TMI Tax Updates - e-Newsletter
May 31, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Indian Laws
Highlights / Catch Notes
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Income Tax:
Genuineness of foreign gifts – there being neither any relationship nor there being any circumstance to show natural love and affection of the donor for the donee nor there being any occasion to make such gifts to the assessee - additions confirmed - HC
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Income Tax:
Penalty u/s 271(1)(c) - Capital gains not shown in the return – Assessee disturbed due to illness of father – error committed could be described only as a human error, which we all are prone to make - no penalty - AT
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Income Tax:
Cessation of liability - provision for discount - as the provision was disallowed in earlier year, reversal made during this assessment year ought to be allowed as deduction while computing total income of the year - AT
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Customs:
Undervaluation - department has not mentioned as to which the importer of identical or similar goods had been selling the goods in India at the wholesale price which had been adopted in this case for determination of assessable value under Rule 7 - demand set aside - AT
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Corporate Law:
Winding up of company - Inability to pay debts - a petition under Section 433 (e) of the Companies Act, 1956, will not lie in respect of a debt which is barred by limitation and cannot be enforced - HC
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Service Tax:
Demand of service tax - Clearing and Forwarding agents - Third show cause notice issued while 2 notices already existing - demand set aside on the ground of period of limitation - HC
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2014 (5) TMI 972
Selection process for three posts of the Vice-President of the ITAT – Petitioner not selected - Whether the manner of selection, including the decision-making process adopted by the Selection Committee, is consistent with the terms of the Service Rules or not – Held that:- The Selection Committee did not conduct interviews or meet the candidates at any point in the selection process, nor were orders written by the candidates in their capacity as members of the ITAT placed before the Selection Committee - The only material before the Selection Committee was the Annual Confidential Reports ("ACRs") of the candidates - Office Memorandum in question marks a departure from the previous nomenclature, and prescribes a clear procedure for ‘selection’, as grading followed by seniority, it is important first and foremost to note the terms of Rule 7C, which is the primary rule applicable. Seniority is not completely excluded from the selection process - The zone of consideration prepared as the first step in the process was on the basis of seniority, as the minutes of the Selection Committee clearly recorded. However, there is no independent requirement - either statutory or constitutional - to consider seniority - Even independently, given the array of responsibilities assumed by the Vice-President of the ITAT, the importance of merit cannot be downplayed in any manner - there was no comparison chart prepared by the Selection Committee, nor was any material other than the ACRs before it, the ACRs - as it appears from the record - constituted the only basis on which the decision was made – Thus, the ACR grading was important - The ACR remarks for the five years preceding the selection process indicate that Mr.Tolani had five ‘Very Good’ remarks, Mr. Yadav had one ‘Very Good’ and four ‘Good’ remarks. The Selection Committee was not bound by the ACRs, it adopted some other consideration in the absence of any material - The Selection Committee could have adopted the view that the petitioners were not merited, if it formed the opinion on the basis of other material present before it, as for example, sample judgments of the members, their disposal rates, cases turned on appeal etc. - If such a course had been followed, the assessment of the Selection Committee would lie outside the Court’s limited power of judicial review - no material was before the Selection Committee which could testify as to those factors, and since none of the candidates were interviewed by the Selection Committee (which did not have any occasion to interact with them), the comparative merit as judged by the ACRs leads to a conclusion contrary to that returned by the Selection Committee. Here, the Court recognizes that the Selection Committee - as an administrative body - does not have to give reasons for accepting the five candidates in question, and rejecting the two writ petitioners. A robust and comprehensive process that considers various factors that touch upon the merit of the candidates, thus, is crucial in such cases, especially given the high office to which they are to be selected - the Central Government’s position was that even though materials other than the character rolls (ACRs) of the candidates was not considered while at the same time the ACR gradings were not conclusive, it was also contended that given the wide experience in income tax matters of the Chairman, i.e. Justice Kapadia (who later became the Chief Justice of India) and his having considered numerous orders of the ITAT, as well as the experience of the President of ITAT - there was sufficient knowledge about the candidates merit, to warrant the selection. Members of tribunals such as the ITAT perform crucial judicial functions, which can have an adverse bearing on individuals, and at times, vast commercial and fiscal ramifications - the Central Government should seriously consider continuous oversight through the concerned High Courts, given that High Courts exercise appellate jurisdiction over the orders and proceedings of ITAT and its benches - Some reporting mechanism, preferably centralized, to oversee the quality of the orders of ITAT is essential because the President of ITAT’s powers over members of ITAT and Vice President are not appellate, they are administrative - Creation of this mechanism would result in adding a new and possibly crucial dimension to ensure greater scrutiny of ITAT and its orders and also provide a link in the decision making process of selection to senior judicial positions within ITAT – Decided against Petitioner.
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2014 (5) TMI 971
Non-speaking order - Similar judgment not followed - NP rate @12% - Whether the Tribunal was justified in dismissing the appeal of the revenue without considering the fact that the case of Commissioner of income-tax Versus Parbhat Kumar [2008 (11) TMI 356 - PUNJAB & HARYANA HIGH COURT] on identical facts and in similar line of business has upheld the NP rate of 12% - Held that:- The Tribunal had relied upon the order passed in the case of the assessee for the AY 2007-08 - the order was set aside the order being not a speaking and reasoned one, the matter has been remanded to the Tribunal to decide the issue afresh – thus, the matter is remitted back to the Tribunal for fresh adjudication – Decided in favour of Revenue.
