TMI Tax Updates - e-Newsletter
June 22, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
Highlights / Catch Notes
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Income Tax
Existence of Permanent establishment - pierce the veil - there is interlacing of activities and interlocking of funds between the assessee and its Indian subsidiary in executing the dredging contract. - relationship of agency is there and the existence of permanent establishment is also there. - AT
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Deferred revenue recognition - 50% of this Administration/Contract Fee is to be treated as income in the first two years of receipt and charged to tax @ 25% in each of the first two years and the balance 50% is to be treated as income and spread over in the remaining portion of the time share period
- AT
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Valuation of stock – change of method of accounting - By shifting to a new ERP package, for example, SAP 2 worked out the value of the stock at cost, any reduction in the valuation of the stock is not permitted in law. - AT
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Principal of mutuality - Association - - Scope of section 28(iii) - purchase and distribution of tyres, automobile spares, etc., to its own members. - mutuality squarely applies - HC
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DTAA between India and USA - professional service for consultancy rendered outside India and not for supply of scientific, technical, industrial or commercial knowledge or information. - there was no liability to deduct TDS - AT
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Transfer pricing - Power of the TPO for suo-moto determination of ALP in respect of international transaction which were not referred to him by the AO - AT
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Royalty - transfer of the right to use the software/computer programme in respect of the copyrights falls within the mischief of 'royalty' - HC
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Valuation of Shares – shares held by the assessee at the end of the year - The valuation of stock is cost or market value whichever is lower is settled position of law - HC
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Customs
Rate of exchange of conversion of each of the foreign currency with effect from 22nd June, 2012. - Notification
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Duty draw back - The appellant made an application for draw back under Rule 6 - the department’s out-right rejection without verification is unacceptable. - AT
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DGFT
Handbook of Procedure Vol.I (Appendices and Aayaat Niryat Forms). - Public Notice
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FEMA
Annual return on Foreign Liabilities and Assets Reporting by Indian Companies – Revised format. - Circular
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Indian Laws
Taxation of Services - An Education Guide.
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FM releases Guidance Paper on service tax: new approach intended to take country and economy a step closer to GST
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Service Tax
Service of renting of immovable property - Considering the definition of immovable property, the same does not include building used solely for residential purposes and building used for the purpose of accommodation including hotels, hostels, boarding houses, holidays accommodation, tents, camping facility etc - AT
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Exemption on services provided to SEZ authorised operations - Notification
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Notification under rule 6A of Service Tax Rules - rebate of the duty paid on excisable inputs or service tax and cess paid on all input services used in providing service exported - Notification
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Seeks to amend point of Taxation Rules - Notification
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Seeks to amend Service Tax Rules - Notification
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Rescinding of certain notifications - Notification
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Exemption to Small service providers - Notification
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Exemption of services provided by TBI/STEP - Notification
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Exemption to specified services received by exporter of goods - Notification
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Notification under sub-section (2) of section 68 - Reverse Charge - Notification
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Exemption on property tax paid on immovable property - Notification
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Place of Provision of Services Rules,2012 - Notification
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Exemption to services for the official use of foreign Diplomatic Mission - Notification
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Abatement notification - Notification
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Mega exemption notification - Notification
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Notification No.4/2004-ST - exempting taxable services provided to developer of a SEZ or a unit in the SEZ by any service provider for consumption of service within such SEZ, cannot be interpreted on the basis of the provisions of SEZ Act, 2005 - AT
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Intellectual property right service - Definition of sale in section 2 (h) of Central Excise Act - This provisions can not be interpreted to mean that provisions that are relevant for tangible goods will apply for intangible goods when the subject involved requires a distinction to be made.
- AT
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Central Excise
SSI Exemption - Deemed export - Value based exemption - Value of "Deemed Exports" is to be included in the calculation of aggregate value of clearances for extending the benefit of exemption - AT
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Amendment to CENVAT Credit Rules - Notification
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2012 (6) TMI 484
Fringe benefit - exclusion of expenditure incurred on Sales promotion, Conveyance, tour and travel, and Gifts while computation of vale of fringe benefits on ground of no employer - employee relationship - Revenue instead relying on deeming fiction given u/s 155WB - Held that:- Aforesaid expenditure has no element of employee benefit and is a legitimate business expenditure incurred in the course of carrying on its business. The impugned expenditure was paid to third parties and not to employees. Hence, legitimate business expenditure, which does not result in any benefit to employees, is not liable for FBT. Further, CBDT Circular NO.8 of 2005 which specifies that expenditure even if not resulting in any benefit to employees is liable for FBT, cannot be relied upon to the disadvantage of the assessee since it is settled principle that circulars are not binding on the assessee, appellate authorities and the Courts. The proviso to section 119(1) states that no orders, instructions or directions shall be issued by the CBDT so as to require any income tax authority to make a particular assessment or dispose of a particular case in a particular manner so as to interfere with the discretion of the CIT(A) in the exercise of his appellate functions. Expenditure incurred on souvenir distributed to employees on the occasion of decennial celebration - assessee contended them to be in the nature of ‘Employee Welfare’ and not ‘Gifts’ - Held that:- Distribution of Souvenirs was made in consideration of and to recognize the efforts and contribution of employees. Thus, said expenditure cannot be regarded as ‘Gifts.’ and has been correctly treated as ‘employee welfare expenditure
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2012 (6) TMI 483
DTAA between India and Netherlands - Re-assignmnet of dredging contract being awarded by Gujarat Adani Ltd by assessee (Netherlands company) to its Indian subsidiary - reimbursement by subsidiary of expenses incurred by appellant treated as Fees for Technical services(FTS) by Revenue on ground that subsidiary has no technical expertise or any other wherewithal to carry out the contract - Held that:- Cost allocation agreement entered into between the assessee company and its Indian subsidiary has unequivocally declared that the Indian company does not have any sort of technical expertise or resources and ability to carry out the dredging contract assigned to it. It is in the light of the above declaration that the assessee company has undertaken to provide all sorts of services, wherever necessary, to execute the dredging contract. Such services include not only arranging the dredgers from abroad, but also application of technical mind to select and choose appropriate parties to execute the work entrusted to its Indian subsidiary. Also, assessee has not established that it had offered services to the subsidiary company on cost to cost basis at best reasonable and competent prices available at that point of time. Therefore, it is established that assessee had rendered technical services to its subsidiary in India and the payments were in the nature of fee for technical services - Decided in favor of Revenue. Existence of Permanent establishment - Held that:- If we pierce the veil of assignment contract and go to the root of the case, we find that there is interlacing of activities and interlocking of funds between the assessee and its Indian subsidiary in executing the dredging contract. Hence, relationship of agency is there and the existence of permanent establishment is also there. Validity of reassessment proceedings - original return processed u/s 143(1) - Held that:- When the facts of the case are so complicated and cumbersome and when the return was only processed u/s 143(1), the materials available on record along-with the return filed by the assessee themselves constituted sufficient materials in the hands of the AO to hold a reason that income had escaped assessment. Where the return was processed u/s 143(1), there is no room even for an earlier conviction. Hence, issue of notice and passing of assessment order u/s 147 is to be upheld - Decided in favor of Revenue.
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2012 (6) TMI 482
Disallowance in respect of compounding fee under the sales-tax Act, debited to the account head 'sales tax' - the assessee's contention that the compounding fee was not penal in nature, but only to avoid litigation - Held that:- As decided in Haji Aziz & Abdul Shakoor Bros v. CIT [1960 (11) TMI 15 (SC)]that only those disbursements as made for the purpose of business, i.e., that enable a person to carry on the business and to earn profit in that business would form a permissible deduction. An amount paid for infraction of law is not allowable, being not a normal incident of business.If a person carries on his business activity in a manner that renders him liable to penalty, it cannot be said to be a commercial loss, which could be claimed as a deductible expense - The finding/s by the ld. CIT(A), is, again, without any basis either in law or in fact/s - the composition fee being paid in addition to the amount of tax and interest thereon, is not understood as to how he holds that there is no difference in the amount that the assessee would have been liable to pay in any case, i.e., even if the impugned transactions were disclosed as inter-state sales in the first place, instead of, and as against, inter-branch transfers - assessee has not clarified this aspect providing for payment of fee at an amount equal to the amount of tax sought to be evaded, and to which his attention was specifically adverted to during hearing - in favour of revenue. Disallowance of freight on raw material - AO disallowed the same as being not verifiable - Held that:- CIT(A)considered the expenditure incurred represented unloading expenses on raw material as the entire amount had been paid to labour, and for which proper vouchers, though self- made, are available - against revenue. Deletion of disallowance of the assessee's claim for additional depreciation - AO contested non-furnishing of the eligibility certificate from the Chartered Accountant - Held that:- The assessee had filed eligibility certificate along with the return of income during the course of the assessment proceedings - the entire depreciation, including additional depreciation u/s. 32(1)(iia), is to be deducted in computing the 'written down value' of the relevant block of assets u/s. 43(6) the CIT(A), after admitting the assessee's claim has rightly restored the matter back to the file of the AO for the consideration of the same on merits - against revenue.
