TMI Tax Updates - e-Newsletter
June 22, 2015
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Highlights / Catch Notes
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Income Tax:
Entitlement to Exemption u/s 10B - whether assessee is not a manufacturer? - heat treated emblem was given on some of the garments, ironing was made, packing of garments was also made on different garments. - Held as a manufacturing activity - HC
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Income Tax:
Interest under Section 244A on refund - benefit of MAT credit under Section 115JAA - the MAT credit that is available should be allowed to set off and thereafter the tax liability has to be determined taking note of the Advance Tax paid and the TDS available. - HC
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Income Tax:
Royalty - the designs and drawings sold by the assessee tantamounts to the use of copyrighted article rather than use of a copyright and is, therefore, in the nature of business income - AT
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Income Tax:
Taxability of supply of equipment in India - India-Germany DTAA - there is no concept called sale PE under DTAA. - the profit arising to the assessee from sale of equipment is not taxable in India - AT
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Income Tax:
Undisclosed cash receipt - validity of the assessment u/s.153A - the reliance placed by the Assessing Officer on the loose papers is not justified at all. - the question of making any addition is not justified in the absence of other corroborative evidence to that effect - AT
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Income Tax:
Revision u/s 263 - Doctrine of merger - The said order got merged with the order of the CIT(A), CIT does not have any jurisdiction to initiate the proceeding u/s 263 - AT
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Income Tax:
Revision u/s 263 - AO has correctly gave appeal effect in favour of the assessee u/s. 11 to 13 because the assessee got registration u/s. 12AA of the IT Act as per directions of the Tribunal - Revision is without jurisdiction - AT
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Income Tax:
Sale of shares - business income OR capital gains - The tests of badges of trade evolved by Royal Commission of England and approved by the Hon‟ble Supreme Court are also not met by the assessee. Therefore, it cannot be said that the assessee has dressed up in such way so as to wear the badge of trading. - AT
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Income Tax:
Remittance from outside India - revenue v/s capital receipt - onus to prove - assessee could not discharge his onus and could not prove that the money has come out of the capital fund of a Discretionary Trust situated out of India - It will be mockery of the Indian Income Tax Act that the onus is on the AO to prove that the assessee has received revenue receipts - AT
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Income Tax:
Disallowance of claim made on account of "Contingent provision for standard assets" - provision in question being in the nature of purely a contingent one and there is no provision under the IT Act to allow such contingent provision as deduction from taxable income - AT
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Income Tax:
Eligibility of deduction u/s 80IB - a violation under the Factories Act does not disentitle a deduction claimed under Section 80IB - AT
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Income Tax:
There should be some evidence on the basis of which the action of the AO can be held to be justified to show that the expenses are unreasonable or excessive u/s 40A(2)(b). In the absence of any such evidence, an adhoc disallowance of 5% has rightly been rejected by the CIT(A) - AT
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Income Tax:
Disallowance of expenses on foreign travel - A.O. has required the assessee to point out the business purpose for which the various tours were undertaken - the failure on the part of the assessee to provide such details does invite a disallowance - AT
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Customs:
Denial of refund claim - unjust enrichment clause shall not apply for finalization of the provisional assessment for the cases prior to 13.7.2006 - AT
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Corporate Law:
Absence from three consecutive Board meetings with out obtaining leave of absence - Automatic cessation under section 283(1)(g) of the Companies Act 1956 - there is an implied leave of absence granted to a Director who abstained from a meeting of the Board of Directors. - CLB
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Service Tax:
Commercial training or coaching services - It is clearly evident from the facts of the case that the coaching classes were conducted in different campuses, separate fees and totally independent and had no nexus with the intermediate courses of the colleges - activity is taxable - however, demand beyond normal period of limitation set aside - AT
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Service Tax:
Denial of the benefit of abatement Notification No.1/2006-ST, dated 01.03.2006 - the reversal of Cenvat credit by the appellant amounts to non-availment of Cenvat credit - benefit of abatement allowed - AT
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Service Tax:
Nature of activity - collection of octroi on behalf of the Municipal Corporation - cash management activity or not - it is undisputed that appellant is not financial institution - not liable to service tax as Banking and other Financial Services - AT
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Central Excise:
Duty demand - Violation of Section 11D - because of the error committed by the clerk in generating the invoice, the assessee could not be faulted with - In the absence of any intention to collect excess duty, assessee cannot be held as violated the provisions of Section 11D - No recovery - HC
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Central Excise:
Validity of arrest of Petitioner - The competent officer at Pune has the power under section 21 of the Act which is similar to the power of the officer in charge of a police station. - HC
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Central Excise:
Interest u/s 11AB - Scope of Section 11AB - The provisions of Section 11AB, inserted w.e.f. 28th September, 1996 are in the nature of penal interest and would apply only to those cases where clearances were affected after 28th September, 1996, irrespective of the date of passing of the adjudication order. - HC
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Central Excise:
CENVAT Credit - in a situation where there is a conflict between the oral evidence and the documentary evidence then preference is required to be given to the documentary evidence which has been done by the appellant in the form of delivery challans and accounting for the goods received for their job worker in the statutory records - AT
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Central Excise:
Manufacture - cutting and slitting of imported self-adhesive film and self-adhesive paper - Mere mention of a product in a tariff heading does not necessarily imply that the said product was obtained by the process of manufacturing - Demand set aside - AT
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VAT:
Petitioner has with a dishonest intention filed false return to cause loss to the state revenue. If so, it amounts to commission of offence punishable under section 415, read with section 417 of the Indian Penal Code - HC
Articles
News
Case Laws:
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Income Tax
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2015 (6) TMI 612
Entitlement to Exemption u/s 10B - whether assessee is not a manufacturer? - Held that:- During the survey made on M/s. Arora Industries and M/s. Anil Industries certain invoices were raised on the assessee were impounded. The word semi-finished goods were not mentioned. It was explained in this regard that the word " unpacked and unlable condition" is mentioned and packing and labelling were also made by the assessee. This description means that the said garments were semi-finished. Therefore there is no discrepancy in the said invoices. No garment can be sold in the export market without making proper label, tags, iron and packing etc as has been done by the assessee in the present case. It was also explained that supplier was not able to manufacture finished garments. They had to manufacture semi finished garment and export the semi finished garments was not possible. The assessee had received huge export order and therefore the assessee had to make export of the garments. The suppliers could not export since they did not have any export order and therefore no question of claiming duty draw back by the suppliers and therefore they had to issue disclaimer certificates to the assessee. Therefore the suppliers did not supply any ready made garments. It was also clarified that the assessee is not doing all the processes on each and every piece of garment. For e.g. bar code labels were affixed on some of the garments, emblem graphics, stickers were affixed on some of the garments. Accordingly heat treated emblem was given on some of the garments, ironing was made, packing of garments was also made on different garments. In view of the processes carried out by the assessee as mentioned herein above may be all the processes of the semi finished garments will tantamount and will be treated as a manufacture. As regards the notices remained unserved on the suppliers, it was stated that non service on the supplier was not known to the assesee and therefore such non service of notice cannot make the assessee to loose exemption u/s 10B of the Act. In the circumstances and facts of the case we hold that the assessee is a manufacturer and entitled to exemption u/s 10B of the Act. - Decided in favour of assessee.
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2015 (6) TMI 611
Interest under Section 244A on refund - benefit of MAT credit under Section 115JAA - Tribunal allowed claim - Held that:- In the present case, originally the Commissioner of Income Tax (Appeals) has correctly interpreted the provisions of Section 115JAA(4) of the Income Tax Act to the effect that tax credit should be allowed set-off in a year when tax becomes payable on the total income computed in accordance with the provisions of this Act other than Section 115JA or Section 115JB, as the case may be. He rightly held that the assessee is not expected to pay the advance tax to the extent of MAT credit brought forward from the preceding years. Only the balance tax liability remaining, if any, after such set off, is payable by the assessee as advance tax. If that is so, the MAT credit that is available should be allowed to set off and thereafter the tax liability has to be determined taking note of the Advance Tax paid and the TDS available. In CIT Versus Tulsyan NEC Ltd. [2010 (12) TMI 23 - Supreme Court of India] came to the conclusion that insofar as priority is concerned, MAT credit should be taken into account and thereafter credit should be given to Advance Tax paid and TDS etc. The Supreme Court rejected the contention of the Department that even if there is a MAT Credit balance, the assessee is required to pay the Advance Tax and if he fails to pay, interest under Section 234 would be chargeable, thereby, making it clear that MAT credit should be first given effect to. The Supreme Court having thus cleared the position of law that priority should be given first on the adjustment of MAT Credit, we have no hesitation to hold that the order of the Tribunal is in consonance with the statutory provision of law as propounded by the Supreme Court in the above-said decision. - Decided against revenue.
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2015 (6) TMI 610
Eligibility for deduction u/s 80IB - license to run the factory was not obtained on or before 31/03/2004 i. e. the cut off of starting the industrial undertaking as per provisions of Section 80IB(4) - Held that:- Assessing Officer did not doubt about raw material consumption, power consumption, sales and employment of workers for the purposes of denying the benefit of Section 80IB of the said Act. It was further held that for the purpose of Section 80IB of the said Act, what is essential is that the assesee should manufacture or produce an article or thing and if there is any violation of any provisions of any other statutes then the assessee has to explain the same to the authorities implementing those Acts/Statutes and the same cannot be the basis of denial of benefit under Section 80IB of the said Act. - Decided in favour of assessee.