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2014 (5) TMI 970
Interpretation of section 80HHC of the Act – Denial of claim of DEPB – Held that:- Following Topman Exports v. Commissioner of Income Tax 2012 (2) TMI 100 - SUPREME COURT OF INDIA] - DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB – the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Eligibility to claim deduction u/s 80IB of the Act - Whether amount of DEPB is derived from and eligible for claim on the true and correct interpretation of Section 80IB of the Act – Held that:- Following Liberty India v. Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] - duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking – Decided against Assessee.
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2014 (5) TMI 969
Onus to prove - Discharge of liability of trade debts – Held that:- It was not disputed by the department that in assessments framed u/s 143(3)/153(C) of the Act for the AY 2003-04 to 2009-10 - the liabilities towards Sundry creditors were made in the subsequent assessment years which was accepted by the revenue - it was agreed by the parties that the present appeal has been rendered infructuous – Decided against Revenue.
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2014 (5) TMI 968
Genuineness of foreign gifts – Financial capability, identity, relation and occasion not proved - Held that:- Following Commissioner of Income Tax Versus M/s Udham Singh & Sons, Gor [2014 (3) TMI 467 - PUNJAB AND HARYANA HIGH COURT] - NRI gift from a stranger was neither genuine nor valid - mere identification of donor and showing the movement of gift amount through banking channel is not enough to prove genuineness of the gift - The assessee was required to establish that the donor had the means and the gift was genuine, for natural love and affection - there being neither any relationship nor there being any circumstance to show natural love and affection of the donor for the donee nor there being any occasion to make such gifts to the assessee - the assesse was unable to show that there was any occasion or relationship to make the gift – Decided in favour of Revenue.
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2014 (5) TMI 967
Ex-parte order – Opportunity of hearing not given - Rejection of registration application u/s 12AA(1)(b)(ii) of the Act – Held that:- The DIT (Exemption) called for details and documents vide letter dated 01.10.2012 and thereafter, before rejecting the application for registration of the trust, did not allow any other opportunity to the assessee to present its case before him - it would be in the interest of justice that the matter to be remitted back to the DIT(Exemption) for fresh adjudication – Decided in favour of Assessee.
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2014 (5) TMI 966
Penalty u/s 271(1)(c) of the Act - Capital gains not shown in the return – Assessee disturbed due to illness of father – Held that:- Due to the lack of correct information, the authorized consultant could not be in a position to reveal the sale transaction in the return of income - From the bank statements, it was found that the amount was received from the purchaser, Rohit Ramavtar Poddar - under bona fide belief it was shown in the balance sheet as a liability - the property and the amount invested had also been shown towards asset’s side - when the father was admitted in the hospital and as the bad luck would have it, later on expired, the possibilities would be that the non-offer of Long Term Capital Gain might have been an inadvertent silly mistake on the part of the two appellants – Relying upon Price Waterhouse Coopers (P.) Ltd. Versus Commissioner of Income-tax, Kolkata – I [2012 (9) TMI 775 - SUPREME COURT] - the error committed could be described only as a human error, which we all are prone to make - the imposition of penalty was held as not justified – Decided in favour of Assessee.
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2014 (5) TMI 965
Ex-parte order u/s 144 of the Act – Opportunity of being heard – Held that:- The appeal of the assessee was dismissed by the CIT(A) on the ground that the assessee did not put in an appearance on the six dates of hearing – assessee contended that due to the assessee becoming a sick company and referred to the BIFR and also there being change of address, notice of hearing could not be served on the assessee - the assessee could not comply with the notice of hearing issued by the CIT(A) – the matter is required to be remitted back to the CIT(A) for freesh adjudication – Decided in favour of Assessee.
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2014 (5) TMI 964
Penalty u/s 271(1)(c) of the Act - Claim of exemption u/s 10A of the Act – Failure to substantiate – Held that:- As decided in assessee's own case for the earlier assessment year, it has been held that the AO as well as the CIT(A) has disallowed the claim of deduction to the assessee on the ground that the same was not claimed in the return of income filed nor any revised Return was filed - the assessee preferred claim of deduction u/s 10A of the Act - Only when the assessee was informed that his claim u/s 10A is not allowable occasion for claiming deduction u/s 80HHC arose - The assessee could not have claimed deduction u/s 10A and u/s 80HHC simultaneously in the same computation - the Audit Report required for claiming deduction u/s 80HHC was filed before completion of the assessment - CIT(A) was not justified in not entertaining the bonafide claim of the assessee by exercising Appellate power conferred upon him - the assessee was eligible for acclaiming deduction u/s 80HHC and the deduction in accordance with the law ought to have been allowed to the assessee – the AO is directed to set aside the penalty – Decided against Revenue.
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2014 (5) TMI 963
Validity of reopening of assessment u/s 147 of the Act – Reason to believe – Held that:- There was merit in the argument of the assessee in as much as the AO's reasons for reopening are not correct on two counts - assessee had not given any cash to VPS Valves & Tubes P. Ltd. - the investigation information in possession was qua one M/s Manorath Securities Pvt. Ltd and not the assessee – AO had no information from Investigation wing against the assessee - On both the counts the action of reopening the assessment is not tenable - The reasons recorded being not based on correct and valid information, pertaining to assessee the reopening is set aside – Decided in favor of Assessee.