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2012 (6) TMI 481
Deferred revenue recognition - Administration/Contract Fees - AO stated that 75% of the receipts are spread over time share period to reduce its tax liability in the year of re operative receipt - Held that:- It cannot be denied that a major portion of services rendered by the assessee would be in the initial years of the time share period of 78 years, but AO’s view is not acceptable that all the services rendered to the members are completed in the first year itself and therefore the entire Administration / Contract Fee be recognised as 100% revenue in the first year of receipt - would result in a grave mismatch by the recognition of entire receipt as income in the first year and disregarding subsequent expenditure that the assessee would incur for services to be rendered to members the balance period of the time share - 50% of this Administration/Contract Fee is to be treated as income in the first two years of receipt and charged to tax @ 25% in each of the first two years and the balance 50% is to be treated as income and spread over in the remaining portion of the time share period Claim of Interest Expenditure - assessee contention that the CIT(A)erred in holding that the interest paid by the assessee to PHRC was expenditure not incurred wholly and exclusively for the purpose of business Held that:- The duties and liabilities of both the parties to the agreement viz. the assessee and PHRC are clearly laid out and there is nothing to mandate that the interest earned out of the fixed deposit representing Capital Bond Account was to be paid by the assessee to PHRC. The said deposits were to be maintained for the purpose of creation of mortgage over properties by PHRC - The assessee’s claim that the interest paid is out of interest earned on joint funds is unacceptable as the assessee had no liability or obligation to pay the same to PHRC and nor could the latter legally enforce payment of the same by the assessee. The interest on fixed deposits were received by the assessee only because of the failure of PHRC, as it did not mortgage the properties. If it had done so, the amount in the fixed deposits would have been returned - against assessee. Charge of interest u/s.234B and 234D - Held that:- The charging of interest u/s. 234B is mandatory and consequential in nature and there is no discretion in the matter and the charging of interest u/s. 234D considering the case of ITO Vs. Ekta Promoters P. Ltd [2008 (7) TMI 452 (Tri)]cancel the interest charged u/s. 234D as section 234D was brought on the statute w.e.f. 1.6.2003 cannot be applied to assessment year 2003-04 or earlier years having no retrospective effect.
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2012 (6) TMI 480
Penalty under section 271(1)(c) - Search - assessee had filed the return declaring additional income on the basis of the seized papers and documents and not on the basis of cash found - Held that:- The return of income filed in response to notice u/s 153A has been accepted by the assessing officer, thus it can neither be a case of concealment of income nor furnishing of inaccurate of particulars of such income - penalty u/s 271(1)(c) is not imposable where there is neither concealment of income nor furnishing of inaccurate particulars of income in return filed u/s 153A as decided in Commissioner of Income-tax Versus SAS Pharmaceuticals [2011 (4) TMI 888 (HC)] Provisions of Explanation 5 of section 271(1)(c) are applicable in the cases where during the course of search initiated on or before 1.6.2007 any money, bullion, jewellery or other valuable article or thing is found in the possession or under control of the assessee whereas in the case of the assessee the search was conducted on 22.11.2006 and cash of Rs. 1,11,45,350/- was found from the possession of the assessee - Explanation 5 cannot be invoked in assessment year 2004-05 merely on presumption that the assessee might have been in possession of cash throughout the period covered by search assessments - The income offered to tax u/s 153A for assessment year 2004-05 is based on entries recorded in the seized material, thus Explanation 5 cannot be invoked in assessment year 2004-05 in respect of entries recorded in seized material - in favour of assessee.
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2012 (6) TMI 479
Income from sale of Completely Knocked Down (CKD) Units – whether the provisions of Sec. 9(1)(i) are applicable or not – Held that:- The Assessee merely sells the raw materials/CKD units to DCIL who in turn carries out further activity of assembling the same and selling the finished cars. There are no further activities carried out by Appellant in India in this connection, as this transaction ends with the Appellant selling the raw materials/CKD, no income from such sale accrues or arises to the Assessee in India - Mere sale of raw materials/ components will not result in business connection and even if it does as per the terms and conditions of the contract between the Assessee and DCIL no income accrues to the Assessee on the basis of any activities carried out, on behalf of the Assessee in India – against revenue. Permanent establishment - Article 5(2) of the DTAA between India and Germany with regard to sale of CKD Units – Held that:- Merely acting for a non- resident principal would not by itself render an agent to be considered as PE for the purpose of allocating profits taxable in the hands of the principal. There should be some definite activity of the PE to which profits can he attributed, merely calling a person as agent acting on behalf of foreign non-resident would not by itself render him to be considered as an agency PE and pro tanto part of the profits of the non-resident is liable to be taxed in India – against revenue Deletion of income in respect of rights of SAP system – assessee submitted that there is no basis for the estimate made by the AO regarding royalties/ FTS income in respect of rights for software to be an ad-hoc amount of EURO 1,00,000 - Held that:- As the confirmation filed by the assessee that no payment by DCIPL in connection with right to use any software licensed by the assessee during the financial year was made before the CIT(A) was not confronted to the AO he should be afforded opportunity for examining the claim made by DCIPL before the CIT(A ) - set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in the light of the additional evidence filed – in favour of revenue for statistical purpose. Applicability of levy of Interest u/s 234B - duty is cast on the payer to pay tax at source – Held that:- As decided in DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) Versus NGC NETWORK ASIA LLC 2009 (1) TMI 174 (HC) when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee - once the Income is subjected to TDS provision, then that Is outside the provisions of the advance tax as per the mandate of Section 209 – against revenue. Penalty u/s 271(1)(c) – Held that:- As addition made by the AO treating income from sale of CBU Cars as income chargeable to tax in India and that the assessee had a PE in India was deleted by Tribunal, the very basis of imposing penalty on the assessee no longer survives – against revenue.
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2012 (6) TMI 478
Transfer pricing - arm’s length price - addition on account of adjustment in respect of transactions with Associated Enterprises by taking profit margin at 27.84% as against margin of 20.17% of the assessee - Denial of plus / minus 5 % benefit – Held that:- TPO/AO erred and the Hon'ble DRP further erred in upholding / confirming the action of the learned TPO/AO in denying the benefit / reduction of 5 percent from the arithmetic mean as provided in proviso to Section 92C(2) of the Act while computing the adjustment to the total income of the Appellant. benefit of 5% is to be allowed to assessee even in cases where difference in value of international transactions and its ALP is more than 5%, and accordingly it was held that computation made by AO is therefore required to be reworked. Regarding direction of DRP – working capital adjustment - DRP while giving direction to AO to pass assessment order specifically directed to work out the working capital adjustment but AO has failed to comply with said direction on the ground that relevant details of comparables is required and this requires an exhaustive exercise to be done before giving working capital adjustments. AO was not justified to defy the direction of DRP and not to give working capital adjustment while making addition at ALP of the transactions of assessee with AEs. matter restored to AO to work out margin of profit at ALP of all 30 comparable companies of transactions with AEs and also to give working capital adjustment
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2012 (6) TMI 477
Valuation of stock – change of method of accounting - Held that:- according to the provisions of section 145A of the Income-tax Act, 1961, for valuation of inventory, the method to be adopted is the method of accounting regularly employed by the assessee – For the determination of income chargeable under the head "Profits and gains of business or profession", the Act requires assessee to value the stock in accordance with the method of accounting regularly employed by the assessee. Once the method has been chosen it should be employed regularly by the assessee and assessee may not be permitted to change it in the subsequent years. The assessee was regularly employing the method of valuation for valuing the stock at cost or net realizable value whichever is less. By shifting to a new ERP package, for example, SAP 2 worked out the value of the stock at cost, any reduction in the valuation of the stock is not permitted in law. Decided in favor of Revenue.