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2015 (6) TMI 609
Taxability of supply of equipment in India - India-Germany Double Taxation Avoidance Agreement (DTAA) - Held that:- The designing, procurement of material, fabrication and manufacturing of equipment was undertaken outside India. From the facts of the case it is clear that the Company is not involved in the manufacturing of equipment and such equipment were sourced from third party vendors based outside India. From the agreements and documents it is clear that the equipment was directly sold by the assessee on export sale basis and the title/ownership in the equipment was transferred outside India i.e. before the equipment reached India. Even the consideration/payment for sale of equipment was received outside India in foreign currency and majority of the payment (80% - 85% including 10% advance) for each and every part of shipment becomes payable upon delivery of equipment on FOB foreign port of shipment once shipping and other documents are send to the customer. Such payments are made through irrevocable letter of credit. From the documents and evidences it is very much clear that the buyers were the Indian customers who were independent and unrelated parties and purchased the equipment from the assessee on their own account. From the agreements it can be gathered that the contracts for the sale of equipment were concluded on a ‘principal to principal’ basis. Under the contracts, customers’ inspection of the equipment was to be taken place outside India and assessee did not have any office or place of business in India Accordingly, the clause of acceptance tests is merely in the nature of warranty provisions. Even the reliance placed by AO on various clauses of Sales of Goods Act is misplaced. Since the Hon'ble Delhi High Court in the case of LG Cables Ltd., [2010 (12) TMI 948 - Delhi High Court ] after considering the provisions of Sales of Goods Act held that such acceptance tests are merely in the nature of warranty provisions. Even there is no PE for sale of equipment in view of the decision of Hon'ble Supreme Court in the case of Hyundai Heavy Industries, [2007 (5) TMI 196 - SUPREME Court] and in addition to this, there is no concept called sale PE under DTAA. In light of the facts and legal position, we hold that the profit arising to the assessee from sale of equipment is not taxable in India. - Decided in favour of assessee. Assessing the income from supervisory services - what profit percentage can be attributed to such activity in the absence of any books of account maintained by the assessee? - DRP has decided this issue of taxability of income earned from supervisory services in India by the assessee and adopted the profit margins at 27.5% of profit attribution - Held that:- the assessee reported to have earned gross revenue from supervisory services amounting to ₹ 10,35,15,673/- out of which ₹ 1,85,60,360/-, being 17.93% of the gross revenue, was allocated to the Indian PE. In assessment, AO had enhanced this allocation to 27.50% which works out to ₹ 2,84,66,810/-. The DRP also confirmed the action of the AO for the reason that on identical facts and circumstances, the ITSC attributed profits @ 27.50% in the assessee’s own case for AYs 2008-09 and 2009-10 respectively. For the AYs 2008-09 & 2009-10 before the ITSC and now for AY 2010-11 before the AO, the assessee admitted to have PE in India to which the impugned supervisory services were effectively connected, but no books of accounts were maintained for the same. This was in clear violation of provisions of section 40AD of the Act. In such circumstances, the factual finding of the ITSC towards attribution of profits to the extent of 27.50% on the revenue earned from supervisory activities in India cannot be faulted with and for the very same reason, the action of the AO in attributing profits @ 27.50% was rightly confirmed by DRP - Decided against assessee. Income earned from supply of designs and drawings in India - AO/DRP erred in holding that the income earned by the appellant from sale of designs and drawings is taxable as Royalty under Article 12(3) of the DTAA read with the provisions of Section 9(1)(vi) of the Act and is not in the nature of sale of product - Held that:- Retaining intellectual property in designs and drawings is similar in the nature to the retaining of patented rights in any goods/machinery. Restriction on the intellectual property in designs and drawings sold by the assessee for the purpose of setting up a plant in India does not change the character of the transaction from the sale of the product to the use of licence/know-how. Normally, designs and drawings sold by foreign customers were used by Indian customers for internal business purposes for setting up of their plants and not for any commercial exploitation. Accordingly, the designs and drawings sold by the assessee tantamounts to the use of copyrighted article rather than use of a copyright and is, therefore, in the nature of business income. - Decided in favour of assessee. Disallowance of credit for TDS - Held that:- The claim of the assessee is that the original TDS certificates were submitted before the AO during the course of assessment proceedings in support of its claim of TDS. But the AO has not allowed the claim in full. We direct the AO to verify the TDS certificates and allow the claim actually.- Decided in favour of assessee for statistical purposes.
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2015 (6) TMI 608
Undisclosed cash receipt - validity of the assessment u/s.153A - Held that:- The presumption u/s 132(4A) is available only in respect of the person from whom the paper is seized. It could not be applied against a third party and hence, no addition could be made on the basis of the evidence found with third party. In this case, the addition has been made on the basis of the documents found with Dhariwal Group and thus, the presumption u/s. 132(4A) could not be used against the assessee since no incriminating documents were found with it. In the case of ACIT Vs. Lata Mangeshkar (Miss) (1973 (6) TMI 13 - BOMBAY High Court ), the addition was made in the hands of the assessee on the basis of the entries in the books of third persons. Hon'ble Bombay High Court held that such addition could not be made only on the basis of the notings in the books of third persons. The facts of the present case are covered by the decision of Lata Mangeshkar (supra). It is a settled legal position that the decision of jurisdictional High Court is binding on all authorities below it. Thus, the reliance placed by the Assessing Officer on the loose papers is not justified at all. Therefore, the question of making any addition is not justified in the absence of other corroborative evidence to that effect. Since in the instant case the assessee from the very beginning has denied to have received any such payment from M/s. Dhariwal group through Mr. Sohan Raj Mehta and since no incriminating material was found from the residence of the assessee during the course of search and since the assessee is not dealing with M/s. Dhariwal group in his individual capacity, therefore, respectfully following the decisions cited above and in view of our reasonings given earlier, we are of the considered opinion no addition in the hands of the assessee can be made. Since it is held that the assessee has not received any amount, therefore, the question of taxing the same u/s.56(2)(vi) as held by CIT(A) does not arise. In this view of the matter, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of ₹ 1 crore for A.Y. 2006-07 and ₹ 20 crores for A.Y. 2007-08. Grounds raised by the assessee on this issue are accordingly allowed. - Decided in favour of assessee.
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2015 (6) TMI 607
Revision u/s 263 - Doctrine of merger - development agreement entered into by the assessee with Godrej Waterside Properties Pvt. Ltd., the capital gain has arisen to the assessee during the impugned assessment year in the opinion of the CIT, assessing officer erroneously not assessed the capital gain during the impugned assessment year in respect of transaction under the said development agreement - Held that:- It so far as the issue no.1 is concerned, the Assessing officer has after examining the submissions of the assessee as well as making the enquiry on this issue taken a conscious decision. From the finding of the assessment order it is apparently clear that the Assessing Officer had duly examined the issue relating to assessment of capital gains in relation to assessee’ s development rights in respect of its leasehold property being Plot No. 5, Block DP, Sector-V, Salt Lake City, Kolkata and took the view that no capital gain is chargeable to tax in the impugned assessment year. Thus it is a case where the Assessing Officer has examined the issue by making enquiry on the basis of which the CIT invoked jurisdiction under section 263. It is not a case of lack of enquiry on the part of Assessing Officer the Assessing Officer after making enquiries allowed the claim of the assessee on that issue. It is not necessary that the Assessing Officer should discuss in detail the finding in his order, although the Assessing Officer has given clear-cut finding in this regard.If the Assessing Officer has not discussed the inquiry made by him in the case of assessee in respect of which, he issued show-cause to assessee, we cannot say that order is erroneous as the Assessing Officer has not made any inquiry into the matter. The assessee cannot dictate the Assessing Officer what should he incorporate in the assessment order and how he should draft the assessment order. - Decided in favour of assessee. Assessing Officer has wrongly allowed excess depreciation of ₹ 3,03,21,882/- considering the current assets as fixed assets - Held that:- The rent and the maintenance charges recovered from the short term lessees is also assessed as business income of the assessee. The income earned by the assessee is regularly assessed under the head business. The depreciation on the actual cost/ written down value of the fixed assets of the IT Park Undertaking had been claimed and allowed in the income tax assessments of the assessee in assessment year 2002-03 and onwards. The assessee went in appeal before the CIT(Appeals), who deleted the addition made by the Assessing Officer. CIT(Appeals) held that refundable deposit of ₹ 86,74,200/- was assessee’s liability and could not be taken into account in determining income. As regards assessment of capital gains instead of deducting the gross lump sum premium for granting long term lease from the WDV block, the CIT(Appeals) accepted the assessee’s plea that provisions of section 50 are applicable since the capital assets transferred was integral part of the depreciable asset.The CIT by exercise his jurisdiction under sect ion 263 in respect of the issue of depreciation, in our opinion, exceeded his jurisdiction which has no leg to stand. Even otherwise also, the issue relating to depreciation claimed in respect of the Information Technology Park Building known as “Infinity Thinktank” situated at Plot A/3, Block GP, Sector-5, Salt Lake City, Kolkata was duly discussed in the order passed under section 143(3). The said order got merged with the order of the CIT(A), CIT does not have any jurisdiction to initiate the proceeding u/s 263. We therefore quash the order passed u/s 263 on this issue. - Decided in favour of assessee. Allowing wrong deduction by the Assessing Officer in passing the order under section 143(3) in respect of the donation as per CIT(A) - Held that:- There is no bar under the Income Tax Act on the power of CIT under section 263 that if the order could have been rectified under section 154, CIT could have not exercised the jurisdiction under sect ion 263. This is a fact that the order passed by the Assessing Officer on this issue was erroneous as the Assessing Officer has incorrectly allowed the deduction in respect of the donation amounting to ₹ 92,57,650/-. This is not a case where the Assessing Officer after considering the submission of the assessee has taken a particular view which is sustainable in law or there can be two views about the allowance of deduction in respect of the donation. This submission of the ld. A.R. that it was a pure mistake apparent from record itself proves that the order passed on this issue by the Assessing Officer was erroneous as well as prejudicial to the interest of the revenue. Thus therefore, confirm the order of Principal CIT passed under section 263 on this issue and accordingly modify the order of CIT by holding that the assessment is set aside on the issue of allowing donation to the assessee and accordingly direct the Assessing Officer to examine the issue do novo. - Decided in favour of revenue for statistical purposes.