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2014 (5) TMI 962
Imposition of penalty u/s 271(1)(c) of the Act – Proper explanation made - Bad debts written off - Held that:- The address given by the AO in the penalty proceedings is per "M/s Va Tech Escher Wyss Flovel Ltd., 13/1, Mathura Road, Faridabad" and the address as mentioned in the impugned order at column No-4 is "Va Tech Hydra India Pvt. Ltd, 49/5, Mathura Road, Vill-Prithla, Dis.-Palwal, Haryana" accordingly the address having been changed is evident from the record - consistently the assessee has claimed that the amounts which were claimed as written off were actually advances made to its suppliers whose names and particulars numbering -20 in total were provided to the AO - the claim put forth was for bad debts for which the assessee failed to provide any justification the addition was made, it is a fact that the addition was not challenged in the quantum proceedings. Relying upon CIT Vs. Sumangal Overseas [2011 (11) TMI 45 - DELHI HIGH COURT] - The explanation is stated to be bonafide as assessee on facts had no motive to make a wrong claim as the income over the years has remained at Nil- Full particulars were filed and no inaccurate particulars were provided - penalty proceedings and quantum proceedings are separate and distinct - explanation offered in the penalty proceedings has to be considered by the authorities independently in the matrix of the requirements of Section 271(1)(c) - even on merits the bad debt claim could have been allowed as a trading loss – the advances to the creditors have not been held to be sham transactions as they are coming from the earlier years - explanation offered by the assessee in the penalty proceedings is bonafide and deserves to be accepted as it is neither a case of filing of inaccurate particulars and nor is it a case of concealment - Relying upon Reliance Petro Products Ltd. [2010 (3) TMI 80 - SUPREME COURT] - the explanation being bonafide deserves to be accepted and the order is set aside – Decided in favour of Assessee.
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2014 (5) TMI 961
Treatment of sales tax subsidy as revenue receipt – Held that:- As decided in assessee's own case for the earlier assessment year, it has been held that as per the comparative chart the terms and conditions applicable in 1979 scheme were of the same nature and intent of the 1993 scheme- salient features of the 1993 scheme are identical to that of 1979 scheme - CIT(A) has passed a reasonable order which does not need any interference on our part – Decided against Revenue. Treatment of trial run expenses as capital expenses – Held that:- Following Indo Rama Synthetics India Ltd. Versus Commissioner of Income-tax [2009 (9) TMI 635 - Delhi High Court] - one has to keep in mind the essential purpose for which such an expenditure is incurred - If the expenditure is incurred for starting new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature - it would be irrelevant as to whether project really materialized or not - if the expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure. In such a case whether new business/asset comes into existence or not would become a relevant factor - If there is no creation of new asset, then the expenditure incurred would be of revenue nature - if the new asset comes into existence which is of enduring benefit, then such expenditure would be of capital nature - it was merely a case of expansion of existing plant - thus, the expenses incurred by assessee which were inherently of revenue nature were rightly allowed by CIT (A) – Decided against Revenue. Deletion of depreciation on computer accessories @ 60% - Held that:- As decided in assessee's own case for the earlier assessment year, it has been held that the classification for the purpose of computation of depreciation under the Companies Act has no relevance - the disallowance cannot be based merely on entries made in the books of accounts or in the annual accounts - The AO has not brought out any infirmity in the claim of the assessee – the order of the CIT(A) is upheld – Decided against Revenue. Deletion of penalty paid to custom authorities – Custom redemption fees – Held that:- Following M/s Usha Micro Process Controls Ltd. Versus Commissioner of Income Tax [2013 (10) TMI 9 - DELHI HIGH COURT] - CIT (A) has discussed the issue in the light of various provisions of Customs Act - To comply with the said notification, the assessee applied for the issuance of certificate to be submitted at the time of clearance of the imported vehicle - the required certificate was not issued by the prescribed authority by the time of import/clearance of car, the customs authority confiscated the imported car - Commissioner of Customs Authority (Import) gave the option to the assessee to get released the imported car on payment of fine of Rs.15 lacs leviable u/s 125 of the Customs Act, 1962 and penalty of Rs.8 lacs u/s 112(a) of the Customs Act 1962 - the assessee was required to re-export the car on payment of notional penalty in terms of section 112(a) of the Act – the fine in lieu of the confiscation is reduced to Rupees four lacs. The importation of hardware as authorised and regarding the importation of software, the appellants had requested for the re-exportation of the software and had also placed on record to the effect that the software which was sent with the hardware was not ordered by the appellants and the appellants were keen for sending them back - There is complete absence of the elements of mens rea (sick) and the valuation of the hardware has been taken at a higher figure due to difference of opinion - originally the penalty which the appellant had been directed to pay was deleted by the CEGAT - the amount of redemption fine was compensatory it fell outside the mischief of explanation of Section 37(1) of the Income Tax Act – Decided against Revenue.
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2014 (5) TMI 960
Deduction u/s 80IAB of the Act – Income from sale of assets – construction of bare shell/ cold shell/ warm shell buildings and transfer thereof - Business income treated as capital gain – Held that:- Following DLF Info city Developers (Chennai) Ltd. Versus Asstt. Commissioner of Income-tax [2014 (5) TMI 737 - ITAT DELHI] - The issue of sale of bare shell buildings being authorized activity, it is amply clear that the SEZ Act authorized activities include construction of bare shell/cold shell/warm shell buildings and transfer thereof - There is enough material on the record to hold that the transfer of bare shell buildings to co-developers constitute authorized activity - the provisions of SEZ Act shall have over riding effect even if anything inconsistent is contained in the Income Tax Act - The SEZ Act has been enacted containing the specific legislation to be brought in other statutes - deduction u/s 80IA of the Act cannot be denied after having been granted in the first year of claim, as the restraint of Section 80 IA (3) cannot be considered for every year of claim of deduction, but can be considered only in the year of formation of the business – there was no error in the action of the CIT(A) in setting aside the disallowance of deduction u/s 80 IB of the Act - The order of the CIT(A) is upheld – Decided against Revenue.
