19,42,880/- is utilized for purchase of land in the name of Smt. Rajnesh Devi and on expenses of registry. Further an amount of ₹ 5 lakh is advanced to Smt. Bharti Devi and Satish Devi for purchase of land. Thus, an amount of ₹ 24,42,800/- has been utilized. There is no material to hold that any part of the withdrawn amount of ₹ 25 lacs has been retained by the assessee as his commission for facilitating the purchase of land/ use of his bank account. Therefore, on such hypothetical assumption, the addition cannot be sustained and thus the same is directed to be deleted. Hence, the solitary ground of the assessee is allowed.
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2017 (4) TMI 1099
Addition u/s 68 - CIT-A deleted addition - Held that:- We find merit into the contentions of the assessee that the partner can bring fresh capital by raising funds from third party directly to the account of the firm. Therefore, we do not see any reason to interfere into the order of the ld. CIT(A) and the same is hereby confirmed. The ground raised in the revenue’s appeal is dismissed.
Disallowance of claim of deduction U/s 8-IB - Held that:- In view of the provisions of Section 80IB(3) and 80IB(14)(c) which defines the initial assessment year and also as the audit report itself certifies that the operation of the undertaking commenced from Nov, 2001 and thus the initial assessment year being assessment year 2002-03, the disallowance made by the Assessing Officer is correct and upheld. The ground of appeal is dismissed
Trading addition - Held that:- The Assessing Officer has not rejected the books of account. The assessee has been maintaining details. Ld. AR has relied upon the decision of the Hon’ble Rajasthan High Court in the case of CIT Vs. Maharaja Shree Umed Mills Ltd. [1991 (5) TMI 46 - RAJASTHAN High Court] and Ramjivan Jagannath Vs. ACIT (2006 (10) TMI 145 - RAJASTHAN HIGH COURT) wherein it has been held that the gross profit rate cannot be looked into when the Assessing Officer has not rejected the books of account of the assessee and without making this as a base, it could not be said that the expenditure has been inflated. In the present case, admittedly, the Assessing Officer has not rejected the books of account. He has not given the basis for making ad hoc disallowance, therefore, we direct the Assessing Officer to delete the disallowance. This ground of the assessee’s C.O. is allowed.
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2017 (4) TMI 1098
Long Term Capital Gains addition - sale consideration received on transferred land - assessee had entered into Development Agreement for land - Held that:- CIT(A) while deciding the issue and after perusing the Development Agreement entered by the assessee with City Corporation Limited, Pune has upheld the contention of the assessee that there was no transfer because assessee did not have the possession of land and therefore could not have handedover the possession. He has further given a finding that since the agreement was a Development Agreement, there was no transfer of property by way of sale and even the ingredients of “Part Performance” as per Sec.53(A) of the Transfer of Property Act cannot be said to have been attracted, so as to attract the provisions of Capital Gains tax and for the aforesaid proposition, Ld.CIT(A) had relied on the decision of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia Vs. Commissioner of Income Tax, (2003 (2) TMI 62 - BOMBAY High Court )
Revenue has not placed any material on record to controvert the findings of Ld.CIT(A) nor has pointed out as to why the ratio of decision rendered by Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas (supra) cannot be applied to the facts of the present case. In view of the aforesaid facts, we find no reason to interfere with the Ld.CIT(A) and thus the grounds of Revenue are dismissed. - Decided in favour of assessee
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2017 (4) TMI 1097
Disallowance u/s 40(a)(ia) - whether the second proviso to section 40(a)(ia) inserted by Finance Act, 2012 w.e.f 01.04.2013 is applicable retrospectively and the assessee is eligible to claim benefit of same in assessment year 2010-11? - CIT-A allowed claim - Held that:- The second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 w.e.f 01.04.2013. The amendment brought in by the Finance Act, 2012 by way of insertion of second proviso to section 40(a)(ia), whether effective retrospectively or from the date mentioned in the Finance Act, 2012, has been debated in several cases before Tribunal & various Hon’ble High Courts. The Hon’ble Kerala High Court in the case of Prudential Logistics And Transports V/s. ITO (2015 (2) TMI 847 - KERALA HIGH COURT) has held that second proviso to section 40(a)(ia) giving concession to assessee from deducting TDS in case recipient of amount has already paid taxes on such amount would be available with effect from 01.04.2013 only. Subsequently, the Hon’ble Delhi High Court in the case of CIT V/s. Ansal Land Mark Township (P) Ltd [2015 (9) TMI 79 - DELHI HIGH COURT] held that second proviso to section 40(a)(ia) is declaratory and curative and has retrospective effect from 1st April, 2005. Various benches of the Tribunal have been consistently holding that the second proviso to Section 40(a) (ia) is applicable retrospectively.
Thus, in view of the facts of the case and the decisions discussed above, we find no error in the order of Commissioner of Income Tax (Appeals) in deleting disallowance made by the Assessing Officer u/s 40(a)(ia) of the Act. - Decided in favour of assessee.
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2017 (4) TMI 1096
Additional depreciation not allowable in view of the provisions of Sec.32(1)(iia) - claim denied the reason that assessee apart from acquiring should have also installed the Plant and Machinery after 31.03.2015 but in the case of assessee since the Plant and Machinery was acquired before 31.03.2015 assessee - Held that:- Claim of additional depreciation was before the Hon’ble Gujarat High Court in the case of Pr.Commissioner of Income Tax Vs. M/s. IDMC Limited (2017 (2) TMI 644 - GUJARAT HIGH COURT) wherein held that the purpose and object of granting additional depreciation under Section 32(1)(iia) of the IT Act is stated hereinabove i.e. to encourage the industries by permitting the assessee setting up the new undertaking / installation of new plant and machinery and to give a boost to the manufacturing sector by allowing additional depreciation deduction. Thus, as rightly held by the learned ITAT the provision of section 32(1)(iia) of the IT Act is required to be interpreted reasonably and purposively as the strict and literal reading of section 32(1)(iia) of the IT Act will lead to an absurd result denying the additional depreciation to the assessee though admittedly the assessee has installed new plant and machinery. Under the circumstances, no error has been committed by the learned ITAT in allowing the additional depreciation at the rate of 20% on the plant and machinery installed by the assessee after 31st Day of March 2005 i.e. the year under consideration. No substantial question of law arise. - Decided in favour of the assessee
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2017 (4) TMI 1095
Disallowance u/s 14A - Held that:- In view of Section 14A of the Act, there cannot be any deduction in respect of expenditure incurred by the assessee in relation to income which does not form part of total income. For the purpose of computation of disallowance, the rule making authority, by virtue of power conferred on them, provided a method under Rule 8D(2) of Income-tax Rules, 1962. Whenever the Assessing Officer having regard to the account of the assessee, was not satisfied the correctness of claim that expenditure incurred by the assessee or the claim made by the assessee that no expenditure was incurred in relation to the income which does not form part of total income, he may determine the amount of expenditure in relation to such income in accordance with the method found in Rule 8D(2).