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2012 (6) TMI 476
Reimbursement of expenses - Article 7 read with Article 5 of Indo-UK DTAA – Held that:- it is an undisputed position that the payment for technical services, which is sought to be brought to tax in the hands of the assessee, is in the nature of reimbursement of technical expenses to the head office. - fee for provision of marketing and management services rendered outside India not subjected to tax in India holding that the same constituted business profit not attributable to PE in India. - Decided in favor of assessee. Reimbursement of lease line charges - held that:- reimbursement of lease line charges received by the assessee from WNS India was not chargeable to tax in India. - Decided in favor of assessee. Whether reimbursement of expenses taxable as fees for technical services under 13 of the Indo-UK tax treaty - assessee-company had incurred various expenses on the employees of WNS India on their visits abroad - amount in question was received by the assessee on account of reimbursement of expenses actually incurred by it on behalf of WNS India – Held that:- exact nature of expenses and services was not ascertainable in the absence of relevant details filed by the assessee. it is necessary to ascertain the exact nature of expenses incurred by the assessee and services rendered, for which the amount in question is claimed to be received as reimbursement in order to decide the issue relating to its taxability in India. Matter remanded to Assessing Officer. assessee's appeal allowed for statistical purposes DTAA between India and UK - article 7 of the India UK treaty - income deemed to accrue or arisen in India - assessee-company took over the assets, liabilities and business of M/s Town and Country Assistances Ltd. including the BPO contracts – Held that:- transfer or assignment of the said contracts not being the capital assets situated in India did not give rise to any income which was deemed to accrue or arisen in India. assessee-company had a service PE in India as a result of marketing and management services rendered to WNS India through the deputation of personnel in India and the said PE going by its very nature having no involvement either in the acquisition of BPO contracts or assignment/transfer thereof to WNS India, the sale consideration received by the assessee outside India for assignment or transfer of BPO contracts from (sic-to) WNS India cannot be treated as income attributable to the service PE of the assessee-company in India so as to bring the same to tax in India even as per article 7 of the India UK treaty. In favor of assessee
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2012 (6) TMI 475
Penalty u/s 271(1)(c) - revenue Challenged the deletion of addition made by CIT(A) - Held that:- If any assessee offers an explanation, which is not found to be false, he can save himself of penalty even if he were not able to substantiate his case as long as he places all the relevant material - surrender was being made with a condition that no penal action will be made and to avoid further litigation and to buy peace,hence no point to levy penalty - in favour of assessee.
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2012 (6) TMI 474
Application for condonation of delay before CIT(A) - daly of 4 days - assessee contended that the officer, who had been dealing with the work of Tax Deduction at Source was transferred on 17/04/2010 and the appeal had to be filed by 08/05/2010 and that the new person was not conversant and accustomed with the day-to-day handling of the seat and had to take out details relevant for filing the appeal – Held that:- in the case of Vedabai alias Vaijayanatabai Baburao Patil (2001 - TMI - 40328 - SUPREME Court - Income Tax), In the said year the delay was of 10 days while in the assessment year 2008-2009 the number of days for delay were the same i.e., 4 days. - Delay condoned. - CIT(A) to hear the appeal on merit.
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2012 (6) TMI 473
Treatment on purchase and sale of shares as "Business Income" as against "Capital Gain" – Held that:- assessee's transaction of shares is in the nature of investment in shares and accordingly delivery based transaction in the present case is treated as those in the nature of investment and profit received is to be treated either as short-term capital gain or long-term capital gain depending upon the period of holding. CIT(A) has rightly held the transactions of the assessee as investment in shares chargeable to capital gain by taking uniformity in treatment and observing the principle of consistency, when the facts and circumstances are identical in assessee's own case in earlier years. appeals of revenue is dismissed Whether CIT(A) was wholly wrong and unjustified in confirming the arbitrary, ad hoc and estimated disallowance of expense of Rs. 2,80,686/- u/s 14A of the I.T Act @ 5% of the exempt dividend income made in the assessment merely on presumption without considering the fact that no expenditure was incurred for earning the said income and without bringing on record any material or evidence to establish the nexus between such alleged expenditure and the earning of said income – Held that:- in the case of Godrej Boyce Mfg. Co. Ltd. (2010 - TMI - 78448 - BOMBAY HIGH COURT - Income Tax), that Rule 8D is applicable for and from assessment year 2008-09 and prior to that the Assessing Officer can make estimate in the given facts and circumstances. disallowance restricted to 1% in relation to earning of exempted dividend income and direct the Assessing Officer to calculate the expenditure on that basis. This ground of assessee's cross objections is partly allowed. appeals of the revenue are dismissed and the Cross Objections of the assessee are partly allowed
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2012 (6) TMI 472
Revision u/s 263 initiated on two grounds - (i) the A.O. had not verified the applicability of sec. 92 of the Act before allowing export turnover of the assessee; and (ii) sufficient enquiry had not been carried out in respect of the lenders while allowing receipt of unsecured loans by the assessee-company to the tune of ₹ 1.63 crores. - held that:- when on the facts and circumstances of the case and evidence on record there was no requirement of taking into consideration the list of associated enterprises, more so when there was no international transaction with them, the A.O. did not commit any mistake in not asking for such list. - Revision on first ground is not valid. C.I.T. observed that the A.O. did not make proper enquiries about the creditworthiness of the lenders before accepting the loans to the assessee. - held that:- In the case of the assessee, the ld. C.I.T. could not point out as to what was the error committed by the A.O. in not having considered the applicability of Sec. 92 of the Act and in accepting the unsecured loan taken by the assessee. The ld. C.I.T. having failed to point out such error, no error can be inferred from the order of A.O. for the simple reason that the same is bereft of details. - Revision u/s 263 on second ground is also not valid. - Decided in favor of assessee.
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2012 (6) TMI 471
Whether CIT(A) erred in deleting the addition made by the AO on account of dis-allowance of expenditure on R&D being capital in nature - expenses relating to material/consumable/spares - details of material used for lab trials for process development – Held that:- All these items are in the nature of material/consumables in the process of R&D. It is not the case of the AO that the said material was not consumed in the R&D process and some part thereof was remaining in the closing stock. Therefore, this expenditure incurred on material used for lab trials cannot in any manner be considered as expenditure being in the nature of capital. no infirmity in the order of CIT(A) vide which the assessee has been held eligible for deduction of these expenditure under both the sections either u/s 35(1)(i) or u/s 37(1) of the Act. ground of the revenue is dismissed Whether CIT(A) erred in directing the AO to allow the deduction u/s 80IB of the I. T. Act, 1961 if it is otherwise allowable without appreciating the fact that the assessee has not made any such claim in its return of income – Held that:- claim was not made by the assessee in the return of income, it was also not made during the course of assessment proceedings. The facts relating to that deduction have also not been shown to be existing on record. Ld. CIT(A) without considering this aspect has directed the AO to examine the claim of the assessee in accordance with law. When the facts regarding such deduction were not available on record and the ground was also not arising out of assessment order, CIT (A) has committed an error in entertaining such ground. ground of the revenue is allowed. appeal filed by the revenue is partly allowed
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2012 (6) TMI 470
Deduction u/s 80HH - reassessment - prohibition contained in section 80HH(9A) - earlier deduction claimed u/s 80HHA - new ground before High Court - held that:- When an entirely new issue is put forward by the assessee in an appeal under section 260A, we will not be able to decide the same because such question raised by the assessee does not arise out of the orders of the Tribunal. However, based on the facts on record, we uphold the position canvassed by the Revenue that reassessments are not time barred by virtue of the non-disclosure of the claim allowed in favour of the assessee under section 80HHA for the three preceding years which disentitled her for the claim of deduction under section 80HH for the year 1992-93 or any other year. However, in view of the new case put forward by the assessee before us which was not raised before any of the lower authorities, we vacate the orders of the Tribunal and the first appellate authority and restore the reassessments with a direction to the assessee to file rectification applications within six weeks from the receipt of this judg- ment for the Assessing Officer to consider whether in the original assess- ments 1992-93 and 1993-94 and no claim was made under section 80HH and the claim made was only under section 80HHA of the Act.
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2012 (6) TMI 469
Penalty u/s 271 - concealment of income - held that:- the assessee was having excess stock of first and second class bricks which was not accounted for in the books of account. - It is true, as contended by the learned authorised representative, that penalty proceedings are different from assessment proceedings and the confirmation of addition in question does not lead to automatic con- firmation of penalty. In such circumstances, the onus is on the assessee to prove that the mischief of section 271(1)(c) is not attracted. - deletion of penalty by the first appellate authority was not justified.
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2012 (6) TMI 468
Principal of mutuality - Association - Scope of section 28(iii) - purchase and distribution of tyres, automobile spares, etc., to its own members. - the only test to consider whether the principle of mutuality applies is whether the contributors to the club or the organisation are the participants in the benefit derived from it. - Admittedly, the beneficiaries of the little profit derived by the respondent-association as in the case of the clubs are the members. In other words, the purchases made by the members lead to profit to the association which in turn goes to the members or for their own benefit. - the principle of mutuality squarely applies to the case of the respondent-association for the transactions carried on by them. Scope of section 28(iii) - held that:- the above provision does not apply to the facts of this case. The only other exception for assessment of mutual benefit concerns is only the income falling under section 2(24)(vii) which provides for assessment of profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of the provisions contained in the First Schedule to the Act. - This provision has no application so far as the respondent association is concerned. - Tribunal rightly upheld the respondent's entitlement for exemption from payment of income-tax by applying the prin- ciple of mutuality. - Decided in favor of assessee.