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2014 (5) TMI 959
Condonation of delay – Delay of 1100 days – Held that:- While framing assessment in order dated 31.12.2009 in furtherance of a ‘search’ conducted on 10.01.2008, the Assessing Officer had made addition of M25 lakhs as ‘unaccounted’’ investments - the contention about the Shri.Reddy’s sudden illness November, 2010 to November, 2013 and sudden regaining of health is not supported by any evidence that she herself could not have pursued legal remedies in the treatment period - the nursing home’s certificate only appears to be an after-thought exercise in absence of other details – assessee fails to explain each and every day’s delay from 16th November, 2013 till the date of filing the appeal as she is supposed to act with due diligence - the assessee has failed to satisfactorily explain 1100 days delay in filing of the appeal - in delay matters, liberal and lenient approach to be adopted - But there is no plausible explanation much less a satisfactory one - delay of 1100 days does not deserve to be condoned on mere asking – Decided against Assessee.
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2014 (5) TMI 958
Transfer pricing adjustment – Computation of deduction u/s 10B of the Act - Held that:- Following M/s. Honeywell Electrical Devices & Systems India Ltd. Versus The Assistant Commissioner of Income Tax [2014 (5) TMI 728 - ITAT CHENNAI] - The TPO has accepted the segmental results in assessment year 2005-06 and 2006-07 on the contract manufacturing transactions with AE for arriving at ALP while computing relief u/s 10B of the Act - The TPO/ DRP has not given any valid reasons as to why segmental results shall not be considered for determining ALP of transactions with AE having accepted very same segmental results of the assessee for the purpose of computing deduction u/s 10B of the Act - there is no valid reason for not accepting the segmental reports in determining ALP on the AE sales for the AY 2007-08. TPO/ DRP approach in comparing external comparables margin with entity level margin of the assessee is wrong since segmental results are available and as per the segmental results the margin in contract manufacturing segment was at 20.89% and this margin should have been compared with the margin of external comparables which stood at 8.87% instead of the entity level margin 1.08% since entity sales consists of both contract manufacturing segment which meant for export done and local segment which is engaged in domestic sales - In the current year also i.e. assessment year 2008-09, the net cost plus margin of the assessee in contract manufacturing segment is 10.77% which is more than the net cost plus margin of 9.55% on the external comparables of the Transfer Pricing Officer and therefore there is no need for upward adjustment to be made on the AE sales of the assesse – the AO is directed to set aside the addition made towards upward adjustment of purchase price on determination of ALP with AE – Decided in favour of Assessee. Provision for discount – cessation of liability - Held that:- Following M/s. Honeywell Electrical Devices & Systems India Ltd. Versus The Assistant Commissioner of Income Tax [2014 (5) TMI 728 - ITAT CHENNAI] - when the liability is ascertained and not quantifiable during the year and is simply a contingent based on estimates, the same cannot be allowed as deduction - the assessee’s version clearly states that the only reason for creating a provision and not charging the same as an expenses is because of the fact that the exact quantification could not be undertaken for the various reasons - the basis for the provision is simply adhoc and arbitrary - It depends on the facts of each and every case to come to a conclusion as to whether the liability is ascertained or unascertained one and it cannot be generalized – Assessee contended that they had reversed excess provision which was disallowed in earlier year - as the provision was disallowed in earlier year, reversal made during this assessment year ought to be allowed as deduction while computing total income of the year – the AO is directed to verify the claim of the assessee. Reduction in personal expenses – Expenses incurred in foreign currency – Training and marketing/business promotion from export turn over – Held that:- Following M/s. Honeywell Electrical Devices & Systems India Ltd. Versus The Assistant Commissioner of Income Tax [2014 (5) TMI 728 - ITAT CHENNAI] - travel expenses incurred in foreign currency have to be excluded both from export turnover as well as from total turnover for the purpose of computing relief u/s 10A of the Act – the AO is directed to exclude the travel expenses incurred in foreign exchange from export turnover as well as total turnover for the purpose of computing relief u/s 10A of the Act – Decided in favour of Assessee.
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2014 (5) TMI 957
Deletion of addition on LTCG on sale of non-agricultural land - Whether while valuing the land as on 01-04-1981 for calculating the long term capital gain, should be treated as agricultural land or non-agricultural land or not – Held that:- As on 01-04-1981 the land was agricultural land which was converted subsequently into non-agricultural land and sold as non-agricultural land - The assessee has taken the valuation of the land at Rs. 960 per square meter on the basis of valuation determined by a government registered valuer by treating this land as non-agricultural land as on 01-04-1981 – Following Sri Pravinbhai J. Pandya Versus ITO Ward-2(3), Baroda [2014 (5) TMI 879 - ITAT AHMEDABAD] - as on 01-04-1981 land was agricultural land and to apply cost inflation index the same cannot be treated as nonagricultural land as on 01-04-1981 simply because the same was converted into non-agricultural land subsequently in the year 2005 when the same was sold as non-agricultural land – the land as agricultural land as on 01-04-1981 and AO has rightly taken the valuation of the land @ 2.32 per sq. ft on the basis of comparable instances obtained by him. As per the provisions of section 55A of the Act, the AO may refer the matter to DVO in case valuation of any property on the basis of registered valuer has been shown by the assessee less than the market value – the AO was justified in treating the land as agricultural land as on 01-04-1981 while valuing the same for calculating the long term capital gain – thus, the order of the CIT(A) is set aside – Decided in favour of Revenue.