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2015 (6) TMI 606
Revision u/s 263 - CIT(A) cancelled the registration granted to the assessee u/s 12A - Held that:- AO granted relief u/s. 11 to 13 of the Act to the assessee in ITNS 150 because registration u/s. 12AA was restored in favour of the assessee by the Tribunal and the capital expenditure and benefit u/s. 11 were allowed to the assessee. These deductions are allowable when the registration is effective in favour of the assessee and have also been granted originally in favour of the assessee. Therefore, the AO is bound to follow the decision of superior authorities. Merely because the AO has followed the order of superior authorities, would not give rise to occasion to treat ITNS 150 as erroneous and prejudicial to the interest of Revenue. The order u/s. 263 thus could not be sustained. The ld. Counsel for the assessee also relied upon the decision of the Supreme Court in the case of S.RM.M.CT.M Tiruppani Trust vs. CIT, [1998 (2) TMI 3 - SUPREME Court], in which it was held that capital expenses to be allowed as deduction. Thus we are of the view that the AO has correctly gave appeal effect in favour of the assessee u/s. 11 to 13 because the assessee got registration u/s. 12AA of the IT Act as per directions of the Tribunal. Therefore, there is no error in ITNS 150 to be revised u/s. 263 of the IT Act. Thus, the ld.CIT has acted without jurisdiction in the matter. We accordingly set aside the impugned order u/s. 263 for all the assessment years under appeals and quash the same. - Decided in favour of assessee.
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2015 (6) TMI 605
Sale of shares - business income OR capital gains - CIT(A) confirming action of the assessing officer in assessing the gains arising on sale from long-term capital assets and gains arising on sale of short term capital assets, being investment in equity shares, as "business income" instead of "capital gains" declared by the appellant - Held that:- It was submitted by the ld. AR's that as and when the opportunity arose, the assessee sold the shares in the open market. According to him, the said gain was in the nature of short term capital gain which was duly offered for taxation in the return of income filed by the assessee firm for the year under consideration as well as earned long term capital gain on shares which were sold after one year. Further, it was brought to our notice that assessee has not borrowed funds for the purpose of making investments so as to call its activities as business. The CBDT Circular No. 4/2007, dated 15.06.2007, which has specifically spelled out the conditions to determine the nature of transaction which is in question of being whether it is in the nature of investment or trade. In the said circular of CBDT it has stated the principle laid down in the case of Associated Industrial Development Company (P) Ltd. [1971 (9) TMI 3 - SUPREME Court ] and in the case of H. Hoick Larsen (1986 (5) TMI 30 - SUPREME Court ) which afforded adequate guidance to the Assessing Officer while determining whether a transaction is in the nature of investment or trade. When the ratio of these decisions when applied to the facts of the present case, then it would be found that assessee satisfied the requirements because as a rule, the assessee had taken delivery at the time of purchase and given delivery at the time of sale in respect of all the shares in its investment portfolio and the assessee had also kept separate records to record the transactions of each category, i.e., delivery based and non-delivery based (F&O). Also, by treating the delivery based transaction as an investment, the assessee clearly established that it did not take the first step as a trader, hence, the result of the delivery based transaction it was treated as short term capital gain or long term capital gain depending upon the period of holding of such shares. The tests of badges of trade evolved by Royal Commission of England and approved by the Hon‟ble Supreme Court are also not met by the assessee. Therefore, it cannot be said that the assessee has dressed up in such way so as to wear the badge of trading. CIT(A) erred by holding that the Assessing Officer was justified in changing the treatment of income of appellant from Short term capital gains and long term capital gain to income from business. The impugned order to treat the income of ₹ 4,06,124/- declared by the assessee as Short term capital gains as Business Income and to treat the income declared by the assessee as long term capital gain of ₹ 2,77,73,257/- as business income is not sustainable in the eyes of law and so it need to set-aside and we do so. In the background of the aforesaid discussions, we set aside the finding of the ld CIT(A) and we allow the appeal. - Decided in favour of assessee.
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2015 (6) TMI 604
Remittance from outside India - revenue v/s capital receipt - onus to prove - whether a sum received by the assessee from White Label Trust which was constituted under the laws of the Island of Jersey on 20.07.1993 by making ANZ Grindlays Trust Corporation (Jersey) Limited as Trustee? - Held that:- The decisions of Kale Khan Mohammad Hanif –vs - CIT (1963 (2) TMI 33 - SUPREME Court); CIT –vs.- Devi Prasad Vishwanath Prasad (1968 (8) TMI 5 - SUPREME Court ) and Roshan Di Hatti –vs.- CIT (1977 (3) TMI 3 - SUPREME Court) are clearly applicable to the facts of the case of assessee. The onus is on the assessee to prove that the amount credited in his books of account is not the income or was exempt from taxation. In the instant case, in our opinion, the assessee could not discharge his onus and could not prove that the money has come out of the capital fund of a Discretionary Trust situated out of India. Before concluding we may mention that the submission of the Ld. Senior Advocate that the onus is on the revenue that the assessee has received the income cannot be applied to a case where the amount credited by the assessee had been claimed by him from a source situated outside india such as Swizerland etc and to which country the assessisng officer does not have any jurisdiction as the Indian Income Tax Act is applicable to Indian Territory, it cannot be said that the onus is on the assessing officer to prove that the assessee has earned the income outside India. This in our opinion will be the mockery of the Indian Income Tax Act and every body just filing the documents which were out side the domain of the assessing officer can claim that the onus is on the assessing officer to prove that the assessee has received revenue receipts. We, accordingly, confirm the order of CIT(Appeals) and reject the claim of the assessee that the said amount is the capital receipt received as a beneficiary of a discretionary trust. - Decided against assessee.
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2015 (6) TMI 603
Claim of deduction on amortization of expenses - premium paid on purchase of Government securities (HTM Securities) - Held that:- The issue arising before us is similar to the issue before the Tribunal in The Ahmednagar Merchants Co-operative Bank Limited Vs. JCIT (2015 (6) TMI 552 - ITAT PUNE), in assessee's own case relating to assessment years 2008-09 and 2009-10 and before the Hon'ble Bombay High Court in CIT Vs. M/s. Gajanan Nagari Sahakari Bank Ltd. (2015 (6) TMI 551 - BOMBAY HIGH COURT) and following the same parity of reasoning, we hold that the assessee is entitled to the expenditure incurred on account of amortization of premium on HTM securities. Disallowance under section 36(1)(viia) - Held that:- the issue before us is identical to the issue before the Pune Bench of the Tribunal in Mahalaxmi Co-op. Bank Ltd. vs. ITO (2014 (1) TMI 1366 - ITAT PUNE) and following the same parity of reasoning, we hold that the assessee having failed to make full provision, is only entitled to the claim of deduction to the extent of ₹ 50 lakhs being the amount of provision actually made in the books of account. Consequently, we uphold the order of CIT(A) - Decided against assessee. Disallowance of claim of interest on NPAs - Held that:- In view of the ratio laid down by the Pune Bench of the Tribunal in ACIT Vs. Maharashtra Nagri Sahakari Bank Ltd. (supra) and the jurisdictional High Court in CIT Vs. HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT ), we hold that the interest accruing on NPAs is not includable in the hands of the assessee as income for the year under consideration. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 2,55,60,841/-. - Decided in favour of assessee. Disallowance of claim made on account of "Contingent provision for standard assets" - Held that:- RBI Guidelines or prudential norms issued by RBI are not intended to regulate income-tax laws. The admissibility or otherwise of a particular deduction in computing the total income under the Income Tax Act has to be decide d under the provisions of the Act itself. The fact of the matter is that the provision in question being in the nature of purely a contingent one and there is no provision under the IT Act to allow such contingent provision as deduction from taxable income. Therefore, the Assessing Officer has rightly disallowed such contingent provision of ₹ 5,00,000/- and the action of the Assessing Officer is accordingly, upheld. The learned Authorized Representative for the assessee failed to controvert the findings of the CIT(A) in this regard and in the absence of same, we find no merit in the plea of assessee in allowing deduction on account of contingent liability - Decided against assessee.