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2012 (6) TMI 467
Deduction u/s 80IC - Conditions - industrial undertaking - held that:- The words "profits and gains derived from Industrial Undertaking" occurring in section 80-IA of the Act were under consideration of this court in Liberty Shoes Ltd.'s case [2006 (8) TMI 163 (HC)]. - The assessee who was earning profit from business of trading activity or products of other con- cerns was held not to derive income from such industrial undertaking. Following the dictum laid down in Sterling Foods' case [1999 (4) TMI 1 (SC)] it was held that the assessee was not entitled to any benefit under the said provision. - Decided in favor of revenue.
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2012 (6) TMI 453
Undisclosed Income - Source of Investment in FDRs being in question - assessee contended that same has been invested out of the amount received as successor to will of Father-in-law - Revenue questioned genuineness of Will on ground of it being non-registered and source of investments with deceased since deceased person was never assessed to Income or Wealth tax - Held that:- Indian law only prescribes that Will should be in writing, and attested by two witness; there is no requirement of any registration or notarization thereof. In this case the Will is in writing and duly attested by two witnesses, therefore, no adverse inference can be drawn on the aspect that witness did not advice for registration of the same. Further, flow of writing as pointed out by AO cannot be held to be determinative to discard the Will, in the absence of any opinion of the handwriting expert. Moreover, genuineness of will has been confirmed by witnesses. Therefore, when the direct evidence is available the issue cannot be decided on assumption without contradicting the statements on record. Consequently the additions in respect of the amount arising out of the Will are deleted. Estimation of Agricultural Income - addition on ground of difference - AO estimated agricultural income taking the yield of 2000-01 as base year and applying the cost inflation index to it - Held that:- Report of the Investigating officer itself suggest that agricultural income at Rs. 1500/- per bigha was reasonable. AO has adopted a yardstick of estimating the agricultural income on the basis of cost inflation index which, in our considered view, may be useful for capital gain purposes but cannot be a yardstick for estimating the assessee's agricultural income. Hence, agricultural income as claimed by assessee is allowed. Advances received qua the alleged agreement to sell the land - addition made on ground of it being cash transactions and doubt about credit-worthiness of purchasers - Held that:- Excepting doubting the confirmations, additions have been made without further inquiries. therefore, we set aside these issues back to the file of AO to decide the same afresh in accordance with law.
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2012 (6) TMI 452
DTAA between India and USA - remittance of professional fees to KPMG LLP, USA being treated as 'Royalty' under Article 12 of DTAA - assessee engaged the services of KPMG Dallas to provide consultancy services and conduct negotiations with the potential parties in connection with consultancy to be given to Essar Oil Ltd for sale of its energy business - dis-allowance u/s 40(a)(ia) - Held that:- Impugned services were purely a professional service for consultancy which were rendered outside India and not for supply of scientific, technical, industrial or commercial knowledge or information. Thus, nature of payment do not fall within the meaning of Article 12 and, therefore, there was no liability to deduct TDS and consequently dis-allowance made u/s 40(a)(ia) is uncalled for. Similarly, in the case of payment made to KPMG, Canada were also purely for professional services and reimbursement of expenses, which in any manner does not fall under Article 12. Thus, on such payment also there was no liability to deduct TDS and consequently Section 40(ia) will not be applicable - Decided in favor of assessee. Bad debts - dis-allowance of professional fees and expenses not recoverable from clients claimed as Bad debts on ground of insufficient evidences placed on record - Held that:- After the amendment w.e.f. 1st April, 1989, it is not necessary for assessee to establish that the debt, in fact, has become irrecoverable, it is sufficient that the assessee has written off the bad debts in the account and the same has to be allowed. See T.R.F. Limited Vs. CIT (2010 (2) TMI 211 - SUPREME COURT ) - Deduction allowed - Decided in favor of assessee. Ad-hoc dis-allowance of 10% of sum paid as support service charges and professional fees to KCPL and KPMG u/s 40A(2)(b) - Held that:- In present case, AO has neither inquired nor brought anything on record to show that the payment is excessive as compared to unrelated parties or it was not for the legitimate needs of the business or profession of the assessee. The same does not seem to have been doubted. Thus, this matter is restored back to the file of the AO for verification and decision accordingly. Dis-allowance u/s 43B - contribution to the EPF - assessee contended allowance of expenditure in view of the second proviso to section 43B - Held that:- Since, in present case, payments have been made before the due date of filing of a return, hence in view of omission of second proviso to Section 43B and the amendment of first proviso by the Finance Act, 2003 being retrospectively effective from 1st April, 1988, dis-allowance is deleted. See CIT Vs. Alom Extrusions Ltd.(2009 (11) TMI 27 (SC)) - Decided in favor of assessee.
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2012 (6) TMI 451
Applicability of Section 206AA to persons whose income is below taxable limit - non-acceptance of Form 15G by Bank on ground of non-production of PAN - Held that:- Section 206AA makes it conditional for every person who wish to have a transaction in the bank or financial institution including small investors/depositors, invariably to have a PAN. Imposition of such condition on small depositors would cause hindrance and discourage small investors to come forward to invest their money for secured returns and as security for their future. This runs contrary to what has been contemplated u/s 139A. Hence, Section 206AA is made inapplicable to persons and read down from the Statute for whose income is less than the taxable limit. Banking and financial institutions shall not invariably insist upon PAN from such small investors as well as from persons who intend to open an account in the bank or financial institution.
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2012 (6) TMI 450
Validity of revisionary order passed by CIT u/s 263 - order passed u/s 143(3) revised on ground that expenses incurred in foreign currency for rendering technical services outside India, were not deducted from the export turnover, resulting in excess allowance of deduction u/s 10A - Loss incurred by one of the STPI units was not set off against the business profits while computing the deduction allowable u/s 10A - assessee engaged in the business of Business Process Outsourcing (BPO) - Held that:- Assessment order was passed by the Assessing Officer after examination of details called for and furnished and on application of mind. The AO has examined the aspects of computation and allowability of deduction u/s 10A and has also examined the details called for in respect of foreign currency expenses. Also, there were judicial decisions in favour of the assessee on the issues dealt with by the CIT in the order passed u/s 263 as on the date of said order and which fact has been acknowledged by the CIT. Even otherwise, the issues dealt with by the CIT in the order passed u/s 263 are capable of two views and the AO has taken one of the possible views. It is settled law that when an officer adopts one of the courses permissible in law and it has resulted in a loss of Revenue or when two views are possible and the Assessing Officer takes one view with which the CIT does not agree, the order cannot be treated as erroneous in so far as it is prejudicial to the interests of Revenue. Hence, order passed by CIT u/s 263 is without jurisdiction and liable to be quashed - Decided in favor of assessee.
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2012 (6) TMI 449
Transfer pricing - Power of the TPO for suo-moto determination of ALP in respect of international transaction which were not referred to him by the AO - Held that:- Finance Act, 2012 has amended the provisions of sec. 92CA retrospectively effective from 01.04.2002 to empower the TPO to determine the ALP of international transactions noticed by him in the course of proceedings before him, even if said transaction was not reported by the assessing officer. Appeal dismissed. Depreciation on Computer peripherals - 15% or 60% - Held that:- Assessee will be eligible for depreciation @ 60% on UPS, WAN/LAN equipment, switches, network equipment etc. Expenditure incurred on issue of mobile handsets on FOC basis to dealers for various display and promotional purposes - revenue or capital expenditure - Held that:- Since on identical issue the ITAT has set aside the matter to the file of the AO for AY 2006-07, we also set aside the issue for AY 2007-08 to the file of the AO. Transfer Pricing - benefit of working capital adjustment not allowed while computing ALP in respect of international transaction pertaining to the provisions of software development services to associated enterprises - Held that:- Matter set aside to the file of the AO with the direction to examine the case of the assessee. Further, Since DRP has used information obtained u/s 133(6) against assessee without confronting it, in our considered opinion, the assessment order needs to be set aside to the file of AO who will refer the matter to D.R.P. for providing necessary opportunity of being heard. Advertisement, marketing and promotion expenditure - adjustment - assessee submitted that AMP expenditure incurred by the assessee does not represent international transactions between the two associated enterprises within the meaning of S92B r.w.s. 92F - Held that:- There is no dispute about the fact that Finance Act, 2012 has proposed amendment in the provisions of sec. 92B by insertion of Explanation clarifying the term "International transactions". Since both the parties agreed for setting aside the issue and decide the same in the light of the amended provisions of sec. 92B by the Finance Act, 2012, we set aside the matter to the file of the AO
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2012 (6) TMI 448
Amendments to the MOA - non-existence of registration under section 12A - assessee society didn’t intimated to the Income Tax Department amendment brought in its memorandum and rules & regulations for a period of three years – Held that:- The registration granted under section 12A and the benefits flowing therefrom cannot be extended to the amended objects of the society unless the DIT examines the same and comes to a conclusion that the registration under section 12A can be extended to the revised objects, memorandum and by-laws - illogical to hold that once an institution is registered under section 12A, no matter whatever may be the changes in the objects, rules and regulations, for any number of times, the institution should be given the benefit of section 11 to 13, in view of the original registration granted under section 12A - the assessee society should approach the registering authority with the changes and amendments so that the authorities could examine as to whether the amendments in question meet the requirement of law - the letter dated 18th November 2009 is only advisory in nature and is not an exercise of a statutory power withdrawing or cancelling of registration under section 12A – against assessee.