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2014 (5) TMI 956
Disallowance of Guest House expenses u/s. 37(4) of the Act – Held that:- Tata Chemicals Limited Versus The ACIT Cir 2(2), Mumbai & Others [2012 (10) TMI 46 - ITAT MUMBAI] these are not allowable in view of the decision of the Hon’ble Supreme Court in the case of Britannia Industries Ltd. vs. CIT (2005 (10) TMI 30 - SUPREME COURT) and accordingly the disallowance made by the A.O. upheld - With regard to the food expenses, the matter is remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee. Disallowance of payment paid to ROC - Increase in Authorised Share capital – Held that:- Following CIT Vs General Insurance Corporation of India [2006 (9) TMI 116 - SUPREME Court] - expenditure incurred in connection with issuance of bonus shares is Revenue expenditure as issuance of bonus shares does not result any inflow of fresh funds or increase in the capital employed, the capital employed remains the same - Issue of bonus shares does not result in the expansion of the capital base of the company - the expenditure incurred in connection with issuance of bonus shares is Revenue expenditure - the assessee has made payment to the ROC in relation to issue of bonus shares – thus, the AO is directed to allow the expenses – Decided in favour of Assessee. Disallowance of foreign travel expenses - Preliminary studies for implementation of Fertilizer Project – Disallowance of Sundry contributions u/s. 40A(9) of the Act - Held that:- As decided in assessee’s own case for the earlier year, the matter is remitted back to the AO to allow depreciation on the foreign travel expenses added to the cost of the machinery – Decided in favour of Assessee. Disallowance of foreign exchange fluctuation loss - Disallowance of investment allowance on increase in liability on account of foreign exchange fluctuation loss – Disallowance of expense on fish and prawn culture – Part disallowance of Delhi expenses - Held that:- As decided in assessee’s own case for the earlier year, it has been held that the assessee has been allowed depreciation on foreign exchange fluctuation loss – thus, the AO is directed to allow depreciation as per law also the AO is directed to allow the investment allowance on exchange loss treated as capital expenditure – thus, the matter is remitted back to the AO – Decided in favour of Assessee Disallowance of expenditure treating them as expenses of earlier year – Disallowance of premium on redemption of debentures - Held that:- Following Saurashtra Cement and Chemical Industries Ltd. Vs CIT [1994 (10) TMI 30 - GUJARAT High Court] - merely because an expense relates to a transaction of an earlier year, it does not become a liability payable in the earlier year unless it can be said that the liability is determined and crystallized in the year in question on the basis of maintaining account on the mercantile basis - In each case, when the accounts are maintained on mercantile basis, it has to be found in respect of any claim whether such liability was crystallized and quantified during the previous year as required to be adjusted in the books of account of that previous year - the liabilities under the heads have crystallized during the year under consideration - These expenses cannot be disallowed as deduction merely on the basis that accounts are maintained on mercantile basis and that it relates to a transaction of the previous year - the liabilities have been accepted by the assessee and have been actually claimed and paid in the year under consideration – thus, the AO is directed to allow the expenses – Decided in favour of Assessee. Addition of interest on advance to WOS Company - Held that:- Following The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - CIT(A) was not justified in sustaining the disallowance of interest – Decided in favour of Assessee. Disallowance made u/s. 43B of the Act - Royalty on limestone - Interest on outstanding electricity duty - Held that:- The matter travelled upto Tribunal and the Tribunal has restored back the issue to the file of the AO to verify the payment and allow deduction as per law if the payments have already been made – thus, following the assessee’s own case the matter is remitted back to the AO for verification of the payments as per the provisions of Sec. 43B – Decided in favour of Assessee. Disallowance of Mineral Rights Tax – Held that:- by not paying the said amount to the Government, the assessee has retained public fund with itself - the assessee itself has agreed to pay the MRT on the limestone purchased by it and as it has not discharged the liability till the end of the accounting year – thus, there was no reason to interfere in the order of the CIT(A) – Decided against Assessee. Disallowance of Customs fine - Imported spares from customs – Held that:- If the amount so paid is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned then one has to regard such payment as business expenditure of the assessee, allowable u/s. 37 of the Act – Relying upon CIT Vs Ahmedabad Cotton Mfg. Co. Ltd [1993 (10) TMI 1 - SUPREME Court] vis-à-vis Sec. 125 of the Customs Act - what has been paid by the assessee is a fine to prevent confiscation of its spare parts which were required for its business – thus, the payment deserves to be allowed as deduction u/s. 37(1) of the Act – thus, the AO is directed to allow the deduction. Disallowance of depreciation and extra shift allowance – Disallowance of expenses – Expenses treated as capital expenses – Disallowance of expenses on soil investigation and effluent outfall - Held that:- Following the assessee’s own case of the earlier assessment year, it has been held that, as regards extra shift allowance, the matter is to be remitted back to the AO to consider the claim of the assessee after taking into consideration the I.T. Rule-5 of 1984-85 – with regard to the depreciation , the AO is directed to allow depreciation – the AO is also directed to allow the depreciation on items of expenditure treated as capital expenditure - Decided in favour of Assessee. Employees’ entertainment expenses u/s 37(2) r.w. Explanation III - Subsidized lunch coupons - Payments made to Tata Services Ltd. – incentive bonus to workers – Issue of bonus shares treated as revenue expenses – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been already decided in favour of assessee – thus, there is no need for interference – Decided against Revenue.