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2015 (6) TMI 602
Disallowance of payment towards consultancy charges by determining Arm's Length Price (ALP) at Nil - Held that:- In the instant case, the UK and USA subsidiaries did only contractual work parcelled out to it whose results were given to clients directly and no technical knowledge was made available to assessee. Hence, even under the respective DTAA, the payments made to UK and US subsidiaries/companies would not fall under the ambit of FTS.' The payments made by assessee to its foreign subsidiaries were towards software development services rendered by them on the portion of work sub-contracted by assessee to them. Thus, if the so called consultancy charges of ₹ 14,98,07,749 paid in the impugned AY are of identical nature, then, it cannot be treated as consultancy charges simpliciter Further, it is relevant to note that though similar payments were made even in the subsequent AY 2009-10, TPO has not determined the ALP of such payments at nil. In view of the aforesaid factual position, since the issue raised by assessee goes to the root of the matter as it is inextricably linked with the ultimate determination of TP adjustment made by TPO and since the primary/basic facts relating to such issue are already available on record, in our view, the additional grounds raised by assessee required to be admitted in consonance with the principle decided in case of NTPC Ltd. v. CIT [1996 (12) TMI 7 - SUPREME Court] . However, since this issue was not raised by assessee before ld. DRP and was raised for the first time before us, in the interest of fair play and justice, we remit the issue back to the file of TPO to decide afresh after examining the agreements between assessee and M/s Pratt & Whitney as well as assessee and its subsidiaries and other evidences brought on record by assessee. - Decided in favour of assessee for statistical purposes. Selection of two comparables, i.e., M/s Infosys Technologies Ltd. and Wipro Ltd. - Held that:- It is accepted fact that these two companies are leading software companies and have carved out a separate place for themselves. They are in their own league and cannot be compared to any other software development company. The Hon'ble Delhi High Court in case of Agnity India Ltd. (2013 (7) TMI 696 - DELHI HIGH COURT ) has also observed that big companies like Infosys cannot be considered as comparable to other software development companies. Different benches of ITAT have also expressed similar view while examining the comparability of Infosys Technologies Ltd and Wipro Ltd. In view of the aforesaid, we direct TPO to exclude these two companies from the list of comparables. - Decided in favour of assessee. Disallowance u/s 40(a)(i) - amount of ₹ 2,29,78,128 was paid to M/s G.E. Network Solutions, Netherlands towards purchase of a software called 'small world software' - Held that:- The amount in question is not taxable u/s 9(1)(i) because even assuming for a moment there is a business connection between the assessee and the foreign software supplier there are no operations in India of the foreign company to which income may be reasonably attributed to as required under Explanation 1(a) to section 9(1)(i). Hence we find there is no applicability of S.9(1)(i) in the instant case. Similar issue relating to disallowance of amounts paid to M/s G.E. Network Solutions, Netherlands towards purchase of 'small world software' came up for consideration before the ITAT in assessee's own case for AYs 2006-07 and 2007-08, the Tribunal after considering the nature of payment and going through the Indo-Netherlands DTAA in the context of provisions contained u/s 195 read with section 9(1)(vi) of the Act, held that the payments made by assessee to M/s G.E. Network Solutions, Netherlands is not in the nature of royalty. Further, the Tribunal held that when the payment made to non residents is not assessable to tax under the Indian Income-tax Act, there cannot be any withholding of tax u/s 195 and consequentially no disallowance can be made u/s 40(a)(i). - Decided in favour of assessee. Exclusion of communication expenses from the export turnover while granting deduction u/s 10A - Held that:- This issue is squarely covered by the decision of CIT v. Gemplus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT] and ITO v. Saksoft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D]. Following the ratio laid down in the aforesaid judgments, we direct the AO to exclude the communication expenses from export turnover as well as total turnover while computing deduction u/s 10A of the Act. - Decided in favour of assessee. Disallowance of guest house maintenance expenditure and picnic expenditure - Held that:- Undisputedly, though, assessee has claimed these expenditure, but, he has failed to furnish any documentary evidence towards claim of such expenditure. Therefore, assessee's claim of expenditure cannot be allowed in full. However, considering the fact that assessee maintains guest house and some expenditure must have been incurred towards maintenance of the same. It will be reasonable to allow 50% of the expenditure claimed. Accordingly, we direct AO to sustain the addition to the extent of 50% of the expenditure claimed by assessee. - Decided partly in favour of assessee. Disallowance of deduction towards stores and spares written off - Held that:- There is no dispute with regard to the fact that the expenditure claimed by assessee relates to replacement of certain spares to the computer which was claimed as revenue expenditure. As evident from record, similar expenditure claimed by assessee in AY 2008-09 was allowed by ld. DRP following its own order passed in AY 2006-07 and 2007-08. However, in the impugned AY, AO has again treated the expenditure as capital in nature. Considering the aforesaid factual aspect, we remit the matter back to the file of AO to verify the nature of expenditure vis-à-vis- the expenditure claimed in AY 2006-07, 2007-08 and 2008-09. If, on verification, the nature of expenditure is found to be same, then, the expenditure claimed has to be allowed - Decided in favour of assessee for statistical purposes.
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2015 (6) TMI 601
Search and Seizure - Notice u/s 153C - Statutory requirement of filing statement of facts with Form No. 35 was not complied with - whether CIT(A) has erred in law in adjudicating the appeal filed by the assessee? - Held that:- arguments raised by the ld. DR are devoid on merit. Defects in the return of income filed, defects on Form No. 35 which is the form of appeal etc. are to be considered by the respective authorities before whom these are filed and the maintainability of the appeal before us cannot be challenged. The right of appeal is a substantive right. Procedural issues can not take away substantial rights of a person. This cannot be a ground for the revenue to challenge the order of the ld. CIT(A) which is in this case in favour of the Revenue. The arguments to say the least are farfetched. Hence we dismiss the same. - Decided against revenue. Validity of assessment under Section 153C - Held that:- Considering the totality of the above facts and respectfully following the decision of Hon'ble Jurisdictional High Court in the case of M/s Spice Entertainment Ltd. [2011 (8) TMI 544 - DELHI HIGH COURT ] wherein held that the framing of assessment against a non-existing entity/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a dead person, we hold that the issue of notice under Section 153C in the name of M/s Computer Engineering Services (P) Ltd. on 4.10.2010 when this company was not in existence is void. Accordingly the same is quashed. Once the notice issued under Section 153C has been quashed the assessment completed in pursuance to such notice also cannot survive and the same is also quashed. - Decided in favour of assessee.