The constitutional validity of Section 14A of the Act and Rule 8D of Income-tax Rules, 1962 was upheld by various High Courts in the country. The Madras High Court in Redington (India) Ltd. (2017 (1) TMI 318 - MADRAS HIGH COURT ) found that by application of matching concept, where there is no exempt income, there cannot be any disallowance of expenditure. - Decided in favour of assessee
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2017 (4) TMI 1106
Validity of notice issued under Section 201 (1)/201(1A) - period of limitation - Held that:- In view of the above, we are of the considered opinion that the provision of Section 201 (3) of the Act as amended by the Finance Act 2 of 2014 is effective from 1.10.2014 only and would not apply retrospectively to any returns or to the proceedings which may have become conclusive with the passage of time on the expiry of the limitation under the unamended provision.
Having said so, we take up the impugned notice dated 5.1.2016. It may be a notice under Section 201 (3) of the Act but it only requires the petitioner to furnish the certain information and nothing else. It is not even a show cause notice which may be taken for the purposes of passing an order as contemplated under Section 201 (3) of the Act. Therefore, we are of the opinion that there is no necessity or any justification for us to disturb or quash the above notice and it would be in the fitness of thing if the petitioner appears in response of the said notice and submits the desired information to keep its record straight and not necessarily to enable the respondents to pass any order under Section 201 (3) of the Act.
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2017 (4) TMI 1105
Disallowance towards the claim of Bad Debts/Business loss - Held that:- When assessee's case has travelled to the Tribunal in the second round and assessee had sufficient opportunity to prove the genuineness of the claim of bad debt of ₹ 30,47,240/-and then also he has been unable to satisfy the lower authorities and even before us, during the course of hearing, we do not find any reason to accept the contentions and claim made by the assessee in this ground relating to disallowance of bad debt of ₹ 30,47,240/-in the given circumstances and we dismiss the same and uphold the order of ld. CIT(A). In nut shell in the ground no.1 raised by assessee towards disallowance of business expenses at ₹ 54,29,508/-we delete the addition of ₹ 23,82,268/-and sustain the remaining part at ₹ 30,47,240/-.
Disallowance towards the claim of interest paid for business consideration - Held that:- Tribunal has independently considered the disallowance of interest of ₹ 23,54,592/-and has confirmed the disallowance claimed by the assessee towards interest paid for business consideration on the ground that the amount of interest has been paid on loans taken has actually been diverted towards investment in shares and other non interest bearing investment.
Assessee appeal dismissed.
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2017 (4) TMI 1094
Transfer pricing addition - purchases from AE were inflated - Held that:- The assessee cannot be said to have maintained `a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction’ or `a record of the actual working carried out for determining the arm’s length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any.’ Thus, it is unambiguous that the assessee did not undertake any transfer pricing analysis in the manner prescribed. In such circumstances, the TPO was fully justified in holding that the assessee did not maintain any worthwhile documentation or undertake any valid transfer pricing study.
All the points taken note of by the ld. CIT(A) in deleting the transfer pricing addition lack valid reasoning and suffer from certain inconsistencies. We, therefore, hold that the impugned order deleing the transfer pricing addition made by the AO, cannot be sustained.
Sub-clause (i) deals with the computation of the net operating profit margin realised by the enterprise from an international transaction in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base. Sub-clause (ii) provides that the net operating profit margin realised by a comparable uncontrolled transaction should be computed having regard to the same base as that taken in sub-clause (i) for the assessee. In the formula for calculating the profit margin under rule 10B(1)(e) under sub-clauses (i) and (ii), there can be any denominator, such as, costs incurred or sales effected or assets employed or to be employed. However, the numerator is uniform, which is, net operating margin. In fact, the numerator is `operating profit’ and not the `net profit’ as has been taken by the TPO in making transfer pricing adjustment. Whereas, operating profit is the excess of operating revenue over the operating costs, net profit is the excess of revenue over all costs, both operating and non-operating. The Hon’ble Supreme Court in DIT (I.T.) vs. Morgan Stanley and Co. (2007 (7) TMI 201 - SUPREME Court) has held that 'operating profit’ from the international transaction is compared with the operating profit margin of the comparables under the TNMM. Thus the addition based on the transfer pricing adjustment, on the strength of `net profit’ as numerator in contrast to `operating profit’, cannot be upheld. The same is required to be corrected accordingly.
Thus in fitness of the things if the impugned order is set aside and the matter is remitted to the file of AO/TPO for a fresh determination of the ALP of the international transaction.
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2017 (4) TMI 1093
Assessment of capital gains as income from other sources - co-ownership - Held that:- The facts borne out from the record before us shows that the Assessee along with her husband purchased the said property in question and sold the same. Therefore the joint ownership of the property cannot be denied. To this extent we agree with the Ld. CIT (Appeals).