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Customs
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2014 (5) TMI 976
Confiscation of goods - Redemption fine - whether the appellants had used 29 machines imported by them for use in the factory of M/s. Chiramith Precision India (Chiramith for short), a 100% EOU as per the conditions of importation or not - Held that:- There was an omission on the part of the Registry also. After noticing that the appeals were filed against the Superintendent’s letter, the Registry should have pointed out the same as a defect and in such an event, if the appellants were to mention the Order-in-Original and filed a revised appeal, in the normal course the same would have been accepted. Therefore, I do not consider that this is not rectifiable defect and after considering the stay applications and there appeals, it is quite clearly seen that the appellants have brought out that they are aggrieved by the decision in the Order-in-Original which had not reconsidered the penalties imposed on them and the sum and substance of the appeals is reconsideration of the penalties and redemption fine and therefore it would be in the interest of justice that the appeal has to be treated as having been filed against the Order-in-Original and it may not be appropriate to deny and reject the appeals on this ground. whether the Commissioner is right in taking a view that there is no need for him to reconsider the issue of penalties imposed on the appellants on the ground that all the three appellants are juristic persons - Held that:- there cannot be separate penalty or demand for duty on the firm and the proprietor. That being the legal position at least in the case of Chirag, the observation of the Commissioner that the penalty was imposed on a juristic person and therefore he was not required to reconsider the same is not correct. Therefore on this ground, the Commissioner has to be directed to reconsider the penalty imposed on Chirag and for this purpose; the matter is required to be remanded to the original adjudicating authority. As regards the other two appeals of Chiramith and Tavadec, one is a partnership firm and the other is private limited company and therefore both are to be considered as separate legal entities/juristic persons and in this regard I find that the discussion of the case law by the Commissioner in the impugned order and his conclusion that penalties on the partners/directors is separate from the penalty on the company is appropriate. However, I am handicapped by the fact that there was no assistance from both the sides in the form of any precedent judicial pronouncements as to whether a penalty imposed or imposable on a company or partnership firm can be called as personal penalty or it is to be called as penalty and personal penalty and penalty are to be treated as different - Matter remitted back - Decided in favour of assessee.
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2014 (5) TMI 975
Valuation - Mis-declaration of value of goods – Sustainability of duty demand on the basis of upward revision of assessable value –Whether the prices of the raw materials mentioned are the price in India or the prices in China and if so, what is the source for this information and also what is the cost of manufacture of these items in China - Held that:- Goods on examination were found to be as per declaration - The main basis for not accepting the declared value is that the per kg. price of the goods is less than the average price of the raw materials - plastic, glass, steel, etc. - For making the allegation of under-valuation and rejecting the declared transaction value, the department cannot adopt the price of raw materials of the goods in India and allege that the declared price of the goods is less than the average price of the raw materials - The price of the raw materials and manufacturing cost for this purpose has to be of the country in which the goods had been manufactured - Therefore, the very basis for rejecting the declared transaction value is not sustainable. This Court do not find any iota of evidence in support of the department's allegation of mis-declaration of value and absolutely no evidence of contemporaneous import of identical or similar goods in comparable quantity at higher price had been produced - Just because the partner of the importer firm agrees for determination of the value under Rule 7 of the Valuation Rules, the department cannot allege that the value has been mis-declared - Moreover, the determination of value under Rule 7 has also been done in a very strange manner, as the department has not mentioned as to which the importer of identical or similar goods had been selling the goods in India at the wholesale price which had been adopted in this case for determination of assessable value under Rule 7 – Therefore, there is absolutely no basis for rejecting the declared transaction value and making the allegation of under-valuation against assesse – Thus, neither the duty demand on the basis of upward revision of assessable value nor the confiscation of the goods u/s 111(m) for alleged mis-declaration of value of the goods is sustainable. Liability of Confiscation of goods u/s 111(m) - Non affixing of MRP - Section 111(d) r/w Note 5(e) of the General Note of Foreign Trade Policy – Whether the goods imported were in bulk package or were in pre-packed form for sale to ultimate consumers - Held that:- According to the Note all pre-packaged commodity imported into India shall in particular carry maximum retail sale price at which the commodity in packaged form may be sold to the ultimate consumers - Unless the goods imported were in pre-packaged form meant to sale to the ultimate consumers, the provisions of Note 5(e) r/w Section 11(1) of Foreign Trade Development and Regulation Act, would not be applicable - However, there is no finding of the Commissioner (A) for deciding the question of liability of the imported goods for confiscation u/s 111(d) - The matter is remanded back for de novo adjudication – Decided in favour of assesse.