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2015 (6) TMI 600
Eligibility of deduction u/s 80IB - The assessee failed to obtain a factory license to run its unit on or before the cut off date 31.03.2004 - CIT(A) allowed claim - Held that:- The assessee’s manufacturing activity commenced in August, 2003 i.e. before the cut off date 31.3.2004. It applied for a factory license on 9.2.2006. The same stood granted well after the impugned assessment year. The Assessing Officer perceives it to be a case of unlawful manufacturing u/s.80IB(4). We find in CIT vs. Jolly Polymers [2015 (6) TMI 610 - BOMBAY HIGH COURT] has turned down a similar argument of the Revenue by approving the tribunal’s order holding that such a violation under the Factories Act does not disentitle a deduction claimed under Section 80IB. The Revenue fails to quote any case law to the contrary. - Decided against revenue. Benefit of “netting out” - CIT(A) holding that the net interest income only to be excluded from the profits eligible for deduction u/s.80IB - Held that:- Perusal of the case file reveals that a co-ordinate bench of the tribunal in assessee’s own case [2010 (3) TMI 1054 - ITAT AHMEDABAD] relating to assessment year 2004-05 (preceding assessment year) has already decided the very issue of netting of the interest income against the Revenue. There is no distinction on facts or law being pointed out. We affirm the CIT(A) findings in these circumstances.- Decided against revenue. Exchange rate difference - includible in the profits eligible for deduction u/s.80IB as per CIT(A) - Held that:- A coordinate bench in assessee’s case (supra) holds that foreign exchange rate fluctuation gains bear the character of income derived from export sales to be treated as part and parcel of export profits only. No distinction on facts or law is being pointed out at the Revenue’s behest so as to adopt different approach in the impugned assessment year. We affirm the CIT(A) findings - Decided against revenue. Exclusion of scrap income from the profit eligible for deduction u/s.80IB - CIT(A) treats the scrap in question to have been generated from its manufacturing process having direct relation to the source of business income - Held that:- The hon’ble jurisdictional High Court in DCIT vs. Harjivandas J. Zaveri [1999 (12) TMI 5 - GUJARAT High Court] deals with a case of sale of empty bottles/plastic waste in case of an assessee involved in manufacturing activity and holds that the same are directly connected with the said activity. Their Lordships assumed a hypothetical situation that in case there is no industrial/manufacturing activity, there would not be any scrap generated. The Revenue has not been able to distinguish operation of the same. We also follow suit and hold that the CIT(A) has rightly included scrap income as profits eligible for Section 80IB deduction. - Decided against revenue. Deduction u/s. 35(1)(iii) - CIT(A)allowed claim - Held that:- It transpires from the case file that the Assessing Officer had disallowed this deduction for want of necessary certificates. The CIT(A) in lower appellate order observes that the assessee had placed on record necessary acknowledgements/donation receipts with its return. This takes care of the Revenue’s technical pleas in the instant proceedings. The CIT(A) appears to have verified the same as well. - Decided against revenue. Exclusion of export incentives of Dadra and Bayenderi units from profits eligible for section 80IB deduction - Held that:- The Revenue objects admissibility of the assessee’s alternative/ additional ground rejected. The assessee also fails to controvert the lower authorities’ action excluding the above sums from the purview of section 80IB deduction in principle. The fact also remains that these alternative pleadings quoting law settled in Excel Industries [2013 (10) TMI 324 - SUPREME COURT] and Topman Exports (2012 (2) TMI 100 - SUPREME COURT OF INDIA a) propounding computation of notional income from DEPB credits/DFRC receipts/other export incentives accrues not in the year of export; but in the one corresponding to the imports and also devising ‘netting’ formula to be adopted in excluding face value of the above credits for computing profits eligible for section 80IB deduction; respectivelyrequire examination of new facts and details for the purpose of computation of notional income from export incentives as well as net profits in view of abovestated case law. Thus, we reject the assessee’s main ground in principle and accept additional/alternative grounds for statistical purposes and remit the same back to the Assessing Officer for adjudication afresh as per law. Debits/credits written off regarding Dadra and Bhayenderi units excluded from eligible profits for u/s.80IB deduction - Held that:- The lower authorities have not adverted to the assessee’s books to find out as to whether the impugned balances stem from its revenue account or not for the purpose of granting section 80IB deduction. We feel that this issue requires re-examination in Assessing Officer’s hands. We order accordingly. - Decided in favour of assessee for statistical purpose. Excess production of refills - AO as well as the CIT(A) hold this sum as its profits not eligible for section 80IB deduction - Held that:- There is a difference between refills consumed and pot flasks manufactured to the tune of 6149 units. The Revenue treats the assessee to have sold the raw material (supra) by way of indulging in a trading activity. Its notes and other material on record has nowhere been rejected. Nor is there any evidence of any such activity forthcoming from the case file. The Assessing Officer has proceeded on this assumption without quoting any evidence on record. The assessee is already a manufacturer otherwise entitled for section 80IB deduction. That being the case, we see no reason to agree with lower authorities treating it as a trader in sale of refills in question. Therefore, we accept assessee’s relevant ground and hold it to have manufactured the refills entitled for section 80IB deduction qua this sum - Decided in favour of assessee. Software expenses disallowance - CIT(A) allowed claim - Held that:- The Revenue is unable to dispute the CIT(A) findings regarding assessee’s act in writing off the software advances. It could not purchase the software. The assessee also raises an alternative plea of business loss qua the very amount to have been arisen from its activity incidental to the main business as per case law of CIT vs. Abdul Razak (1981 (2) TMI 27 - GUJARAT High Court). However, once we express agreement with the CIT(A) holding the impugned expenditure allowable u/s.37 of the Act, the assessee’s alternative plea of business loss has been rendered infrastructure. - Decided in favour of assessee.
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2015 (6) TMI 599
Justification for claiming Royalty expense as revenue expenditure - Held that:- The assessee has received on the job training with the stated aim of improving its efficiency and effectively expand its growth with the enhancement of team efficiency and capability for the growth of the business sphere of the educational institution. The incurring of expenses has not been doubted. No effort let alone a cogent discussion in the order has been made by the AO nor any arguments have been advanced by the Revenue to justify how it has been concluded that the expenses were unreasonable and excessive. In the absence of any justification for making a 5% disallowance of the total expenses for royalty, we find no good reason to vary the finding arrived at in the impugned order. The finding of the CIT(A) in absence of any material to the contrary accordingly is upheld. - Decided against revenue. Similarly qua the advertisement expenses it is seen that the fact on record is that advertisement have been inserted for propagating the business of the assessee is not in doubt. The mere fact that the booking of advertisement expenses has been done through the associate concern instead of the assessee directly by itself does not create any ground for making a disallowance. There is no evidence that in the magazines of the assessee there is a variance in the rates for the assessee as compared to outsiders. There should be some evidence on the basis of which the action of the AO can be held to be justified to show that the expenses are unreasonable or excessive. In the absence of any such evidence, an adhoc disallowance of 5% has rightly been rejected by the CIT(A). Being satisfied by the reasoning and finding, the departmental ground is dismissed.- Decided against revenue. Disallowance of proportionate interest expenditure in respect of the advance made to the sister concern - Held that:- admittedly no loan from any bank has been raised by the assessee for advancing loans to its sister concerns as the funds so advanced are generated from assessee’s own revenues. These facts are not disputed by the Revenue. Accordingly in the face of these admitted facts, we find that there is no legal precedent on the basis of which the claim of the Revenue can be held to be justified on facts. Infact legal precedent is to the contrary. The purchase of a specific property on instalment payment from which business of the assessee has been conducted is a matter of record. The business purpose of the purchase of the specific property is accepted by the AO as part of the payments towards M/s Anant Raj Industries and only proportionate disallowance is made on the ground that had the amounts not been advanced to the sister concern, the same would have reduced the interest component of the purchase price. The Courts have repeatedly held that the tax authorities cannot sit in the chair of the businessman and dictate how the business is to run. See SA Builders Ltd. [2006 (12) TMI 82 - SUPREME COURT] - Decided in favour of assessee.
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2015 (6) TMI 598
Addition on account of premium of Kerosene Oil - CIT(A) deleted the addition - Held that:- CIT(A) has carefully found that there is substance in the arguments of the Ld. Counsel that on the basis of discrepancies / defects pointed out by the AO on examination of the seized material it was not possible to draw the inference that the assessee had received premium on the account of sale of kerosene oil. We find that CIT(A) was agreed with the Counsel that the AO was not justified to rely on the letter of complaint addressed to the Asstt. Commissioner (Foods), once no action was taken by the AC (Foods) on the basis of that letter the assessee continued to have the license to distribute the kerosene oil. Similarly discrepancies such as non filing of challans, difference in position of stock as per two registeres or some difference in the quantity of sales as per different registered found at the time of search could not be used as the basis to infer that the assessee was receiving premium by indulging into black marketing of kerosene oil. Ld. CIT(A) further observed that there was also substance in the counsel's argument that the purchases/ sales / gross profit relating to kerosene oil business as shown in the regular books of accounts stood undisturbed by the AO. Keeping in view the facts and circumstances, we are of the view that AO has not pointed out any defect in the trading account pertaining to the oil business nor provisions of section 145 of I.T. Act were applied in assessee's case. Thus, without rejection of the trading account of the assessee, any addition on account of premium from the sale of the same oil which already stood reflected in the trading account was not legally justified. CIT(A) has rightly held that the evidence found in the form of loose papers / diary form the premises of M/s Kumar Oils and M/s Shyam lal Bala Prasad could not be utilized as a valid evidence against the assessee once the assessment in the case of M/s Kumar Oil was made on the returned income NIL. CIT(A) has rightly held that as per the provisions of section 158BC of the Act the evidence recovered from the premises of M/s Kumar Oils and M/s Shyam Lal Bala Prasad could not be made the basis for making addition of undisclosed income in the hands of the assessee - Decided against revenue. Addition on account of extra premium - CIT(A) deleted the addition - Held that:- Keeping in view of the facts and circumstances of the case as explained above, and also in view of the well reasoned Order passed by the Ld. CIT(A) on the issue in dispute, we find no infirmity in the impugned Order on this issue and hence, we uphold the same by dismissing the appeal filed by the Revenue - Decided against revenue.