CIT (Appeals) having observed that when a property is owned it definitely attracts capital gains and has to be borne by the owner or co-owner in proportion to their respective shares, the decision to affirm the order of the Assessing Officer in assessing the entire sale consideration under the head income from other sources is not correct. Therefore, we hold that the sale consideration received by the Assessee from the sale of the property should be assessed under the head income from capital gains only. From the record placed before us, we find that the subject property was purchased by the Assessee in the joint names of the Assessee as well as her husband vide agreement dated 15.05.2001 from Sheth Developers Ltd. for a sale consideration of ₹ 9,05,625/- and the said flat was sold by the Assessee vide agreement for sale dated 23.10.2008 to Mr Raju Soni & Mrs Shobhana B Soni for consideration of ₹ 36,51,000/-. In the circumstances, the Assessing Officer should compute the long term capital gains instead of assessing the entire sale consideration as income from other sources. Thus, we restore this issue to the file of the Assessing Officer to compute the capital gains in the hand of the Assessee as well as in the hands of the co-owner of the property i.e. the Assessee’s husband. Appeal of the Assessee partly allowed for statistical purpose
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2017 (4) TMI 1104
Penalty under Section 271AAA - non payment of taxes on surrendered income under Section 132(4) - Seized cash of the assessee was adjusted against the regular taxes and interest payable - Held that:- This issue has already been decided by this Court against the revenue in Commissioner of Income Tax Vs. Ashok Kumar [2010 (9) TMI 771 - Punjab and Haryana High Court ] held that the assessee is entitled to adjustment of seized amount towards advance tax liability from the date of making the application in that regard. The Tribunal has rightly held that the assessee was entitled to adjustment of the said amount and no interest could be charged on that basis
Also see Commissioner of Income Tax (Central), Ludhiana Vs. M/s Cosmos Builders and Promoters Limited [2015 (9) TMI 139 - PUNJAB & HARYANA HIGH COURT ] wherein held that the assessee was entitled to have the cash seized adjusted against its advance tax dues.
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2017 (4) TMI 1092
TPA - adjustment in respect of 'Guarantee Commission' and 'Fee for Letter of Undertaking' - Held that:- The details of loans vis-à-vis the security thereof had already been reproduced above. It has also been brought on record that State Bank of India has charged bank guarantee commission to assessee by giving 50% concession on the rate of 1.75% which works out to approximately 0.875%. If various factors and risk involved are evaluated which is quite normal under the foreign guarantee like, country risk, currency risk and entity risk etc., then charging of corporate guarantee commission would fall down below 0.5%. Thus, this constitutes a kind of internal CUP available to the assessee to benchmark the transaction of giving corporate guarantee/letter of undertaking. Moreover, there are catena of decisions wherein this Tribunal has held that corporate guarantee commission around 0.50% can be accepted as ALP. Accordingly, we hold that the corporate guarantee commission fee which is to be recovered from AE should be 0.50% which would meet the arms length requirement. Thus, under the facts and circumstances of the case, we direct the TPO/Assessing Officer to take the corporate guarantee fee @ 0.50% and make the adjustment accordingly. Thus, the issue of corporate guarantee as raised vide ground nos. 1.1 to 1.5 is treated as partly allowed.
Disallowance u/s. 14A read with rule 8D - Held that:- The ratio and the principle laid down in the case of Reliance Utilities Ltd., (2009 (1) TMI 4 - BOMBAY HIGH COURT) and HDFC Bank, (2014 (8) TMI 119 - BOMBAY HIGH COURT) are clearly applicable, wherein their Lordships have reiterated several times that if the assessee has surplus funds in the form of reserves & surplus or share capital, then presumption is that investment would have been made from surplus funds/interest free funds and not from the borrowed funds. Accordingly, we direct the AO to delete the disallowance of interest expenditure as worked out under rule 8D (2)(ii).
Disallowance of indirect expenditure u/r 8D (2)(iii), we agree with Ld. Counsel that the investments from where income is taxable or the investments which are for business or strategic reasons need to be removed from the working of the average value of investments as contemplated in rule 8D(2)(iii). Further ld. Counsel has given the working of disallowance under rule 8D (2)(iii) in light of various judicial decisions and propositions which needs verification. Accordingly, we direct the AO to examine the same and compute the disallowance of indirect expenditure. Since our decision on disallowance of interest is based on direct Jurisdictional High Court decisions, therefore, we do not deem fit to go into the various propositions made by the Ld. CIT, DR in his written notes which is more on intention and purpose for insertion of section 14A. On the issue of indirect expenditure also, we are following the decisions of the coordinate decisions as relied upon before us. Accordingly, ground no. 2.1 to 2.5 is treated as allowed.
Disallowance u/s. 14A should be added as part of the book profit - Held that:- The same too is now a settled proposition that if any disallowance under sec. 14A is made in the normal computation, then the same would be added to the book profit u/s. 115 JB. Accordingly, we order that, whatever disallowance is made under rule 8D, the same should be added to the book profit.
Bogus purchases - Held that:- The crucial point to see here is that, the source of purchases have gone through books of account and in lieu of payments made material has been purchased which are proven from item wise inventory prepared and entered in the books of account and is reflected from material consumed in manufacturing or credited to capital WIP, etc.,( which stands unrebutted or undisputed), then no adverse inference qua the purchases can be made, because instead of registered dealers assessee has made purchase from grey market.
As regard the other discrepancies as highlighted by ld. CIT DR by referring to AO's order qua the delivery part, the same loses its credibility whence it has been shown that material purchases are appearing in the books of account and consumption of the same has not been doubted. AO should have carried further this information to examine the entries in the books of account and the consumption details. As reiterated above at various places, the factum of purchase so far as the assessee is concerned cannot be disputed when the hawala person himself had admitted that he had arranged the purchases from grey market and got them supplied. This statement before the AO cannot be discarded at all. Thus, we hold that the addition on account of so called alleged bogus purchases cannot be added as income of the assessee and the same as directed to be deleted. - Decided in favour of assessee
Non-granting of credit of taxes or short credit of TDS/advance tax -- Held that:- We direct the AO to examine the matter and after verifying the records grant the credit of TDS/advance tax properly.
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2017 (4) TMI 1091
Allowance of film production expenses under Rule-9A of the Income Tax Act - Held that:- The material available on record which reveals that the film 'Traffic Signal' was released vide 'Central Board of Film Certification (CBFC)' certificate No. CIL2/93/2006 dated 31/12/2006. Further, a perusal of the chart showing deduction as per Rule 9A for AY 2007-2008 reveals that the assessee has deferred claim of ₹ 170.75 Lacs against this movie, which has been claimed in impugned AY and thus did not claim this expenditure in earlier AY. Therefore, the same was allowable to the assessee as per Rule 9A as rightly concluded by Ld. CIT(A) and therefore, we see, no reason to interfere with the same. The appeal of the revenue stand dismissed.