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2012 (6) TMI 447
Search action u/s. 132 – Assessment completed u/s. 143(3) r.w.s. 158BC – AO rejected books of account of the assessee – AO estimated the income at 10% citing two comparable cases – AO estimated the undisclosed income from construction activity for the block period and addition to this being interest accrued on amount advanced on the basis of calculations shown in the loose sheets – Held that:- No specific reason has been given for applying the flat rate of 10% except stating that considering the nature of contract works executed by the assessee-company and the percentage of income admitted for other A.Ys. and also for the percentage of income admitted by other two comparable cases - considering two comparable cases relied to estimate the income, carry on business in one line viz. construction of irrigation works such as dams, canals, etc. which is not strictly comparable with the business of the appellant. As to the percentage of net profit amongst the two concerns there is a variation of 4.15% approximately - therefore the estimation of the rate of net profit @ 10% by the AO is arbitrary, not proper, not correct and illusory as the comparison relied upon by the assessing officer is without any basis and not in any way nearer to the facts of the appellant's case. No material was found during the search which could show suppression of income, no estimation of undisclosed income of block period by resorting to Section 145 could be made - a lower rate of gross profit declared by the assessee as compared to the previous year, would not by itself be sufficient to justify any addition - there is a reasonable cause for declining in net profit rate explained by assessee and it is found to be genuine. The low profit rate itself cannot be the reason for rejecting the books of accounts more so in the block assessment. The addition is not based on seized material to estimate the turnover and thereby estimate the income. Similarly, expenditure claimed in the regular returns, cannot be disallowed in the block assessment consequent to the search action as the disallowance, and at the best, it could be the subject matter in regular assessment not in the block assessment. Estimation of income on contracts which are disclosed in the regular books of accounts cannot be disturbed in the block period, and at best it could be the subject matter of regular assessment only - inclined to hold that the CIT(A) is not justified in giving the direction to assessing officer for the Assessment Year 2001-02 and for part period from 01.04.2001 to 20.12.2001 to determine the undisclosed income at 6.5% before depreciation as against 4.49% for the assessment year 2001-02 and 5.59% for part period from 01.04.2001 to 20.12.2001 declared by the assessee. Accordingly, the ground raised by the assessee is allowed. Department allegation that seized material reflected money advanced by the assessee and interest accrued thereon – Held that:- Revenue not able to unearth any background with regard to accrual of real income - There is no evidence as to whether he paid the interest. The department cannot draw inference on the basis of suspicion, conjuncture and surmise. The assessing officer without examining concerned party, who has received advance from the assessee, cannot come to the conclusion that the assessee has received interest on the basis for addition is only note book/loose slips. which are unsigned documents – thus revenue unable to established nexus between the note book/loose slips with actual accrual/ receipt of interest – in favour of assessee.
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2012 (6) TMI 446
Royalty - transfer of the right to use the software/computer programme - Held that:- As decided in CIT v. Samsung Electronics (P.) Ltd.[2011 (10) TMI 195 (HC)]that consideration paid by the Indian customers or end users to the assessee a foreign supplier, for transfer of the right to use the software/computer programme in respect of the copyrights falls within the mischief of 'royalty' as defined under sub-clause (v) to Explanation 2 to clause (vi) of section 9(1)- against assessee.
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2012 (6) TMI 445
Denial of claim of the assessee for deduction on account of bad debt –assessee contented that the assessee did not claim any deduction on account of bad debts in assessment year 2004-05 though a provision was made in the books of account – Held that:- Since assessee in assessment year 2004-05 reduced a sum of ₹ 70,00,000/- in the balance-sheet from the sundry debtors, the sundry debtors account was not credited and closed - The assessee made a provision for doubtful debts in the books of account but in computation of income filed along with the return of income for assessment year 2004-05 added to the profit as per P & L account the provision for doubtful debts - though the Assessee had not claimed deduction on account of bad debts in AY 04-05 there is no double deduction claimed - the claim of the Assessee deserves to be accepted as if the claim is not allowed, then it would amount to double taxation – in favour of assessee.
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2012 (6) TMI 444
Valuation of Shares – Revenue contented against the ITAT Order the shares held by the assessee at the end of the year should be valued as per market rate and the consequential loss should be allowed as a business loss – Held that:- The assessee carrying on the business in sale of shares held to be stock-in-trade and not by way of investment – as the value of stock-in-trade is reduced because of market conditions as the said shares were held as stock-in-trade, the assessee suffered a loss in the business and therefore the assessee was entitled to claim business loss - The valuation of stock is cost or market value whichever is lower is settled position of law – in favour of assessee. Accounting of interest received on loans and advances – to be on receipt basis or accrual basis as per the regular mercantile system of accounting maintained by the assessee – Held that:- The interest on which the tax is levied is an income shown to be due from non-performing asset and once a particular asset is shown to be a non-performing asset then the assumption is that it does not yield any revenue - If it is not yielding any revenue, the question of showing that Revenue and paying tax would not arise - unless that amount is received no tax is payable - in favour of the assessee
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2012 (6) TMI 443
Capital or Revenue - Treatment of 'books' as 'plant' entitled to depreciation under section 32(1) of the Act, i.e., in contradistinction to being a revenue expenditure - assessee is a partnership firm engaged in running coaching classes for entrance examinations – Held that:- where the article being used is the same (books), and the purpose for which it is used also the same, i.e., for imbibing knowledge and understanding the subject, as well as teaching it, capital expenditure would not become revenue, depending upon whether the income is considered as arising from exercise of profession or undertaking a business; the purpose of expenditure being the same, as also its contribution to the earning of the income or the income generating process. books, if not used in carrying on a profession (or a specified business), would carry the general depreciation rate of 25%, and not operate to alter the character of the expenditure to a revenue expenditure Disallowance under section 40A(3) of the Act - AO found the assessee to have made cash payments in excess of Rs. 20,000/- in respect of several purchases for awards, the aggregate expenditure under which head stood claimed at Rs. 14.19 lakhs – Held that:- it does not take much strain to infer that the books of account stand manipulated to reflect the impugned payments in installments of Rs. 20,000/- in an orchestrated manner to apparently accord with the provision of law, so as to circumvent its rigour and effect, i.e., as contended by the Revenue, so that its findings cannot be faulted with. In the case of McDowell Co. Ltd. (1985 - TMI - 40038 - SUPREME Court - VAT and Sales Tax), it stands held that there was as much moral sanction behind the taxation laws as is behind any other welfare legislation, and that it stood on no less a moral plane than honest payment of tax. That, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provision should be construed literally or liberally nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it. It is up to the court to take stock to determine the nature of the legal device to avoid the tax and expose the same for what it really is and to refuse to give judicial benediction to it
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2012 (6) TMI 442
Writ petition - whether the Excise and Customs Department of the Central Government have priority over the secured debt of the 1st respondent - financial institution – Held that:- are no specific provisions under the Central Excise Act or the Customs Act to claim first charge, as provided under other enactments, the Full Bench held that generally the dues to the Government i.e. tax, duties, etc. (Crown's debts) get priority over ordinary debts; only when there is a specific provision in the statute claiming first charge over the property, the Crown's debt is entitled to have priority over the claim of others. In absence of any such provision to claim first charge, the Government cannot claim precedence under the Central Excise Act over the claim of the secured creditor under the SARFAESI Act, 2002. Customs Department cannot claim any priority of claim over the claim of the secured creditor, the 1st respondent - financial institution.