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2015 (6) TMI 597
Transfer pricing adjustment - Non-adoption of adjusted PLI of the tested party - Held that:- Assessee vide its letter dated 7.9.2009 addressed to the TPO, submitted with prejudice to its earlier submissions that if the adjustment as computed by it was not acceptable, that is, the abnormal costs were not excluded, then the comparables so chosen by it would cease to be comparable. Similar contention was made by the assessee before the DRP vide its letter dated 20.7.2010. We find that the TPO/DRP have not considered this argument of the assesee. They simply held that no adjustment is warranted in the computation of the operating profit of the assessee, with which we also agree. However, they failed to consider if the assessee had in fact, incurred any extraordinary or abnormal costs due to its first year of operation. If, in fact, such abnormal costs were incurred, then it was mandatory on the part of the authorities to adjust the profit margin of comparables to that extent. It appears that both the assessee as well the TPO did not properly approach the transfer pricing analysis in a right perspective. The assessee kept on harping on the adjustment to its profit on an unrealistic basis and the TPO ignored to examine, if the assessee was at all rightly entitled to any adjustment on account of its first year of operation. In our considered opinion, the proper transfer pricing analysis can be done only by first finding out suitable comparables with or without making adjustment in their profit margins in terms Rule 10B(1)(e)(iii). If, in any case, either the comparables are not available or the adjustment as discussed above is not feasible, then, the TNMM cannot be considered as the most appropriate method, which should be ignored and substituted with another suitable method for determining the ALP of the international transaction of `Export of finished goods.’. Removal of two comparables - Ahmedabad Steelcraft Ltd. - Held that:- This company is using its own wind mill against the assessee using generator sets of production. These two models of production have different implications on the operating costs. Apart from that, it is observed that the turnover of this company significantly reduced to ₹ 9.92 crore in the current year from ₹ 36.68 crore in the preceding year due to change in the Government policies. It has been so recognized in the director’s report of this company. It has further been mentioned in such report that this company retrenched 105 employees and compensation aggregating to ₹ 42.39 lac was paid during the year. In our considered opinion, the above cited extraordinary and abnormal differences make this company incomparable with the assessee. We, therefore, hold that the TPO was right in excluding this company from the list of comparables. Shiv Agrico Implements Ltd. (Seg.) - Held that:- Perusing the relevant material on record including the Annual report of this company for the year in question, we find that this company has reported its revenues in three segments namely, Foundry, rolling and forging; Engineering & Fabrication; and Others. The assessee has chosen ‘Engineering and Fabrication’ segment of this company to be comparable. We are disinclined to accept the view point of the TPO/AO in excluding this company for the reason of the goods from Foundry, rolling and forging segment moving to Engineering and Fabrication segment. It is obvious that when the goods move from one segment to another, their profitability is accordingly taken into consideration under the respective segment. Once this company has shown its segmental results and the TPO has not pointed out as to how its Engineering and Fabrication segment is dissimilar with that of the assessee, we hold that this company on segment basis should be included in the final set of comparables. Ad hoc disallowance of expenses - Held that:- expenses have been incurred by the assessee by way of payment to Clearing & Forwarding agent, viz., Haulage Corporation. Even the reimbursement of expenses have been made to such agent only. When the assessee furnished all the details about such expenses including sample supporting invoices and confirmation from Haulage Corporation, we cannot countenance the addition made on ad hoc basis without the AO specifically pointing out any lacuna in the details submitted by the assessee. We, therefore, order for the deletion of this addition. - Decided in favour of assessee.
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2015 (6) TMI 596
Transfer pricing adjustment - determination of AMP - Held that:- Hon’ble Jurisdictional High Court IN COMMISSIONER OF INCOME TAX –I Versus MIS AMADEUS INDIA PVT. LTD. AND AMADEUS INDIA PVT. LTD.[2015 (6) TMI 590 - DELHI HIGH COURT] direct the AO to deduct the incentive expenses amounting to ₹ 51.19 crores from the total AMP expenses. As regards to the remaining expenses of ₹ 3.94 crores, the AO is directed to determine the AMP afresh in accordance with the terms and guidelines issued by the Hon’ble Jurisdictional High Court in the case of M/s Sony Ericsson Mobile Communications India Pvt. Ltd. Vs CIT (2015 (3) TMI 580 - DELHI HIGH COURT). Denial of the claim of the assessee u/s 10A - non-receipt of foreign remittance within stipulated time - Held that:- RBI Circular No. 25 dated 01.11.2004 which allow the eligible units to realize and repatriate the full value of export proceeds within a period of 12 months from the date of export subject to extension of the period for relaxation by the competent authority. In the present case, the assessee applied for extension and also claimed that the export remittances were realized within 12 months. We, therefore, considering the totality of the fact deem it appropriate to remand this issue back to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
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2015 (6) TMI 595
Unexplained cash credits u/s.68 - AO disputes the creditor’s version on the issue of capacity/genuineness/creditworthiness - Held that:- This creditor had duly filed written confirmation and also placed on record his land ownership documents to depose in the assessee’s favour. A perusal of his statement demonstrates that one of his son studies in USA as well. He quotes the assessee to be his school friend. The document reveal the creditor and his family income from various sugar co-operatives as perennial and on routine basis. For instance, this creditor has derived sugarcane profits from assessment year 2000-01 to 2004-05. The same factual position is in respect of his other family members. In these circumstances, we do not agree with the lower authorities that this creditor has failed to satisfy all necessary conditions explaining capacity/genuiness/creditworthiness of the deposits in question. We also quote case law Muralidhar Lahorimal Vs. CIT [2005 (11) TMI 32 - GUJARAT High Court] holding that an assessee can be asked to prove the source of credit and not to prove the source of the source. Be that as it may, we have already held that the assessee’s creditor and his family had sufficient means from agricultural income so as to lend the impugned sums amounting to ₹ 3.3 lac deposited in the assessee’s account through cheque payments. The assessee’s arguments are accepted. - Decided in favour of assessee.
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2015 (6) TMI 594
Transfer pricing adjustment - inclusion of Motilal Oswal Investment Advisors Private Limited in the final set of comparables challenged - Held that:- It is starkly evident that the said concern M/s. Motilal Oswal Investment Advisors Private limited is engaged in qualitatively different and diversified business activities, whereas the activities of the assessee are confined to rendering non-binding investment advisory for its Associated Enterprises. The activities of the M/s. Motilal Oswal Investment Advisors Private limited noted by the Tribunal in the case of Carlyle India Advisors Private Limited (2014 (2) TMI 648 - ITAT MUMBAI ) for assessment year 2008-09, are clearly emerging in the instant year too and, therefore, it cannot be said to be a concern which is comparable to an entity which is rendering non-binding advisory investment services alone. Thus, in our considered opinion, the assessee is justified in seeking the exclusion of the said concern from the final set of comparables on account of functional dissimilarities. In fact, in other precedents cited by the ld. Representative for the assessee, the said concern has also been excluded from the set of comparables under similar circumstances. Disallowance of expenses on foreign travel - A.O. disallowed 50% of the expenditure primarily on the ground that the assessee did not furnish evidence to prove business justification for the foreign travel - Held that:- The business purpose relating to incurrence of impugned expenditure is missing. The details provided, which are placed in the Paper Book, do not contain any reference to the business purpose for which the travel had been undertaken by the concerned Directors. No doubt, the assessee is rendering services to its group companies abroad and necessarily the directors would be required to travel, so however where the A.O. has required the assessee to point out the business purpose for which the various tours were undertaken, then, in our view, the failure on the part of the assessee to provide such details does invite a disallowance. Therefore, in our considered opinion, having regard to the material and evidence on record, the A.O. was justified in disallowing a sum of ₹ 29,78,191/- out of the foreign travel expenses. The said action of the A.O. is hereby affirmed. Thus, on this aspect assessee fails. - Decided against assessee.
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2015 (6) TMI 593
Depreciation of hoardings - allowed @ 100% or 50% as it was used for less than 180 days - Held that:- Issue involved is duly covered by the decision of the Tribunal in assessee's case for A.yrs.2004-05 and 2005-06 wherein held that AO has not brought any evidence regarding the durability of the hoardings. The AO's observations appears to be a guess work in respect of quality of structure of the boards. The assessee has asked for 100% depreciation on the structure used for less than 180 days on account of non durability of its structures. - Decided in favour of assessee. Disallowance of deduction u/s 80IA on Bus Shelters and Foot Over Bridges - Held that:- The issue which was not the basis of disallowance by the AO and the same was not the subject matter of consideration by the ld. CIT(A) and the same was also not the subject matter of the ground of appeal taken before ITAT the issue now being raised by the ld. DR need not be adjudicated by us. Hence on the issue as to whether foot over bridges and bus shelters qualify for deduction of section 80IA of the Act we hold that the ld. CIT(A) is correct in holding the assessee's entitlement for deduction u/s 80IA of the Act. - Decided in favour of assessee.
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Customs
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2015 (6) TMI 616
Denial of refund claim - whether the refund arising out of finalization of provisional assessment on the imports of the appellants which was sanctioned and credited to the Consumer Welfare Fund on the ground of unjust enrichment is applicable or not - Held that:- finalization of provisional assessment was completed in the year 1999 much before the insertion of sub-section (5) to Section 18 of Customs Act. The decisions relied by the learned AR for Revenue is not applicable to the present case as the case of Sahakari Khand Udyog Mandal Ltd. (2005 (3) TMI 116 - SUPREME COURT OF INDIA) deals with refund arising out of excess excise duty paid. Similarly, the case of Scientific Instruments Co. Ltd. (2014 (12) TMI 530 - MADRAS HIGH COURT) relates to finalization of provisional assessment completed on 16.7.2009 after the amendment of Section 18 of the Customs Act. The Hon'ble High Court of Delhi in the appellant's own case has considered the case of Bussa Overseas and Property Pvt. Ltd. (2003 (11) TMI 590 - SUPREME COURT). - unjust enrichment clause shall not apply for finalization of the provisional assessment for the cases prior to 13.7.2006. - appellants are eligible for refund of CVD and BCD amounting to ₹ 7,75,157/- and is not covered by unjust enrichment clause as the period involved is prior to 13.7.2006 - Decided in favour of assessee.