Disallowance of claim u/s 35D - Held that:- The assessee got converted into public company and issued share capital. It incurred expenditure of the nature covered by Section 35D as fortified by the judicial pronouncements of Hon'ble High Courts Madhya Pradesh & Rajasthan relied upon by the assessee. Due TDS was deducted on brokerage amount. The assessee earned substantial revenue from production of films and hence, an 'industrial undertaking' as per decisions of jurisdictional Hon'ble Bombay High Court cited by the assessee. Hence, we are inclined to conclude that the assessee is eligible for impugned expenditure u/s 35D. This ground of assessee's appeal stands allowed.
Additions u/s 41(1) qua write-back of certain creditors - Held that:- Let us hypothetically assume that the assessee took over certain fictitious liabilities meaning thereby that actual liabilities stood at lower value. In that case, the value of 'net assets' i.e. 'Value of Assets taken over Less value of liabilities taken over' would have been at higher value and consequently, the value of goodwill, which was nothing but 'total consideration less net assets' would have been at lesser value thereby resulting into less depreciation claim for the assessee. Even in that situation, as per the above cited apex court judgment, depreciation is neither a loss, nor an expenditure, nor a trading liability, referred to in s. 41(1). Hence, the same further supports the stand of the assessee. Even otherwise, we are of the considered opinion that neither clause (a) nor clause (b) of Section 41(1) applies to the assessee on the facts and circumstances of the case. Hence, from any angle, we are inclined to delete the impugned addition and allow this ground of assessee's appeal.
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2017 (4) TMI 1090
Undisclosed income earned from sale of row houses - return filed in response to notice under section 158BC - Held that:- We are of the opinion that the assessee in fact did charge "on money" in relation to booking/sale of flats. However, the entire receipts on account of “on money" charged by the assessee on sale/booking of flats cannot be the undisclosed income of the assessee for the block period because what can be taxed under Chapter XIV-B is undisclosed income and not the undisclosed receipts, during the course of hearing before the Revenue Authority. Assessee has brought evidence on record to support that he had to pay a sum of ₹ 38 lakhs to the erstwhile organizer of NTC and further a amount of ₹ 21.91 lakhs for the land to various persons and it had also to spend a sum of ₹ 158 lakhs on the cost of construction for which necessary deduction has to be allowed. In any case what can be taxed is the profit which could have been earned by the assessee on the alleged unaccounted receipts amounting to ₹ 1,32,91,840/- and not the entire amount. Further, the AO has not brought any material on record that the assessee in fact had made any initial investment of ₹ 15 lakhs as alleged. In any case even if it is assumed that the assessee did make an initial investment of ₹ 15 lakhs which is to be taxed under section 69C the corresponding deduction will have to be allowed u/s 37 of the Act as the investment was made in acquisition of business assets and as such the amount spent, was for the business of the assessee.
The assessee has himself offered 8 per cent profit on the total receipts which should be considered fair and reasonable. In any case it is to be seen that after the exhaustive search and obtaining the discloser of ₹ 17 lakhs the search party has been able to find any unaccounted assets except those which have been referred to in the statement of the assessee and a broad breakup of which was given by the assessee in his statement aggregating to ₹ 17 lakhs. These assets are by way of application of the unaccounted income which have been earned by the assessee from Hare Krishna Apartment project, part of which was reflected on the piece of paper found during the course of search against which the assessee himself has offered a sum of ₹ 17 lakhs as his unaccounted income. Thus, it is clear that-the assets found at the time of search were the application of the unaccounted income of ₹ 17 lakhs which was offered to tax by the assessee in his return filed in response to notice under section 158BC. Thus, AO was not justified in making the addition as the concealed income of the assessee because the profit earned on the unaccounted receipts on the basis of the special provisions at 8 per cent as per section 44AD of the Act will be less than the amount of ₹ 17 lakhs disclosed by the assessee as undisclosed income in the return filed in response to notice under section 158BC. - Decided in favour of assessee.
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Customs
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2017 (4) TMI 1118
Valuation - rejection of transaction value - adoption of market value - confiscation - redemption fine - penalty - Held that: - In the matter of penalty, there is already considerable reduction from ₹ 4 lakhs to ₹ 50,000/-. Taking into account the various acts and omissions on the part of the exporter, penalty under section 114 ibid is definitely imposable on him and in any case, the quantum has been very generously reduced by the Commissioner (Appeals) - penalty of ₹ 50,000/- imposable.
As regards redemption fine, we find that the same has also been reduced from ₹ 9,93,000/- to ₹ 1,50,000/- - Section 125 ibid in any case covers infractions not only in the case of importation but also exportation. As is evident from section 125(1) of the Act, the only conditionality given in the proviso to sub-section (1) is that such fine shall not exceed the market price of the goods confiscated. Discernibly, no divergence from these conditionalities is seen from the impugned order. The redemption fine of ₹ 1,50,000/-, in our view, would therefore meet the ends of justice in the matter and is upheld.
Appeal dismissed - decided against appellant.
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2017 (4) TMI 1116
Refund of customs duty - rejection on the ground of unjust enrichment and non filing of requisite documents - Held that: - the provisions of Section 18 of CA, 1962 that there was no need to file application for refund because the provisions of Section 18 of CA, 1962 have provided for consequential refund suo-moto by the Officer assessing finalization of provisional assessment and since such a refund order was not passed on finalization the respondents were compelled to file refund application u/s 27 of CA, 1962 - Hon’ble High Court of Delhi in the respondent's own case, Commissioner of Customs Versus Indian Oil Corporation [2012 (1) TMI 31 - DELHI HIGH COURT] has ruled that when an amount becomes refundable after a final order is passed, the same has to be refunded immediately and for such purpose, the assessee is not required to move an application u/S 27 of CA, 1962 - appeal dismissed - decided against Revenue.
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Corporate Laws
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2017 (4) TMI 1112
Waiver of the qualification mandate set out in section 244{1) of the Companies Act 2013 to enable to pursue their Petition filed u/s 241 on the ground that the interest of the Petitioners in Tata Sons Limited (Rl) is substantial - whether the issues raised in the Petition are more appropriate to be dealt with u/s 241 and the cause raised is substantial in importance to the Petitioners, to class of members, to the Company itself and to the Public? - Held that:- Tests for invocation of reliefs keep changing from one situation to other, public interest and company interest are shown back seat as against members' interest, especially economic interest; public interest and company interest are actions fall under derivative actions.