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2012 (6) TMI 441
Penalty - penalty proceedings under s. 271(1)(c) of the Act were initiated and notice under s. 274 r/w s. 271 of the Act was issued to the assessee for furnishing inaccurate particulars of loss - AO categorically stated in the penalty order that "The assessee has not discharged its onus that the wrong/inadmissible expenses is a bona fide mistake rather than done intentionally – Held that:- in the case of Reliance Petroproducts (P) Ltd. [2010 (3) TMI 80 - SUPREME COURT ] mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. appeal is dismissed
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2012 (6) TMI 440
Addition on account of sale of TDR - slum rehabilitation project. - AO observed that TDR was nothing but FSI granted by SRA which could be used by recipient for construction of flats /premises in Mumbai. – Held that:- approach adopted by the Assessing Officer for assessing the income from TDR independently without deducting the expenses incurred is not justified. - The assessee has been following project completion method which is an accepted method of accounting in construction business and also recommended as per accounting standard AS-7 of ICAI. Therefore, in such cases the income from the project has to be computed in the year of completion. The TDRs received are directly linked to the execution of the project and therefore, before the completion of the project the income from TDR or any other receipt inextricably linked to the project will only go to reduce costs of the project. order of CIT (A) deleting the addition confirmed. - appeal of the revenue for the Assessment Year 2006-07 is dismissed
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2012 (6) TMI 439
Person liable to tax - cash credit - owner - assessee or his son - held that:- there is a concerted attempt by the father and the son to suppress income and one is trying to put the blame on the other. In the process both of them are not willing to offer the said income for tax under the Act. - As the said amount was credited to the bank account of the assessee which is also reflected in the statement of books of the assessee and the explanation offered by him is not consistent, subsequently the said amount is not repaid and there are contradictions in his statement and the statement of his son, apart from other two persons from whom the money is said to have flown, we are satisfied that all the ingredients of section 68 are attracted. The burden of showing the nature and source of income was squarely on the assessee. In the facts of the case, he has miserably failed to prove the said fact. Therefore, the impugned order passed by the Tribunal cannot be sustained and accordingly it is set aside. The first substantial question of law framed in this regard is answered in favour of the Revenue and against the assessee. Enhancement of assessed income - jurisdiction of CIT(A) to enhance - held that:- the first appellate authority gave an opportunity to the assessee to explain those receipts, called upon the Assessing Officer to hold an enquiry and submit a report. In the report submitted it became evident that except the aforesaid payment of Rs. 40 lakhs in respect of all other payments, the creditors stood by the said payment. Only in respect of this disputed payment, in the first place there is a difference in the name. After the person was identified he gave a statement denying the said pay- ment, denied knowing the assessee at all. The assessee was given an opportunity to cross-examine the said Rajanna who was extensively cross- examined. It is after all this exercise, the appellate authority held that the explanation offered by the assessee is not satisfactory and, therefore, he has failed to disclose the nature and source of income and, section 68 is attracted. Therefore, it cannot be said that the appellate authority had no jurisdiction to go into the said matter, add the said income and enhance the tax. The Tribunal was wholly in error in its approach in so far as the jurisdiction of the appellate authority is concerned. As the judgment relied on by the Tribunal is set aside by the apex court, the order passed by the first appellate authority is valid and legal and the same is restored.
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2012 (6) TMI 438
Penalties u/s 271(1)(c) - held that:- there was no mens rea for concealment of income which had formed the basis for making additions to the income of the assessee. The assessee had disclosed the G. P. rate of 22 per cent. in the revised return and on that basis the intentional concealment could not be held. Further, the Assessing Officer had not found any sales or purchases outside the books of account and if there had been any intention in the mind of the assessee, the latter would have erased those cuttings. - no penalty - decided in favor of assessee.
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2012 (6) TMI 437
Reassessment u/s 147 / 148 - deduction claimed u/s 80HHC - Explanation (baa) - Whether the appellate authorities were correct in holding that wages, appraisal charges, repairs and renewals charges, received by the assessee cannot be reduced by 90 per cent. from the profits and gains of business as contemplated under Explanation (baa) read with section 80HHC(3)(c) of the Act for the purpose of granting deduction under section 80HHC(1) of the Act where the assessee had exported goods manufactured/processed/traded by it in India? - Whether the appellate authorities were correct in taking into consideration irrelevant circumstances like direct nexus between pay- ments and receipts positive and negative income instead of adopting the mandatory method of computation prescribed under section 80HHC of the Act for claiming deductions on exports manufactured/ processed/traded in India? The appellate authorities were justified in allowing the deduction under the head by setting aside the order of the assessing authority and were of the view that the assessee has to first prove that it was a trade debt and, secondly, it was irrecoverable and, thirdly, it was actually written off. Therefore, the said substantial questions of law are answered against the Revenue and in favour of the assessee. - Decision in f CIT v. Shri Ram Honda Power Equip [2007 (1) TMI 86 (HC)] followed.
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2012 (6) TMI 436
Expenses incurred for imparting technical know-how - whether entire expenditure is allowable instead of one-sixth - assessee had to directly bear the air fare and other travelling and living expenses of each such technician - assessee had to pay Molex, fees as was mutually agreed and as was permissible, per man for each day. The said payment was in addition to the air fare and other travelling living expenses of the technicians to be borne directly by the licensee. - held that:- In the case of imparting this technical know-how, firstly, there is no lump sum payment. Imparting know-how to the assessee's personnel would arise only after acquiring the know-how and, therefore, this imparting is distinct from acquisition of know-how though both of them are for the use of the assessees' business. As rightly held by the Tribunal, it is in the nature of a revenue expenditure incurred by the assessees in its business after acquiring the know-how for a lump sum consideration. Therefore, the entire amount has to be deducted under section 37(1) of the Act and it does not fall under section 35AB. - Decided in favor of assessee.
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2012 (6) TMI 435
Method of accounting - mercantile or accrual basis of accounting - held that:- Whether the method of accounting referred to in section 145 of the Income-tax Act, 1961, prior to its substitution by the Finance Act, 1995, with effect from April 1, 1997, included the hybrid or mixed system of accounting and it was open to a company assessee to follow the cash system of accounting in respect of a particular source of income and the mercantile system in respect of the others? - Whether the provisions of section 209(3) of the Companies Act, 1956 as amended by the Companies (Amendment) Act, 1988 have any overriding effect on the provisions of section 145 of the Income- tax Act, 1961? Held that:- the provisions of the Companies Act are meant for the requirement of the Companies Act and in case of infraction thereof necessary consequence as provided in the Companies Act itself follows. - Tribunal had no justification to discard the mixed accounting system resorting to the amended provision of the said Companies Act. - Decided in favor of assessee.
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2012 (6) TMI 434
Reassessment - wrong deduction u/s 80IB - held that:- The law regarding reopening of assessment is very strict. If an assessment could have been done but has not been done or erroneously done it cannot be done after expiry of the prescribed time limit. Exception can be made in very special circumstances. f the Assessing Officers had not questioned the entitlement of the assessee to deduction under section 80-IB in the assessment years in question, it was their mistake. All information regarding the alleged manufacturing process of the assessee was before them. After the time limit for making assessment or reassessment has long expired, the Revenue cannot turn round, take recourse to an extraordinary provision which is section 147 and attempt to reopen concluded assessments. If such exercise is permitted that would be quite contrary to the intention of the Act. - Decided in favor of assessee.
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Customs
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2012 (6) TMI 466
Revocation of CHA licence - alleged violation of Regulations 13(d), 13(n) and 19(8) of the CHALR, 2004 - non- verification of contents of export - Held that:- It is found that findings of the Commissioner of Customs in the case of Daroowala Bros and Co., wherein it was held that CHA has performed their job in a casual manner and CHA licence was made operative by forfeiting the security deposit, and in the appellant's case are almost identical. However, in both the cases treatments given are different. The Commissioner of Customs (General) should maintain consistency in passing the orders/decisions and should not follow the policy of pick and choose. In this case, Commissioner of Customs (General) has followed the policy of pick and choose and there is no consistency in decision while dealing the same situation, thereby he revoked the CHA licence of the appellant which cannot be permitted. We do not find any merit in the impugned order, the same is set aside.
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2012 (6) TMI 432
Recovery of excess duty draw back - The appellant made an application for draw back under Rule 6 - entitlement to claim draw back in respect of IC Diesel Engines exported in terms of Rule 7 - department alleged the claim to fall under Rule 3 of Draw Back Rules – Held that:- It may be noted that all the conditions to be complied with for determination of the drawback rate under Rule 6 and Rule 7 are the same and therefore, the claim should not be rejected only on the ground that the claim was filed under Rule 6 instead of Rule 7 - to claim the benefit under Rule 7, certain terms and conditions have been prescribed and it is for the department to verify the claim of the appellant whether he satisfies prescribed the terms and conditions - matter needs to be remanded back to the adjudicating authority for consideration afresh of the claim of the appellant for sanction of draw back under Rule 7 of the Draw Back Rules and if the appellant is found to be eligible, then sanction the same as per law - the department’s out-right rejection without verification is unacceptable.
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Corporate Laws
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2012 (6) TMI 485
The company raised a huge amount - violation of sections 11(b) and 12(1b) of the SEBI Act, 1992, read with articles 5, 68, 73 and 74 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 - an offence punishable under section 24 of the SEBI Act was committed. - held that:- The offence is to continue with the scheme post March 31, 2000, in spite of the scheme not being registered and the deposits not returned to the investors. - it has been averred that as directors of accused No. 1, accused No. 2 to accused No. 11 were the persons in charge of and responsible for the conduct of the business of accused No. 1 and thus were liable for the violations committed by accused No. 1, as provided by section 27 of the SEBI Act, 1992.