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2015 (6) TMI 615
Rectification of mistake - Re-appreciation of evidence - Held that:- Tribunal vide order dated 17.4.2003 has remanded the matter for limited purpose. Further we find that in the ROM application which runs into 14 pages, the applicant has listed out a large number of points. We have gone through each of these points and we do not find any obvious and patent mistake on the facts. In fact the reasons for differing with the so called facts given by the applicant have not been accepted by the Tribunal in the order dated 19.8.2014. We entirely agree with the contention of the learned AR that the applicant by using the process of ROM wants us to re-appreciate various evidences and come to a different conclusion. The scope of the ROM is explained by the Hon'ble Supreme Court in the case of RDC Concrete (India) P. Ltd. (2011 (8) TMI 25 - SUPREME COURT OF INDIA) and we are in agreement with the learned AR that in view of the said judgment of the Hon'ble Supreme Court in ROM, we cannot entertain re-appreciation of evidence. - Decided against assessee.
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2015 (6) TMI 614
Imposition of penalties - smuggling of 'Ketamine Hydrochloride' concealed in the export consignment as 'Onions' - Misdeclaration of goods - Held that:- Adjudicating authority has imposed penalty of ₹ 10,00,000/- on M/s. Manohar Enterprises and ₹ 5,00,000/- on Shri.R. Muthuramalingam, under Section 117 of the Customs Act. Therefore, by virtue of limitation provided under Section 117 adjudicating authority has no power to impose more than the limit specified under the section 117 of the Act, Therefore, imposition of penalty of ₹ 10,00,000/- and ₹ 5,00,000/- on the appellants exceeding ₹ 1,00,000/- is beyond the powers vested under Section 117 of the Customs Act. - appellants are liable for penalty under Section 117 of the Customs Act, maximum of ₹ 1,00,000/- on each appellant. The penalty imposed by the adjudicating authority in excess of ₹ 1,00,000/- is liable to be set aside on both the appellants. - Decided partly in favour of appellant.
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Corporate Laws
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2015 (6) TMI 613
Absence from three consecutive Board meetings with out obtaining leave of absence - Automatic cessation under section 283(1)(g) of the Companies Act 1956 - Cessation of right to inspect the books of account - Held that:- Board Meetings dated 16.8.2012 and 19.1.2013 there is no quarrel since the Petitioners have themselves produced copy of notice of such board meetings with the petition and P-2 did not attend either of the two meetings. However so far as the Board meeting allegedly held on 13.10.2012 the notice dated 5.10.2012 does arouse suspicion and smacks of manipulation. The format of notice for Board meeting dated 16.8.2012 and 19.1.2013 is identical but the notice for Board meeting dated 13.10.2012 is in a completely different format. Notice for Board meeting dated 16.8.2012 and 19-1-2013 is sent to all Directors named in the notice while the notice dated 5.10.2012 for the Board meeting dated 13.10.2012 is addressed only to P-2 in the form of a letter. Besides, such notice is not on the letter head of the company as compared to the notice dated 8.8.2012 and 10.1.2013. The Company being a closely held company and in the peculiar circumstances of the case it can be presumed that leave of absence was normally granted without oral or written request from a director. Reliance is placed on S. Ajit Singh case [2001 (8) TMI 1372 - COMPANY LAW BOARD NEW DELHI]. Admittedly the company is a closely held company in which mutual trust prevailed between the parties up to a certain point of time and the parties resided together at Dhuri. Therefore in the peculiar facts and circumstances of the case can be safety held that there is an implied leave of absence granted to a Director who abstained from a meeting of the Board of Directors. This is further corroborated not only by the fact that the company continued sending notices of further Board Meetings after 19.1.2013 to P-2 but also granted leave of absence as prayed by P-2 on 18.4.2013. - Decided in favour of appellant.
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Service Tax
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2015 (6) TMI 627
Demand of service tax - 'Commercial training or coaching' services - Invocation of extended period of limitation - whether the Service Tax is leviable in respect of the coaching provided by the Appellant through their junior colleges under its management or under the management of others - Difference of opinion - Majority order - Held that:- Students appear for the intermediate examinations under the hall ticket issued by the respective colleges and the students after passing examination, are awarded a certificate which issued by intermediate board education duly endorsing stamp of respective college. However, the students of said colleges underwent coaching in different campus of the Appellant on payment of fee ranging from ₹ 8,000.00 to ₹ 75,000.00 which was accepted by Shri K.V. Subba Rao, Accounts Manager of the Appellant in his statement dt.28.02.2006. He also confirmed that the amount was collected from the different students of different colleges who underwent coaching of JE-IIT, EAMCET, etc in different branches of the Appellant Society situated in Andhra Pradesh and other places of India. It is clearly evident from the facts of the case that the coaching classes were conducted in different campuses, separate fees and totally independent and had no nexus with the intermediate courses of the colleges Appellants were aware of their tax liability as they have registered in Kota, Rajasthan and paid Service Tax. There is no logic or rational on different stand taken by the Appellant in Kota and Andhra Pradesh. The Appellants are not entitled to a bonafide belief that they are not liable to pay Service Tax. - the finding of the Adjudicating Authority that the Appellant tried to mislead the department by stating that their committee is non-commercial nature with an intention to evade payment of tax, cannot be accepted. It cannot be said that there was a suppression of facts with intent to evade payment tax. In any event, the difference of opinion on the leviability of Service Tax in the present case would also support the bonafide belief of the Appellant of the leviability of tax. - demand of tax is barred by limitation. - However, penalty u/s 77 is upheld - Decided partly in favour of assessee.
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2015 (6) TMI 626
Denial of the benefit of abatement Notification No.1/2006-ST, dated 01.03.2006 - Availment of CENVAT Credit - Held that:- f the assessee has reversed the Cenvat credit availed along with interest, the same shall amount to non-availment of Cenvat credit. Consequently, the assessee is entitled for the benefit of exemption Notification No.1/2006-ST ibid. Admittedly, in this case the appellant has reversed the Cenvat credit of their own. On being realisation that they are not entitled to take the Cenvat credit if they are availing the benefit of exemption Notification No.1/2006-ST. Therefore, we hold that the reversal of Cenvat credit by the appellant amounts to non-availment of Cenvat credit. Consequently, appellant is entitled for the benefit of Notification No.1/2006-ST. In these terms the demand of service tax along with interest and equivalent amount of penalty are set aside on this issue. Appellant has paid the service tax through cheque on due dates and the same stand realised on a later date. Therefore, the date of deposited the cheque into the treasury is the date of payment of service tax as per Rule 6(2A) of the said Rules. In these circumstances, we hold that the appellant has paid the service tax in time. Consequently, demand of interest on delayed payments is not sustainable. - Decision in the case of Khyati Tours & Travels [2011 (6) TMI 324 - CESTAT, AHMEDABAD] followed - Decided in favour of assessee.
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2015 (6) TMI 625
Nature of activity - collection of octroi on behalf of the Municipal Corporation - cash management activity or not - Banking and other Financial Services - Held that:- Reading the definition of banking and financial services and the meaning of financial institution, we have to hold that the services rendered by the appellant would not fall under the category of service provided by a banking or a financial institution or any other body corporate or commercial concern. - cash management involves something more like contracting a debt collection service to retrieve what is owned by a customer, and also investing such cash which would lead to avoiding insolvency and bankruptcy and also reduced the days of the debt, increasing collection rates, selecting appropriate short-term investment vehicles, and also strategically by increasing days cash on hand in order to improve a company's overall financial profitability. In the case in hand, we find that it is undisputed as to the appellant is only collecting an amount as octroi the vehicles, in which goods transported and octroi liability arises. In our view this will not encompass ingredients of cash management. In the absence of any cash management activity undertaken by the appellant, we find that the services rendered by the appellant will not fall under the category of banking and financial services. Yet another angle to this case is that CBEC vide Circular No. 83/1/2006-ST dated 4.7.2006 while clarifying as to the services provided by Department of Posts in respect of money orders, operation of bank accounts issue of postal orders etc. - CBEC was of the view that any services to fall under the category of banking and financial services, the expression 'any other person needs to be read "ejusdem generic" with the preceding words and the services are to be provided by any person should be similar to a bank or financial institution. In the case in hand, as is recorded by us, it is undisputed that appellant is not financial institution. - Decided in favour of Assessee.
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Central Excise
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2015 (6) TMI 622
Duty demand - Violation of Section 11D - Whether the duty demand made under Section 11D of Central Excise Act, 1944 as made out in the Show Cause Notice is correct or not, inasmuch as duty has been charged on the value as per Section 4 of the Central Excise Act, 1944 and the goods removed on invoices as per Rule 11 of Central Excise Rules, 2002 - Held that:- First respondent/assessee were supplying cylinders through open tender to IOCL. They have fixed the price of the cylinder at ₹ 300/-. Even though they were availing SSI exemption, even after crossing the SSI exemption limit, they were supplying the cylinders at the agreed price at ₹ 300/-. They had not collected in excess of the price fixed at NDP by IOCL, which is inclusive of excise duty. It is seen from the order of the Adjudicating Authority that he has not recorded any finding to sustain the demand. The Commissioner (Appeals), after verifying the facts and records and after perusing the statements given before the Central Excise Officers, held that the first respondent/assessee had not collected in excess of over and above what was paid. It is to be noted that the Department had not disputed the eligibility of the SSI exemption availed by the first respondent/assessee and there is no proposal to deny the SSI exemption. When such being the case, because of the error committed by the clerk in generating the invoice, the first respondent/assessee could not be faulted with. In the absence of any intention to collect excess duty, we hold that the first respondent/assessee had not violated the provisions of Section 11D for the Department to invoke the said provision and demand duty. - Decided against Revenue.