To avoid frivolous grounds under the cause of derivative actions, English law bifurcated the actions and put almost iron curtain on derivative actions, lifting that curtain is made difficult by screening it with prima facie test. We are not blindly going by English law, but by seeing reason behind it to curtail unnecessary litigation and to let the companies run their business in their usual course, we have adopted this to consider waiver plea. However, at the cost of repetition, it is hereby mentioned, that no issue raised in this case is related to personal action of shareholders, directorial complaint, in a company like this, will not fall within the ambit of shareholder action. It could not even be said that actions impugned in this case will have impact upon public, usually such situation will arise when business of the company effects the health of public or economy of the country, but by reading the petition, such issue is not present anywhere in the petition.
Therefore, we are of the view that the case seeking waiver must be for seeking shareholder action in relation to their economic interest, two there must be a case likely to succeed. On the top of it, the reasons for granting waiver shall be supported by fairly strong and compelling reasons. As to other points of public interest and company interest, we don't believe the issues manifested in the petition are fit for grant of waiver plea. If any violations are noticed to other Acts, there are other forums for it, if anybody is so bent upon to seek action on such violations, such as the issue raised in this case in relation to violation of SEBI regulations, they can complain to those forums, not before NCLT especially under section 241.
The petitioners' allegation, one after another have been dealt with, first they have not disclosed any cause of action, second they are not shareholder actions, hence forth, they are not actions fit to be considered for granting waiver.
In view of these reasons, the waiver is not granted, accordingly waiver application as well as main company petition are hereby dismissed without costs.
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Insolvency & Bankruptcy
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2017 (4) TMI 1111
Petition filed u/s 9 of Insolvency and Bankruptcy Code 2016 against a corporate debtor company - default in making payment - interest claim - Held that:- In the given situation, this debtor company figures have gone into minus, P &L statement as on 31st March 2016 of the company reflects profit after tax has gone down to -1551.51crores. This company has not paid single rupee to these creditors in the last three years, it is admitted on record millions of dollars' worth goods purchased from them in the year 2013 by this company showing itself up as purchaser giving all kinds of undertakings waiving right of defence. Now, it says that these goods were delivered to some third party, not to it. It is in between the debtor and that third party, what business these creditors have with that third party, it does not appear in any documentation and that third party is privy to any transaction.
The objection of the corporate debtor is that so many complexities are existing in this dispute, for which since they have filed a suit before Hon'ble High Court of Bombay after receipt of notice, therefore taking pendency of the suit filed subsequent to receipt of section 8 notice, this IB petition is to be dismissed. But the argument of the corporate debtor counsel not being in consonance with the mandate of the statute u/s 8, this petition can't be dismissed going by the argument of the counsel of Uttam because filing of a suit or arbitration proceedings subsequent to receipt of notice u/s 8 will not amount to existence of dispute as stated u/s 8 of IB Code.
Under any stretch of imagination, the argument of the corporate debtor counsel does not make out any case to construe the corporate debtor filing a suit over this claim subsequent to receipt of notice as dispute in existence, henceforth this point is decided against the corporate debtor.
Here in the present case, the power of attorney was given only two months before filing this case mentioning what are the actions the attorney holders to take up, against whom it is to be taken up, therefore it can't be said that since it is not a winding up proceeding, this power of attorney cannot be used to file insolvency proceeding IB Code. The nature of proceedings under winding up as well as insolvency is more or less same. Here the corporate debtor has not come forward making any payment to the creditors in 180 days 'maturity time given. Thereafter, almost three years are over. Still this company has not made any payment to the creditors, now has come forward making allegations that power of attorney is not valid, bill of exchange is not valid, forfaiting to the second creditor is not valid but it is nowhere said that the AIC has not sent the goods to the destination ordered by this debtor in the purchase order. It is also not the case of the debtor that goods were not reached to the destination; in fact, he accepted bill of exchanges and thereafter confirmed the forfaiting agreement in between the first creditor and the AIC.
When we see the basic difference to financial debt and operational debt, it is clear that financial debt is money borrowed to repay on future date along with interest, here the money is lent for value addition to the money as agreed between the parties, whereas operational debt is normally based on an agreement to pay to goods or services, it does not mean that interest cannot be claimed in the times to come, it is a normal practice that trade payables are payments deferred for a fixed time, if the party fails to repay within the fixed time, then interest will be claimed over operational debt as well, the same happened over here as well. The corporate debtor himself said in the written submissions that there is email dated April 10,2014 from the corporate debtor in respect to payment of interest, since collaterals are Bills of exchange, even otherwise also, basing on collaterals entitled to interest at the rate of 18% u/s 80 of the Negotiable Instruments Act. The difference in these two transactions is one given to get interest over the money; second transaction happens in business operations, in both the cases money is involved, as days go by after transaction, the time value of money will be there. For that reason, it is nowhere said that the operational creditor is barred from claiming interest.
In this case, credit has been given free of interest for 180 days, the debtor has not paid, from the date of maturity, almost three years over, still no payment has come to the operational creditors.
Let us test how far this argument is right, one - it is admittedly true Uttam accepted two bills of exchange promising to pay the value of goods within 180 days, thereafter Uttam has not made any payment, by now more than three years and six months are over.
For the reasons above and the material available on record showing compliance under section 9 of the code, this petition is hereby admitted and Registry is hereby directed to refer it to the Insolvency and Bankruptcy Board to recommend the name of an IRP to appoint him in this case.
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Service Tax
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2017 (4) TMI 1136
Renting of immovable property services - consideration in the form of percentage of gross income PLUS gross operational profit or minimum guaranteed profit - The appellants claimed exclusion under the category of buildings used for the purpose of accommodation including hotels - Held that: - it is not the case of the renting out empty land to be later developed with construction of hotel - Admittedly, the building and the land as appurtenant thereto are used for the purpose of running the hotel. The term “hotel” is not defined in the Finance Act, 1994. As generally understood, a hotel is for temporary accommodation of people paying for their rooms and meal. Many hotels will have various other incidental facilities relating to entertainment, personal care, etc. The presence of these facilities does not exclude the building from the category of “hotel” - similar issue came up for decision before the Tribunal in Jai Mahal Hotel Pvt. Ltd [2014 (7) TMI 540 - CESTAT NEW DELHI], where it was held that buildings used for or as hotels do not amount to immovable property. The legislative provision in question i.e. the exclusionary clause (d), to the extent relevant and material, excludes from the purview of immovable property, buildings used for the purposes of accommodation including for hotels - demand set aside - appeal allowed - decided in favor of appellant.