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Corporate Laws
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2014 (5) TMI 974
Winding up of company - Inability to pay debts - Bar of limitation - Whether the defence raised by the respondent that the claims of the petitioner are barred by limitation is a bona fide and substantial defence - Held that:- It is well settled that a petition under Section 433 (e) of the Companies Act, 1956, will not lie in respect of a debt which is barred by limitation and cannot be enforced. A debt which is not enforceable cannot be considered as an amount which is due and payable by the respondent. - there was no written acknowledgement that had been furnished by the respondent to the petitioner except a letter dated 29.12.2010 sent by K. Nath “General Manager Group Legal & Company Secretary” on behalf of Ashok Piramal Management Operation Ltd - Said letter cannot be accepted as an acknowledgement by the respondent company for the reasons that, neither the letter purports to be on behalf of the respondent company nor is it signed by an authorized signatory of the respondent company - The fact that the respondent has paid a sum of Rs.12 lakhs during the course of the present proceedings also would not extend limitation in favour of the petitioner. This is so because the said payment has been made after the period of limitation has expired and therefore the provisions of Section 19 of The Limitation Act, 1963, are not applicable - Decided against Appellant.
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Service Tax
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2014 (5) TMI 986
Demand of service tax - Clearing and Forwarding agents - extended period of limitation - Assessee contends that they were acting merely agent of the client and their activity did not come within the purview of Section 65(72) of the said Act, as they did not undertake services, normally rendered by Clearing and Forwarding agents - Third show cause notice issued while 2 notices already existing - whether on the date of issue of notice, all the ingredients of Section 73 (1)(a) of the Act were available - Penalty u/s 76 - Held that:- In the present case, there is no dispute that the appellant has filed return in ST-3 for the relevant period. It is not the case of the revenue also that notice under Section 73(1)(a) of the Act has been issued for non-filing of return under Section 70 for a presecribed period. Notice has been issued on the allegation that the appellant had not disclosed fully and truly all material facts required for verification of the assessment under Section 71 and it amounts to escaped assessment. First notice was server as on 18.4.2002 for the period 1.9.1999 till the date - assessee submitted the reply - second notice was issued on 12.5.2003, under Section 71(2) for verification of ST-3 returns for the period 1.9.1999 to 30.9.2003. - appellant filed reply on 28.5.2003 and submitted all the details. - no order was passed against both the notices - This shows that he was fully satisfied that there is no escaped assessement or has been under assessment. When the third notice under Section 73(1)(a) of the Act had been issued on 6.9.2003 by the Deputy Commissioner, in pursuance of which the impugned order has been passed, the complete facts and details relating to the impugned transactions, namely, copy of the contract, gross amount received, the amount received towards remuneration, etc. were made available, therefore, it cannot be said that at the time of issue of notice, there was any material with the Deputy Commissioner to believe that by reason of omission or failure on the part of the appellant to disclose fully and truly all material facts, the value of taxable service has escaped assessment or has been under-assessed or service tax has not been paid. Deputy Commissioner failed to make out any case that he had the material to believe that there was omission or failure on the part of the assessee to disclose fully and truly all material facts and, therefore, we are of the view that the Deputy Commissioner has illegally invoked the provisions of Section 73(1)(a) of the Act and exercised the power to raise the demand under Section 73(1)(a) of the Act. Since the demand is not sustainable, the consequential penalties are also not sustainable. - Decided in favour of assessee.
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2014 (5) TMI 985
Waiver of pre deposit - tribunal ordered pre-deposit of interest amount - Held that:- Tribunal while deciding the issue regarding the pre-deposit had noticed that there was a prima facie case though not a strong prima facie case and after delving into the issue had waived the pre-deposit and stayed all further proceedings for realization of the adjudicated liability in terms of the impugned order but the element of interest which was consequential to the adjudicated liability was ordered to be paid on the service tax assessed. Once the realization of the principal liability was stayed and condition of pre-deposit was waived off, it would not be proper to direct that the entire interest component on the service tax assessed be deposited as a condition precedent for hearing of the appeal - order of tribunal modified - stay granted.
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2014 (5) TMI 984
Demand of service tax - telephone service - Notification No.36/2007-ST was issued on 15/06/2007 - Refund claim - refund claim was rejected on the ground that according to the notification only service tax which was not collected or levied, need not be collected or levied and therefore where it has been collected or paid by a service provider there is no provision for refund of the same. Unjust enrichment - Held that:- appellants have brought out clearly from 21/06/2006, they collected service tax and whatever was collected has been paid and no refund has been claimed. Prior to that period, they were not charging service tax separately and obvious conclusion would be that the service tax liability which they determined was paid from their own funds. In any case, they have also produced a Chartered Accountant’s certificate certifying that the service tax has not been collected. In the facts and circumstances of this case, I consider that there is no unjust enrichment. - Decided in favour of assessee.
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2014 (5) TMI 983
Refund of CENVAT credit - export of exempted services - Revenue contends that appellant should not have utilized more than 20% of service tax payable during the period by utilizing the CENVAT credit as per the provisions of Rule 6(3)(c) of CENVAT Credit Rules 2004 - Held that:- In the hierarchy of statutes, the law comes first, the rule comes later and the notification comes next. - harmonious construction of provisions of Rule 5 and Rule 6 is required to be made and Rule 6 cannot be read in such a manner that it negates what is provided under Rule 5. It has to be noted that in this case, the restriction is only for using the credit to the extent of more than 20% and there is nothing as regards the eligibility of the assessee for taking the credit. We are required to see whether the service has to be treated as exempted or service as exported and refund of CENVAT credit is admissible as per the provisions of Rule 5 - The only difficulty for getting the refund is that notification has not been issued and if the intention of the legislature was not to give refund Rule 5 would not have been contained the provision relating to refund subject to safeguards prescribed under the notification. Therefore, in my opinion, it would be appropriate to treat the output service as one exported and not exempted and therefore provisions of Rule 6(3)(c) is not attracted which, in my opinion, would be in accordance with legislative intention and would be in accordance with principles of harmonious construction - Decided in favour of assessee.