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2012 (6) TMI 465
Lifting of Corporate Veil - Petition against order of Trial Court decreeing the suit of the respondent on a dishonoured cheque by dismissing the leave to defend application - dishonour of cheque issued for repayment of loan - appellant denied transaction of loan and contended that same had been issued to respondent to arrange for services of a corporate consultant - appellant- company also contended that directors/shareholders could not be made liable for the dues of the company - Held that:- Trial Court has rightly held that the defence is moonshine inasmuch as admittedly there was no written agreement qua the story of appointment of corporate consultant, and it was difficult to believe that the appellants did not protest in writing to the respondent even after the services of a corporate consultant were not provided. It was also observed that the company is an alter ego of the appellants no. 2 and 3(husband- wife who own company), and on the corporate veil being lifted, it would become clear that the corporate entity was used to defraud people and not encourage trade and commerce. Hence, all the three defendants are liable to pay the cheque amount of Rs. 3 lacs jointly and severally. Also, as per Section 70 of the Contract Act, 1872, and which provision deals with quasi contract i.e. where there is no contract, it is provided that anyone who receives benefits of monies, in fact must repay back those monies. Hence, all the three defendants are liable to pay the cheque amount of Rs. 3 lacs with interest of 18% p.a jointly and severally. Trail Court's order upheld.
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2012 (6) TMI 464
Winding up - petitioner-company acted as an agent to forward and custom clear respondent's cargo for voyages to its various clients abroad. However, the respondent had failed to pay the invoices in spite of repeated requests – Held that:- no agreement between the respondent and the petitioner-company. There is an agreement between the petitioner and the 'H' for payment of freight charges and respondent is not liable to pay the amount. as per the order issued by the 'H', they will stitch the garments as per their specifications and supply the same to their agents in India, the agents in India in turn will ship the materials to its destinations and there is no responsibility of the respondent to pay any charges. in the absence of any contract between the petitioner and the respondent, the petitioner cannot insist upon the respondent to pay the debts of 'H'. company petition is to be dismissed
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2012 (6) TMI 431
Enforceability of Arbitration agreement on the death of a named arbitrator - petitioner on ground of arbitration clause having no life questions entertaining of application preferred u/s 11 of the Arbitration and Conciliation Act, 1996 - Held that:- Time factor mentioned in the arbitration clause "at any time" is a clear indication of the intention of the parties. "At any time" expresses a time when an event takes place expressing a particular state or condition that is when the dispute or difference arises. The arbitration clause 21 has no nexus with the life time of the named arbitrator. Arbitration clause would have life so long as any question or dispute or difference between the parties exists unless the language of the clause clearly expresses an intention to the contrary. Hence, clause 21 does not prohibit or debar the parties in appointing a substitute arbitrator in place of the named arbitrators. Therefore, High Court was justified in entertaining such an application and appointing arbitrator to adjudicate the dispute and difference between the parties - Petition dismissed.
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2012 (6) TMI 430
Writ petition - praying for direction to respondent to include the advocates/corporate advocates in the list of practicing professionals and enable them to issue various certificates integrated into various e-forms notified under the Companies Act, 1956 and the Limited Liability Partnership Act, 2008 – Held that:- authentication or certification is required to be made by company secretaries, chartered accountants and costs accountants. prayer made by the petitioner could not be accepted.
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FEMA
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2012 (6) TMI 433
Writ petition for declaring sections 5(1) and 5(4) of the Foreign Contribution (Regulation) Act, 2010 and Rules 3(i), 3(v) and 3(vi ) of the Foreign Contribution (Regulation) Rules, 2011 (for short, 'the 2011 Rules') as ultra vires the Articles 14, 19(1)(a), 19(1)( c) and 21 of the Constitution of India. Held that:- Reading the Rule as a whole, we really fail to fathom, how it can be urged that it travels beyond the statutory provision. What is urged before us is that the right to raise the voice of the people to advance public causes is curtailed. The provision under section 5(1) carves out an exception when an organisation can be notified and thereafter barred from accepting foreign contribution section 3(1)(f), section 5(1) and Rule 3 have to be read together in harmony. The Rule effectuates the two sections and complements them. The Rule at every place refers to the political actions. Therefore, the Rule, according to us, is within the rule making power of the statutory authority. It confirms to the provisions of the statute and comes within the scope of purview of the rule making power of the authority of framing the Rule. Therefore, the Rules cannot be declared as ultra vires the Act. It is trite law that there is a distinction between conferment of power and exercise of power. If the power by an authority is not properly exercised, the same can always be assailed in a court of law. It has nothing to do as regards the constitutional validity of a Rule or a guideline. The apprehension in the mind of the petitioner that there would be abuse of power and some organizations may be unnecessarily harassed, we are disposed to think, is not to be taken note of while dealing with the validity of a statutory provision or the Rule made thereunder. The same shall be subject to judicial scrutiny when the order is passed. Thus, the aforesaid submission, being bereft of merit, is rejected. Ex-consequenti, the writ petition, being sans substratum, stands dismissed without any order as to costs.
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Service Tax
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2012 (6) TMI 491
"Erection and commercial and industrial construction service" as also "work contract"- the appellant has two units - demand raised as absence of option exercised by the appellant before they started paying duty under the works contract - Held that:- consideration clarification issued by the CBEC vide their D.O.F.NO.334/12/09-TRU dt.6.7.09. It stands clarified that the service provider who paid service tax prior to 1.6.07 for taxable service such as erection, commissioning or installation service, commercial or industrial construction services or construction of complexes services, as the case may be, is not entitled to change classification to single composite service for the purpose of payment of service tax prior to 1.6.07 and hence is not entitled to the benefit of composite scheme - the appellant has not been able to make out prima a case in its favour so as to allow stay petition - direct the appellant to deposit an amount of Rs.15 lakh as pre-deposit.
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2012 (6) TMI 490
Service of renting of immovable property - demand of service tax - Held that:- Considering the definition of immovable property, the same does not include building used solely for residential purposes and building used for the purpose of accommodation including hotels, hostels, boarding houses, holidays accommodation, tents, camping facility etc.- in favour of assessee.
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2012 (6) TMI 489
Waiver of pre-deposit - maintenance and repair service – applicant is engaged in repairing and overhauling various aircrafts for Indian Air Force, Indian Army, Coastguard, Navy and for other civilian customers in the Aviation Industry – whether the value of materials used for providing the said services should be included or not – Held that:- value of materials supplied while rendering such services need not be included. Pre-deposit waived.
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2012 (6) TMI 488
Waiver of pre-deposit - demand of service tax is for the period from 10.9.2004 to 31.3.2006 and the same was confirmed against the appellant by the original authority in adjudication of a show-cause notice which was issued on 26.11.2008 invoking the extended period of limitation –SCN merely mentions non-declaration of P & T charges collected from customers for providing Banking and Other Financial Services in ST-3 returns – Held that:- show-cause notice which was issued in November 2008 did not specifically allege any suppression of such fact with intent to evade payment of service tax. Hence there will be waiver of pre-deposit.
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2012 (6) TMI 487
Waiver of predeposit - On the one hand, Form No.ST-4 was used by the party and, on the other hand, Section 35 of the Central Excise Act was mentioned in the cause title of the appeal. The COD application filed before the Commissioner (Appeals) did not make any mention of sub-section 3 of Section 85 of the Finance Act, 1994 – Held that:- appellant was obviously confused as to what provisions of law were to be selectively invoked. Matter remanded to Commissioner (Appeals) to reconsider the COD application filed by the party.
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2012 (6) TMI 486
Cenvat credit on services rendered by the CHA – Input credit - Held that:- cenvat credit in respect of services rendered by CHA is admissible to the appellants.
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2012 (6) TMI 458
Notification No.4/2004-ST - alleged wrong availment of said Notification for the CHA services rendered outside the unit situated at Special Economic Zone, Chennai - demand together with interest and penalty u/s 76 & 78 imposed - Held that:- Notification No.4/2004-ST being a conditional exemption notification issued u/s 93 of the Finance Act 1994, exempting taxable services provided to developer of a SEZ or a unit in the SEZ by any service provider for consumption of service within such SEZ, cannot be interpreted on the basis of the provisions of SEZ Act, 2005 or the Rules made thereunder and the conditions specified therein have to be fully satisfied for availing the benefit under the said notification. Further, the notification came into force much before the Special Economics Zone Act or the Rules made there under came into force. Therefore, exemption will not be available if the services are consumed elsewhere than in the SEZ. Accordingly, appellant directed to make a pre-deposit of Rs.1.00 Crore within a period of eight weeks and report compliance - Decided against assessee.
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2012 (6) TMI 457
Extended period of limitation - assessee contended that SCN is time barred as earlier SCN dated 31/8/04 had been issued on the same ground for demand hence extended period of limitation cannot be invoked - Held that:- When the activity of the appellant was fully known to the department and earlier a SCN dated 31/8/04 had been issued for demanding service tax for the period from 1/4/02 to 31/12/03, the department cannot accuse the appellant of suppression of fact for the subsequent period, even if they did not pay the service tax or filed the returns, as the department could have searched their premises and obtained the required information. Hence, for demand of non-paid service tax for the subsequent period from February 2004 to 31/3/05, the longer limitation period under proviso to Section 73 (1) would not be applicable. Since SCN for this period has been issued on 15/10/07, the same is time barred hence, demand is not sustainable on the ground of limitation - Decided in favor of assessee.