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2017 (4) TMI 1135
Valuation of taxable services - The Revenue contend that the appellant/assessee is collecting “other charges” and did not pay service tax on such charges - The claim made by the appellant/assessee is that these other charges are nothing but transaction charges paid to stock exchange and turnover fee, stamp duty etc. - Held that: - On the excess stamp duty charges collected and retained by the appellant/assessee it was recorded that the amount which is shown as reserve and surplus in the balance sheet cannot be considered as receipt on account of stamp duty and accordingly liable to be added in the gross value for service tax purposes.
Short payment of service tax - banking and other financial services - The main dispute relates to the tax liability of the appellant/ assessee for receipts under “other charges” - Held that: - The contract note itself does not elaborate the nature of such other charges. The appellant/ assessee claims that the other charges covered the turnover charges, VSAT connectivity charges, stamp duty etc. Categorical documentary evidence to that effect is not on record. Further, we note that the claim of the appellant/assessee to have acted as “pure agent” can be considered only on fulfillment of the conditions mentioned in Rule 5 (2) of the Valuation Rules. The main requirement for exclusion of charges when the appellant/assessee is acting as a pure agent is the amount collected from client should be passed on actual basis to third party based on a clear prior understanding. There are various conditions under the said Rule 5 (2). Only on fulfillment of all these conditions any consideration received by appellant can be excluded considering transaction under the concept of “pure agent”. The evidences to that effect are not presently on record.
Matter remanded to the Original Authority for a fresh decision - appeal allowed by way of remand.
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2017 (4) TMI 1134
Forward Contract Service - transaction fee collected by the appellant from their clients and paid to the stock exchange as a custodian - case of Revenue is that the transaction fee has to be included in the gross taxable value and will be subjected to service tax at the hands of the appellant as provider of taxable service to the clients - Held that: - the fact which is to be supported by the documentary evidence is that the said transaction fee collected by the client is paid to the exchange on actual basis without any retention by the appellant. This aspect requires verification - any amount collected in the name of transaction fee is not remitted to the exchange and is retained by the appellant, it is apparent that the same will be an additional consideration accruing to the appellant towards service rendered to the clients. The name of such consideration becomes immaterial as the same does not represent the actual transaction fee - appeal allowed by way of remand.
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2017 (4) TMI 1117
100% EOU - input service credit - various input services - denial mainly on account of nexus - denial also on the ground that the services were not used in or in relation to manufacture and clearances up to the place of removal - Held that: - the position of law is fairly settled in respect of input service and the appellant is fairly succeeded to establish that they are used for manufacture and clearance of their final products - CBEC, vide its Circular No. 999/6/2015-CX dated 28.02.2015 itself has clarified that the place of removal in such cases would be Port/ICD/CFS.
As for the service of Palletisation, the show cause notice does not elaborate anything about palletisation - Considering that this service is related to clearances of the goods meant for export, the benefit of credit on the same is available to the appellant.
Appeal allowed - decided in favor of appellant.
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2017 (4) TMI 1133
Valuation - composite contract - Revenue entertained a view that the valuation has been made improperly by the appellant and in terms of the N/N. 12/2003-ST, they have not properly taken the actual service value to pay service tax - the appellants pleaded that there is no monetary gain for them in artificially loading more value to materials supplied by paying VAT, as the rate of VAT is higher than the service tax, payable on the service portion - Held that: - We have perused a few work orders, which clearly stipulated that 80% of the value shown to have suffered VAT with reference to supply of materials, which is done in the present case - appeal allowed - decided in favor of appellant.
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2017 (4) TMI 1132
Refund claims - unutilized CENVAT credit - Online Information and Database access/retrieval service - Renting of Immovable Property services - Held that: - services have been availed after the amendment to rule 2(l) of CCR, 2004 w.e.f. 1.4.2011. In respect of availment of input service credit towards internet devices for directors, insurance, club membership and meal pass there is no evidence put forth by appellants, either in the adjudication order or before the lower appellate authority that they are not for the personal use or consumption of any employee - denial of cenvat credit in respect of these inputs / input services upheld.
CENVAT credit - housekeeping services - Held that: - housekeeping services is very much required for the proper upkeeping of the appellant's premises and in any case the same is not barred from the exclusion clauses of Rule 2(l) of CCR 2004 - credit allowed.
In the case of export of services as provided by Rule 5 of the CCR itself, inward remittances/FIRCs/payments received either directly or through legal and accepted channels of remittances including by NEFT, received during a particular quarter even though related to invoices issued or export services provided for the period prior to that quarter, will definitely required to be included in the export turnover of services for that quarter.
Matter is remanded back to the original authority for the limited purpose of re-quantification of the export turnover and resultant revision in quantum of refund of cenvat credit under Rule 5 ibid - appeal allowed in part and part matter on remand.
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2017 (4) TMI 1131
CENVAT credit - providing passive infrastructure - Entitlement of Cenvat credit of service tax and duty of excise - duty paid on input materials and also on Service Tax paid on charges for clearing the said materials from Customs - Renting of Immovable Property service - Held that: - the issue is no more res integra in view of the decision of larger Bench of the Tribunal in Tower Vision India Pvt.Ltd. [2016 (3) TMI 165 - CESTAT NEW DELHI (LB)], where it was held that appellants are paying service tax under the category of Business Auxiliary Services , or Business Support Services for providing passive infrastructure, the appellants are not entitled to take Cenvat credit on towers, pre-fabricated shelters parts thereof etc, it was also held that the appellant is not entitled to take Cenvat credit to the tune of ₹ 2,59,95,327/- on shelters/parts as capital goods wherein the supplier has paid Excise duty on these items by classifying under Chapter 85 of the CETA, 1985 - appeal dismissed - decided against appellant.
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2017 (4) TMI 1130
Refund claim - Service Tax paid under works contract service for the various works executed by them for the Govt. of West Bengal and its various agencies for laying of pipelines for water supply, sewerage lines etc It is the case of the appellant that they are not liable to pay Service Tax - unjust enrichment - time bar - Held that: - on the issue of time limitation, in the case of Jubilant Enterprises Pvt.Ltd. v. Commissioner of C.Ex., Mumbai-I [2014 (6) TMI 425 - CESTAT MUMBAI] the Tribunal allowed the appeal on the identical situation and held that As the payment made by the appellant is not of service tax, therefore, as held by this Tribunal in the case of Shankar Ramchandra Auctioneers (2010 (4) TMI 391 - CESTAT, MUMBAI) the provisions of section 11B of the Central Excise Act are not applicable.