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2014 (5) TMI 982
Waiver of pre deposit - transportation service - Held that:- Prima facie, we are in agreement with the submission of learned advocate for the applicant that there is no other Goods Transport Agency involved in this case and the applicant has procured the services of transporters for executing his responsibility under the contract with his clients and he is entitled to earn reasonable profit in the activity. It is seen from para-2 in the show cause notice that applicant had paid service tax on the total receipts under the category of GTA service after availing abatement. We therefore consider that, in this case, there is no need to call for any further pre-deposit for admission of appeal. - stay granted.
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Central Excise
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2014 (5) TMI 981
Duty demand - Clandestine removal of goods - Held that:- Demand stand confirmed on the allegations and findings of clandestine manufacture and removal of Sugar, which solely are based upon the excess production of molasses. Such excess production is only to the tune of 0.64% and apart from the above there is virtually no evidence of clandestine manufacture and removal of excess Sugar. The excess molasses quantity is depending upon number of factors including the whether condition, the quality of the sugarcane and storing capacity etc. In the absence of any evidence that the appellants have actually manufactured excess sugar and has cleared the same without payment of duty, the confirmation of duty on the basis of excess molasses by itself cannot be upheld. Accordingly, I set aside the impugned order - Decided in favour of assessee.
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2014 (5) TMI 980
Default in payment of duty - whether duty amounting to Rs. 39,76,931/- has been rightly confirmed by the appellant for default in payment of duty under Rule 8 (3A) of the Central Excise Rules, 2002 read with Section 11A of the Central Excise Act, 1944. - Held that:- The detailed arguments made by both sides need deeper consideration which can be done at the time of final hearing only. For the purpose of stay, duty payment of Rs. 75,31,370/- and interest payment of Rs. 3,33,764/- is considered sufficient for hearing and listing this appeal. Accordingly, it is ordered that there will be stay on recovery of the balance amounts involved till the disposal of this appeal - Conditional stay granted.
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2014 (5) TMI 979
Waiver of pre deposit - Availment of Cenvat credit of service tax - Credit on the strength of invoices issued by the service provider - Held that:- appellant instead of availing the credit after the payment of service tax paid by service provider, availed on payment of service tax, even before the payment of same by the service provider. The said availment was on the ground that appellant had paid the service tax to service provider for further depositing the same with the department. For such advance availment of service tax credit, the appellant has already paid the interest on the same - Stay granted.
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2014 (5) TMI 978
Demand of differential duty - Enhancement in value of goods - Held that:- Section 4(4)(d) of the Central Excise Act stood at the relevant time provides that the “value”, assessable to any excisable goods, - where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee.” Therefore, it is clear that cost of packing of a durable and returnable nature cannot be included in the assessable value. It is not in dispute that the plastic crates are durable in nature and these have been supplied by the buyer to the assessee. In view of the clear position in law, we do not find any merit in the appeal filed by the Revenue - Decided against Revenue.
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2014 (5) TMI 977
Cenvat credit - Shortage in stock - manufacture of Polyster Film - Held that:- entire case of the Revenue as regard shortage of Cenvatable inputs is based upon the inventory made by the appellant himself during the course of their internal stock taking. There is no allegation or evidence that the said inputs were either not received by the appellant or stands cleared by them without payment of duty. As such, such shortage in the stock conducted by the appellant themselves for the purposes of reconciliation of their entire stock cannot be made the basis for confirmation of demand of duty against them or for imposition of penalty. Accordingly, in the absence of any evidence to reflect upon clearance of such inputs, no demand can be made - Decided in favour of assessee.
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Indian Laws
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2014 (5) TMI 973
Conspiracy under Section 120B of IPC - Conviction under Sections 7 & 12 of The Prevention and Corruption Act, 1988 - Held that:- The need for independent application of mind has been stressed upon by Apex Court in Sajjan Kumar (2010 (9) TMI 947 - SUPREME COURT OF INDIA). In Prafulla Kumar (1978 (11) TMI 151 - SUPREME COURT), relied upon by respondent, Apex Court has ruled that excepting the cases of grave suspicion, which the accused is unable to explain, Trial Court is empowered to discharge the accused. In Soma Chakravarty (2007 (5) TMI 590 - SUPREME COURT), Apex Court has reiterated that suspicion alone cannot be the basis for framing of charge and there must exist some material therefore to justify framing of charge. In Amit Kapoor (2014 (1) TMI 1042 - Supreme Court Of India), Apex Court has clarified that the suspicion ought to be strong enough to justify framing of charges. During the course of hearing, it was not shown by respondent’s counsel as to how call No. 48 can be reasonably explained. As call No. 48 is prior in time, so first prosecution has to explain this call and then only, petitioner can be called upon to give a reasonable explanation regarding subsequent call No. 51. Since the so-called incriminating call No. 51 stands completely demolished by call No. 48, therefore, it cannot be prima facie said that there is grave suspicion about involvement of petitioner in the commission of offences in question - Viewed from any angle, prima facie case is not made out against petitioner. Thus, impugned order qua petitioner is rendered unsustainable and is quashed - Decided in favour of appellant.
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