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2012 (6) TMI 456
Waiver of pre-deposit - Commercial Training and Coaching Service - appellant was engaged in the activity of providing training courses on English, German, French, etc. - they were under the impression that their activity fell in the category of Vocational Training Course and hence exempted from payment of Service Tax – Held that:- Board's Circular No.59/8/2003-ST dated 20.6.2003 wherein it was clarified that vocational coaching and training services provided by foreign language institutes would not be chargeable to Service Tax on account of exemption under Notification No.9/2003-ST. They cannot be held to have suppressed any fact with intent to evade payment of Service Tax. - Extended period of limitation, prima facie, is not invocable. Waiver of pre-deposit granted.
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2012 (6) TMI 455
Waiver of pre-deposit - overriding commission from the foreign company - demanded Service Tax – Held that:- no categorical finding as to whether the service rendered by the appellant was received by the foreign company or not. - Appellant is supported by Board's circular and Rule 3(1)(iii) read with Rule 4 of the Export of Service Rules, 2005. Waiver of pre-deposit granted.
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2012 (6) TMI 454
Intellectual property right service - Exemption under Notification 12/2003-ST - deduction of goods sold from gross value - The Appellants owned the trade Mark "EICHER" registered in India in respect of Tractors. They entered into an agreement dated 27-05-2005 for permitting M/s Tafe Motors and Tractors Limited (TMTL) and received Rs.39.60 crores in consideration of such transfer. They did not pay any service tax on this amount. Held that:- When the contract is read as a whole it is indeed a contract for transfer of the right to use the Trademark for limited purposes but on a permanent basis. The fact that certain post transfer conditions are attached to transfer of the right does not change the nature of the contract. A person selling a particular product to a dealer may impose post sale conditions like he should not re-sell the goods in loose forms, the dealer should sell the product only from a premises displaying the name of the manufacturer, the dealer should not re-sell the goods in other than specified territories or that he should not resell the goods or to the effect that the goods sold should be used only for a specified purpose only does not alter the nature of the transaction as a sale. So the transaction would not be covered by clause (a) of section 65 (55b). But we do not see any reason why the transaction would not be covered by clause (b) section 65 (55b). So the transaction amounts to Intellectual Property Service. Definition of sale in section 2 (h) of Central Excise Act - held that:- This provisions can not be interpreted to mean that provisions that are relevant for tangible goods will apply for intangible goods when the subject involved requires a distinction to be made. Definition of sale in section 4 of Sale of Goods Act, 1930 - held that:- The goods namely the Trade Mark "Eicher" continues to be the property of the transferor or more appropriately the licensor which is the word used in the concerned agreement. Secondly an agreement to sell become a sale only when all the conditions of the agreement are complied with. In this case there are conditions to be complied with by the Appellants in perpetuity and at no point of time the conditions be considered to be fully complied with. There is no sale involved and the appellants are not entitled to the benefits under Notification 12/2003 is a valid argument.
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Central Excise
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2012 (6) TMI 463
Remission of duty - loss of goods due of fire - Demand imposed on assumption that appellants have claimed insurance loss on goods, semi-finished goods and waste and combined due to fire whereas no duty is paid on the said goods - Held that:- Demand of duty is linked with the remission of duty. Undisputedly the application for remission of duty is not yet decided, hence, case is remanded to lower adjudicating authority to decide the issue after the disposal of the application for remission. Since case pertains to year 1986-87, Commissioner is directed to dispose of remission application within 4 months from the date of receipt of this order and lower adjudicating authority should decide the demand cum Show Cause Notice within 1 month from the date of disposal of the remission application.
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2012 (6) TMI 462
Plea for waiver of pre-deposit of duty and penalty of equal amount u/s 11AC - dismissal of appeal by Commissioner(Appeals) for non-compliance with the provisions of section 35F - assessee contended that CENVAT Credit has been disallowed only on the ground that their supplier which is a SEZ Unit is not required to pay duty, therefore credit is not admissible whereas no action has been taken against their supplier - Held that:- Since Commissioner(Appeals) has not decided the issues on merits. Therefore the case is remanded to Commissioner(Appeals) for deciding the issue on its merits without insisting for any further pre-deposit.
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2012 (6) TMI 461
Cenvat credit – input received in factory – Held that:- Merely because the corporate office address is given in the invoice, cannot be made the reason to deny the credit otherwise available to the assessee. Appeals allowed
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2012 (6) TMI 460
Cenvat credit - outward transportation of goods up to the place of their buyers - supplies made by them to their buyers of FOR destination basis – Held that:- Assessee is eligible for cenvat credit for the period prior to 1.4.2008. Appeal is allowed
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2012 (6) TMI 459
SSI Exemption - Deemed export - Value of clearance - Whether the value of "deemed exports" has to be included in the calculation of aggregate value of clearances for the benefit of exemption in terms of SSI Notification No.1/93 – Held that:- Value of "Deemed Exports" is to be included in the calculation of aggregate value of clearances for extending the benefit of exemption in terms of Notification No.1/93-CE – In favor of Revenue. Whether Deemed Exports can be equated with clearances for home-consumption or the same have to be treated as exports - "Deemed Exports" cannot be equated as "exports" for each and every purpose and, therefore, the benefits available for "deemed exports" shall be only those specifically provided under the EXIM Policy - In favor of Revenue.
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2012 (6) TMI 429
Classification of Honing Machine - Revenue contended that Honing Stones are classifiable under chapter 6801.90 therefore they are not eligible for the CENVAT - period involved September, 2000 to June, 2003 - Held that:- It is undisputed that Honing Machine is classifiable under chapter sub-heading 8460 which is covered under sub clause 1 of Rule 57AA of the erstwhile Central Excise Rules, 1944. Also, Honing Machine is used for smoothing and polishing the outer surface of ball bearing. In case the outer surface is not smoothened it would adversely effect the performance of the ball bearing. Tribunal in the case of Gotze India Ltd. vs CCE has held that Honing Stone is similar to grinding wheel in so far as the function is concerned and accordingly they allowed the CENVAT Credit on the same and which was upheld by larger Bench in the case of Rathi Udyog Ltd (2000 (5) TMI 73 (Tri)). Therefore, order of Commissioner is set aside and appeal is allowed in favor of assessee with consequential relief, if any.
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2012 (6) TMI 428
Removal of chemical solvent/industrial chemicals without raising any central excise invoice or paying any central excise duty – assessee contested that he was unaware that central excise duty is to be paid on manufacture of the chemical solvent since only physical mixing of various inputs is involved in their case - Commissioner(Appeals) accepted the classification of the goods and set aside the demand and penalty - Held that:- At no stage the assessee informed the department regarding the activity undertaken by them for manufacture of industrial solvents - they have been filing classification declarations from time to time but have not been able to show that they have disclosed in those declarations about the activities undertaken by them- since assessee have not been able to establish that they had bona fide belief as they have not been able to show that they had approached to the department or disclosed these activities undertaken by them – Comm.(A) has not given any finding on this aspect and he has straightway drawn inference that the respondent’s CENVAT Credit is more than the duty liability of the respondent - the case is remanded to the Commissioner(Appeals) to decide the issue afresh – in favour of Revenue by way of remand.
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2012 (6) TMI 427
Cenvat credit – Welding Electrodes used for repair and maintenance of the plant and machinery – Held that:- In the case of Ambuja Cements Eastern Ltd. (2010 (4) TMI 429 (HC), Cenvat credit is available.
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2012 (6) TMI 426
Confiscation - redemption fine and penalty - Assembly of cars - assembly of car from the component parts amounts to manufacture under Section 2(f) of the Central Excise of the Act and excise duty is liable to be charged on such assembly – Held that:- Once a manufacturing activity is undertaken for manufacture of excisable goods, the manufacturer is required to obtain a licence from the Central Excise department under Rule 174 of the Central Excise Rules and if any manufacturing activity is undertaken without a licence from the department, there is a contravention of the Central Excise Rules and the excisable goods so manufactured are liable for confiscation under Ruled 173Q(1)(c) as existing at that time. Section 11AC was not in existence at the time of this manufacturing activity undertaken by the appellant. Therefore, the absence of the condition of Section 11AC will not have any effect on the confiscation of the goods. Order of confiscation of the impugned cars and the consequential imposition of redemption fine and penalty upheld.
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2012 (6) TMI 425
Cenvat Credit - Input service of photography - manufacture of colour picture tube - held that:- there is no scope to hold that the/photography service was (essential and inevitable as well as indispensable for manufacture of picture tube. - Credit denied - however penalty redeuced.
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