Regarding unjust enrichment, the assessee sold the goods on a composite price inclusive of all duties, there is no question of unjust enrichment as has been held by the Tribunal in the case of Himatsingka Seide Ltd. v. Commissioner of Customs, Bangalore [2005 (3) TMI 333 - CESTAT, BANGALORE] - The Tribunal in the case of Amadalavalasa Cooperative Sugars Ltd. v. CCE, Visakhapatnam [2007 (1) TMI 432 - CESTAT, BANGALORE] held that unjust enrichment is not applicable as the contract price is inclusive of duty and duty payable reduced or becomes zero is immaterial.
The refund should not be denied on the ground of time barred and unjust enrichment - appeal allowed - decided in favor of appellant.
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2017 (4) TMI 1129
Consulting engineering service - appellants entered into agreements with various foreign entities for obtaining license to use technical knowhow and technical information and also various engineering services, in connection with setting up of their manufacturing plant - Revenue entertained a view that the appellants received taxable service under the category of consulting engineering service - Held that: - The very fact that all these agreements talk about the foreign companies as “licensor” itself is revealing. In a typical agreement for consultancy service, there will be no licensor or licensee with transfer of licensed process technology or proprietary technical information. The essence of the agreement as could be seen from the narration above is for transfer of technology process. The Tribunal had occasioned to examine similar issues involving technical collaboration and transfer of intellectual property right from foreign companies to Indian recipient. It was held that when the agreement is for transfer of exclusive/non-exclusive technical know-how the consideration received cannot be taxed under consultancy service.
Appeal allowed - decided in favor of appellant.
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Central Excise
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2017 (4) TMI 1128
Classification of manufactured goods - organic bio-fertilizers, Dermitol C-024 - classified under Heading No.3801.10 of Central Excise Tariff, or under Exemption N/N. 50/2003-C.E. dated 10.06.2003? - whether the goods are entitled to benefit of N/N. 50/2003-CE dated 10.06.2003 or not? - Held that: - the item is meant for killing the insecticides/pests. A mere non-mention of the item in the Schedule to the Insecticides Act 1968 will not change the situation and cannot automatically gives the conclusion that because of the non-mentioning of subject item in the said Schedule, the item is not an “insecticide‟ - no doubt that the subject item is an “insecticide‟ covered by the chapter sub-heading 3808.10 of Central Excise Tariff; when it is so the item will be covered by the entry at Sl.No.15 of the Annx.I attached to the N/N. 50/2003 Central Excise.
Appellant has failed to prove that the goods are not insecticides but are plant growth regulator (Tariff sub-Heading 3808.20) or are of “other” category of chapter sub-Heading 3808.90 of Central Excise Tariff.
The goods namely Dermitol C-024 are covered under Central Excisie Tariff sub-heading 3808.10 and they are not entitled to the benefit of the N/N. 50/2003 Central Excise - appeal dismissed - decided against appellant.
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2017 (4) TMI 1127
Benefit of N/N. 20/99 - use of imported goods for intended purpose - import of “Fibre Glass Roving” at concessional rate of duty for the manufacture of Telecommunication Grade Fibre Reinforced Plastic Rods - Held that: - the said Fibre Glass Roving has been used in the manufacture of Telecommunication Grade FRP which comes into existence while being extruded along with copper conductor through the bath of PVC Compound and in this process FRP and Telecommunication Cable i.e. PVC Drop Wire comes into existence simultaneously which are used in the telecommunication. Thus, the condition of the N/N. 20/99 was fulfilled - the assessee-Respondents were entitled for the exemption - appeal dismissed - decided against Revenue.
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2017 (4) TMI 1126
CENVAT credit - input - Raw Die Blocks and Inserts - department entertained a view that Raw Die Blocks and Inserts used to manufacture Dies which are in turn used in the production of final products is not eligible for credit for the reason that the appellants are availing exemption of duty on the intermediate goods namely Dies under N/N. 67/95-CE dt. 16.03.95 - Held that: - as per the Explanation-2 to the definition of "inputs", it can be seen that inputs include any goods which are further used in the manufacture of 'capital goods'. Appellants have availed the exemption notification treating the intermediate product as 'capital goods'. The credit has been availed on subject items treating them as inputs used in the manufacture of capital goods - credit allowed - decided in favor of appellant.
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2017 (4) TMI 1125
Removal of inputs as such to sister concern - appellants at the time of receipt of input reduced the credit of 0.4% towards transit loss and availed credit only in respect of 99.6% of the duty paid on the inputs - case of the department is that the respondent is liable to pay duty on the 100% input removed as such to their sister concern - Held that: - whatever credit they have availed the same was paid at the time of removal of input as such. Therefore, the demand of duty on 0.4% is not tenable for the simple reason that the credit on the said quantity was also not availed at the time of receipt of input - appeal dismissed - decided against Revenue.
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2017 (4) TMI 1124
Valuation - servicing activities like repair and maintenance etc. relating to card clothing - includibility - contention of the department is that these services prima facie appear to be aiding/ smoothening in installation/ sale of the finished goods that they were issuing separate demands for recovering the cost of these services from their customer, which they failed to include in assessable value of the products - Held that: - Since the repairing activity is carried out on the old card clothing which also includes the goods initially supplied by some other manufacturer, therefore the said repairing activity has no relation to the manufacture and clearance of new card clothing manufactured by the appellant. In such case the service charge of the repairing is not in relation to the sale of the newly manufactured card clothing cleared by the appellant. Therefore, there is no question of addition of service charge of the repairing activity of old card clothing in the assessable value of newly manufactured card clothing - appeal allowed - decided in favor of appellant.
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2017 (4) TMI 1123
Refund claim - duty paid by the ONGC (by whom appellants bought scrap) by encashing the bank guarantee of appellants - denial on the ground of unjust enrichment that the appellants have not produced any original duty paying document to evidence the appellant's payment of duty and to further evidence that the incidence of duty was borne by them - Held that: - The appellants as a buyer is entitled for refund of duty on the goods purchased by them, therefore, appellants are legally entitled for claiming the refund. In such case, the appellants cannot be insisted to provide the original duty paying document in their name as the proof of payment of duty.