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2015 (6) TMI 621
Waiver of pre deposit - Mandatory pre deposit - Held that:- Provision of Section 35F as amended vide Finance Act 2 of 2014 w.e.f 6th August, 2014 will have no application on the appeals which were filed and were pending before the Tribunal prior to the said date. - that if the language of the statute is simple and admits of only one meaning than no rule of interpretation is to be applied and the simple meaning has to be given effect to. - Tribunal has recorded that between 6th May, 2011 to 18th October, 2011 the clearance of pipes to the tune of 3,55,825 Kg. had been made, valued at ₹ 2.49 Crores and the assessee had not obtained registration from the Central Excise Department nor had paid the excise duty on the said transactions on the plea that the unit of the assessee is within the SSI limit. - no illegality in the order of the Tribunal asking the assessee to deposit ₹ 25.00 Lakhs. - Decided against assessee.
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2015 (6) TMI 620
Validity of arrest of Petitioner - Held that:- Summons was served on the petitioner and he was called to Pune to appear before the empowered officer. He failed to comply with this summons. Authorization of arrest was then given. It is submitted for the Department that Excise Officer empowered to arrest person like the petitioner was at Pune and so the petitioner was taken to Pune. Admittedly the petitioner was produced before the Magistrate from Pune by such empowered officer and within the prescribed period. It is non bailable offence and the Magistrate refused bail to the two sons of the present petitioner. Even the Sessions Court refused bail and the High Court granted bail subject to aforesaid conditions to the sons of the petitioner. Only due to the circumstance like petitioner's old age, the Magistrate granted him bail. - The competent officer at Pune has the power under section 21 of the Act which is similar to the power of the officer in charge of a police station. Such officer produced the petitioner before the Magistrate of Pune and within the prescribed period. There is provision in the Act like section 22 taking care of search, seizure etc. Thus no relief as claimed by the petitioner can be given in the present case. - Decided against assessee.
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2015 (6) TMI 619
Interest u/s 11AB - Scope of Section 11AB - Whether on the facts of the case and in law, whether CESTAT was correct in law in deciding the appeal on the ground that section 11AB is prospective - Held that:- Court has not admitted the Appeal on the question of law now raised by the Revenue. However, the Appeal has been admitted on the substantial question of law formulated on 20th October, 2005. The order was passed after noting the contentions of the Revenue and perusing the memo of Appeal. In these circumstances, by clarifying that the abovenoted question raised during the course of arguments can be examined in an appropriate case that we refuse to interfere with the order under challenge on this ground. The question of law that we have framed as substantial question of law has already been answered in series of decisions against the Revenue. The Tribunal has rightly placed reliance upon the language of Section 11AB. It has also placed reliance upon coordinate Bench decision in the case of Marcandy Prasad (1998 (3) TMI 316 - CEGAT, CALCUTTA). The Revenue has accepted the fact that the provision and as interpreted in the case of M/s. M.P. Tapes v. Commissioner of Central Excise lays down the correct law. - The provisions of Section 11AB, inserted w.e.f. 28th September, 1996 are in the nature of penal interest and would apply only to those cases where clearances were affected after 28th September, 1996, irrespective of the date of passing of the adjudication order. The above position is emanating from the arguments the Revenue and it binds it. In these circumstances, the question of law termed as substantial question of law by the Revenue and formulated by this Court cannot be answered in favour of the Revenue. - Decided against Revenue.
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2015 (6) TMI 618
CENVAT Credit - Whether certain inputs sent to the job workers were properly used or not - held that:- It is observed from the statement dated 27.1.2005 of Shri Sanjay S Mardia of M/s Nissan Copper Pvt Ltd that they are the job worker of the main appellant. He answered to question No. 14 of this statement that several consignments of inputs were received by the job worker and returned to the appellant after job work completion. Job worker has also received payments for the job work done though cheques. Further cross examination of the transporters was not allowed by the Adjudicating Authority. In the present factual matrix there is a conflict in the oral statement of the transporter and the other documentary evidence produced by the appellant. - in a situation where there is a conflict between the oral evidence and the documentary evidence then preference is required to be given to the documentary evidence which has been done by the appellant in the form of delivery challans and accounting for the goods received for their job worker in the statutory records. Further, only evidence against the appellant is in the form of oral statement of the transporter which cannot be relied upon, when no cross examination of the witness was provided to the appellants in view of their request made before the lower authorities. - Cenvat Credit was correctly availed by the main appellant - Decided in favour of assessee.
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2015 (6) TMI 617
Manufacture - cutting and slitting of imported self-adhesive film and self-adhesive paper - Manufacturing activity or not - assessee argued that in the process of slitting and cutting no new, distinct or different commodity comes into existence. The use of the goods also do not change - Held that:- Mere mention of a product in a tariff heading does not necessarily imply that the said product was obtained by the process of manufacturing. That, just because the raw material and the finished product came under two different headings, it cannot be presumed that the process of obtaining the finished product from such raw material automatically constituted manufacture. In the present case, merely because tissue paper in the jumbo roll of the size exceeding 36 cms.fell in one entry and the toilet roll of a width not exceeding 36 cms. fell in a different entry, it cannot be presumed that the process of slitting and cutting of jumbo rolls of toilet tissue paper into various shapes and sizes amounted to manufacture. Manufacture on the basis of value addition of 180% - Held that:- There is no change in the nature or characteristics of the tissue paper in the jumbo roll and the nature and characteristics of the tissue paper in the table napkin, facial tissues etc. Therefore, without such change in the nature or characteristics of the tissue paper, value addition on account of transport charges, sales tax, distribution and selling expenses and trading margin cannot be an indicia to decide what is manufacture. Thus, value addition without any change in the name, character or end-use by mere cutting or slitting of jumbo rolls cannot constitute criteria to decide what is "manufacture". - value addition criteria as applied by the Commissioner is erroneous. The activity undertaken by the appellant will not amount to manufacture. Tthis is not a fit case for confiscation of the goods under Rule 15(1) or imposition of penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Similarly, we are of the view that no penalty is required to be imposed on Shri Shailesh Nema, Director of the respondent-company under Rule 26 of the Central Excise Rules, 2002. - Decided against the Revenue. CENVAT credit has been utilised in the clearance of the final products which are now held to be non-dutiable, Revenue cannot seek to demand the credit so utilised. - Held that:- appellant should furnish the details of the credit taken and credit utilised for clearance of the corresponding final products and in case input credit taken is more than the duty paid on the final products, then the differential CENVAT credit needs to be reversed or paid back. Similarly, credit availed on capital goods need to be reversed or paid back. - Matter remanded back for limited purpose - Decided partly in favor of revenue.
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CST, VAT & Sales Tax
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2015 (6) TMI 624
Denial of input tax credit - Purchases made from the petitioner whose registration certificate has been cancelled ab initio on the ground that the seller had involved into the billing activities only and all the transactions are held to be bogus - Held that:- petitioner was not served with the copy of the order in the case of M/s Lucky Enterprises. Now, the copy of the order passed in the case of M/s Lucky Enterprises is available with the petitioner. Therefore, after giving an opportunity to the petitioner with respect to observations made in the case of M/s Lucky Enterprises insofar as the alleged transactions between the petitioner and M/s Lucky Enterprises and after giving an opportunity to the petitioner to prove the genuineness of the transaction between the et and M/s Lucky Enterprises in light of the observations made herein above, therefore, the matter is required to be remanded to the adjudicating authority to consider the claim of the petitioner for ITC on the alleged purchases made by the petitioner from M/s Lucky Enterprises. - Decided in favour of assessee.
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2015 (6) TMI 623
Validity of reassessment proceedings - escape assessment - submission of false return - Held that:- quantity of goods shown in form 65A was found to be higher than the one shown in the return, which was assessed in the year 2007 - Subsequent material, a declaration furnished by the petitioner itself under the statutory form 65A, disclose that the quantity and value of the goods were more than what were furnished in the return. Therefore there does not appear to be any reason to hold that the reassessment order is not based on the valid material which is found subsequent to the assessment. That apart the order is an appelable order. The petitioner has taken a shortcut method to file the writ petition bypassing the provisions of appeal and other remedies before invoking the writ jurisdiction under Article 227 of the Constitution of India. A false return has been filed on the basis of the contents of statutory form 65A which the department found subsequent to the assessment from the check-post in West Bengal. This clearly shows that the petitioner has with a dishonest intention filed false return to cause loss to the state revenue. If so, it amounts to commission of offence punishable under section 415, read with section 417 of the Indian Penal Code. - Decided against assessee.
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