As regards unjust enrichment, we find force in the argument of the ld. counsel that the goods were produced and sold without payment of duty in the year 1999 whereas the excise duty was paid in 2002 due to the demand proceedings was initiated by the department. There is no question of passing of the said duty by the appellants to the buyer of such goods.
Appeal allowed - decided in favor of appellant.
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2017 (4) TMI 1122
Shortage of raw materials - shortage of 200.278 MTs of raw materials were found as compared to the books stock - case of appellant is that the stock taking was conducted on the eye estimation basis without ascertaining the actual stock, therefore the quantum of shortage found is questionable - Held that: - the appellants had ample opportunity to give the same explanation immediately after the panchnama but they have not chosen not to give any explanation till the filing of the reply to the show-cause notice. Therefore, the explanation given by the appellants is after thought and do not carry any weight - the demand is sustainable on the shortage found during the visit of the officers - appeal dismissed - decided against appellant.
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2017 (4) TMI 1121
CENVAT credit - job-work - denial on the ground that the input in respect of which job worker received the invoice were not received in the factory of the appellants - Held that: - the cenvat credit on the inputs even though not received by the appellants is admissible for the reason that the same was admittedly used by the job worker in the job work goods of the appellants only - credit allowed - appeal dismissed - decided against Revenue.
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2017 (4) TMI 1120
SSI exemption - N/N. 8/2003-C.E. dated 01.03.2003 - clearance of goods against form H to the merchant exporter for onwards export - case of the department is that the clearances made under Form H to merchant exporter would not be eligible for deduction from the aggregate value of the exemption under N/N. 8/2003-C.E. dated 01.03.2003 - Held that: - goods were directly supplied by the respondent manufacturer from their factory to the merchant exporter and who in turn exported the goods. Therefore, condition of circular that the export should be through merchant exporter itself stands fulfilled - once the respondents have submitted the Form H against their supply made to merchant exporter his responsibility is over after production of proof of export to the department. Thereafter the clearance against Form H has to be treated as clearance of export and same is not includable in the aggregate value for the purpose of SSI exemption N/N. 8/2003-C.E - appeal dismissed - decided against Revenue.
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2017 (4) TMI 1119
Abatement - suo-moto calculation - Whether the appellant have the option to suo - moto take abatement of the duty in respect of the period of closure of the factory for a continuous period of 15 days or more, without first depositing duty and without filing any abatement claim before the authorities?
Held that: - the issue herein is squarely covered by the ruling on of Hon’ble High Court of Gujarat in Commissioner Versus Thakkar Tobacco Products P. Ltd. [2015 (11) TMI 319 - GUJARAT HIGH COURT], where it was held that in the absence of any rule or provision or mode of availing abatement, without any order of abatement, by appropriate authority, assessee could on their own calculate duty and set off same against duty payable in the next month and such action of the assessee is not violative of any rule or any provision of law. - no fault can be found in the approach of the assessee in taking suo-moto the benefit of such abatement - the whole issue is revenue neutral - appeal allowed - decided in favor of appellant.
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CST, VAT & Sales Tax
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2017 (4) TMI 1115
Release of detained goods - release upon deposit of 15% of its value in the form of cash security/bank guarantee - Held that: - the order of Tribunal, dated 27.3.2017, is modified by providing that the transporter shall cooperate in any subsequent proceedings undertaken, as contemplated in law, and the transporter shall also submit an indemnity bond in respect of the balance 25% of the value of goods, as determined by the Tribunal - revision allowed.
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2017 (4) TMI 1114
Imposition of penalty u/s 34 (7) of Himachal Pradesh VAT Act - one out of the six vehicles was neither declared electronically nor crossed through any of the multi purpose Barrier of the State - petitioner case is that in absence of any finding to the effect that the petitioner has attempted to evade the tax; the impugned order cannot be sustained - Held that: - the petitioner took no steps to explain or withdraw the admission by adducing clinching material so as to out way the admission and, therefore, learned first appellate authority committed no irregularity much less any illegality in dismissing the appeal by observing that respondent No.3 had imposed the penalty after following all the codal formalities - it was the representative of the petitioner who himself before respondent No.3 on 30.8.2013 had not only admitted his mistake but had expressed his readiness to pay the penalty imposed/due without seeking any more opportunity - petition dismissed - decided against petitioner.
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2017 (4) TMI 1113
Validity of order of assessment passed by Assessing Officer - interstate sales - non-production of C-Forms - case of appellant is that they are unable to get such 'C' forms from the other end dealers and also explained as to why such inability exists even after grant of such extension of time - Held that: - the extension of time granted twice by the Assessing Officer, only by 15 or 20 days may not be a sufficient time for producing the 'C' forms, considering the volume of transaction involved in this case. - the petitioner can be given one more opportunity for production of such balance 'C' forms - matter is remitted back to the Assessing Officer for redoing of assessment once again - petition allowed by way of remand.
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Indian Laws
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2017 (4) TMI 1110
Complains under the provisions of the Payment of Bonus Act, 1965 - Held that: - Provisions of the Act of 1965 are not applicable to the applicant no.1-Trust as it is not established for the purpose of profit making activity and the object of the Trust is for charitable purposes, therefore the impugned complaints are nothing but abuse of process of the Court and therefore in the interest of justice, the same are required to be quashed and set aside.
At this stage, it is also required to be noted that respondent no.2 has issued the show cause notice to the applicants alleging that the applicants have violated the provisions of the Act of 1965 and the Rules framed thereunder and therefore asked the applicants-accused to show cause as to why the proceedings under the Act of 1965 should not be initiated against them. In response to the said show cause notice, the applicants filed reply dated 13.8.1996 wherein it was specifically pointed out that the applicant no.1-Trust is charitable Trust and is not incorporated for profit making activity and by referring to the provisions of Section 32(v)(c) of the Act of 1965, it was submitted that the provisions of the Act of 1965 are not applicable to the said Trust. In spite of such reply, the complainant has filed the impugned complaints by not disclosing the issuance of the show cause notice and the reply submitted thereto by the applicants. Thus, in the opinion of this Court, this is nothing but suppression of material fact and therefore the learned Judicial Magistrate has issued summons against the applicants. Thus, on this ground also, the impugned complaints are required to be quashed and set aside.
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