TMI Tax Updates - e-Newsletter
July 25, 2012

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. COURT CANNOT INTERFERE WITH THE TRANSFER OF EMPLOYEE UNLESS IT WAS MALA FIDE OR IN VIOLATION OF STATUTORY PROVISIONS.

   By: DR.MARIAPPAN GOVINDARAJAN

2. EXEMPTION TO LEGAL SERVICES

   By: Dr. Sanjiv Agarwal

News

1. Foreign Investment Promotion Board Approves 14 FDI Proposals Worth Rs.1584.11 Crore.

2. Imposing Fees on Certain E-Forms Filed with ROC, RD OR MCA(HQ) under MCA-21 Where at Present No Fee is Prescribed.

3. Income Tax Department Starts Two More Taxpayer Friendly Initiatives : ‘Register for Home Visit’ and ‘Online Tax Help’.

4. Eminent Persons Advisory Group Meeting held in CCI. Corporate Affairs Minister releases the first news letter of CCI.

Notifications

Customs

1. 64/2012 - dated 23-7-2012 - Cus (NT)

Seeks to amend Notification No. 83/2004 – Customs (NT) - Jurisdiction of Customs officers .

2. 63/2012 - dated 23-7-2012 - Cus (NT)

Appointment of Common Adjudicating Authority in respect of the Additional /Joint Commissioner of Customs (Import), Air Cargo Complex, Sahar Mumbai; and the Additional/Joint Commissioner of Customs, Custom House, Opp. Ild High Court, Navrangpura, Ahmedabad.

3. 62/2012 - dated 23-7-2012 - Cus (NT)

Appointment of Common Adjudicating Authority in respect of the Joint /Additional Commissioner of Customs, Inland Container Depot, Tughlakabad, New Delhi, the Assistant / Deputy Commissioner of Customs, ICD, Patparganj, New Delhi; and the Assistant / Deputy Commissioner of Customs, ICD, Sabarmati,.

Circulars / Instructions / Orders

FEMA

1. 09 - dated 24-7-2012

Exim Bank's Line of Credit of USD 250 million to the Government of Nepal.

2. 10 - dated 24-7-2012

Exim Bank's Line of Credit of USD 47 million to the Government of the Federal Democratic Republic of Ethiopia.

Highlights / Catch Notes

Income Tax

• Capital Gains Tax Applied During Firm Dissolution or Asset Distribution u/s 45(4) of the Income Tax Act.

  Case-Laws - HC : Levy of capital gains tax - in the year in which the dissolution of the firm takes place or year in which consequent to such dissolution the distribution of assets takes place as per Section 45[4] - HC
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• High Court Clarifies Deductions u/ss 80C-80U and Disallowance u/s 14A of Income Tax Act.

  Case-Laws - HC : Disallowance u/s 14A and deductions under Sections 80C to 80U (Chapter VIA) - the income on which the deduction is allowed forms a part of the total income, though not included in the amount or quantum on which tax is paid - HC
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• Discrepancy in Accounting Methods: EMI for Tax, SOD for Financial Statements Sparks Legal Concerns on Tax Assessments.

  Case-Laws - HC : Difference in method of accounting adopted - EMI method to account the finance charges for the income tax purposes and SOD Method to arrive at balance sheet and profit and loss statements - HC
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• Software Development Costs: Classified as Revenue Expenditure, Fully Deductible in Year Incurred for Tax Purposes.

  Case-Laws - HC : Development of software - a revenue expenditure or capital expenditure? - only a revenue expenditure - HC
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• Court Examines Tax Deduction Eligibility for AMC Charges on Components u/ss 80IB and 80IC of Income Tax Act.

  Case-Laws - AT : Deduction u/s 80IB/80IC on AMC charges - on bought out components, used for the erection - AT
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• Capital Gains Reinvestment: Can Proceeds from Multiple Property Sales Fund One Home Purchase? Legal Clarity Needed.

  Case-Laws - AT : No rulings have been brought on record by the ld. DR to show that the capital gain arising from sale of more than one residential houses cannot be invested in one residential house - AT
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• Taxpayer's Deduction Claim u/s 54 Denied: Two Nearby Flats Not a Single Residential Property.

  Case-Laws - AT : Allowance of claim of deduction u/s 54 - the two flats cannot be treated as one residential property only on the ground that two buildings in which the flats were located were within the walking distance as claimed by assessee - - AT
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• Assessee Trust's Income Exempt from Maximum Marginal Tax Rate; Section 161(1A) Provisions Not Applicable.

  Case-Laws - AT : Taxability of Income as assessee trust - maximum marginal rate. - provisions of sec. 161(1A) are not applicable in the case of the assessee. - AT
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• Assessee Qualifies for Tax Deduction u/s 10A After STPI Approval Confirms Exemption Claim Validity.

  Case-Laws - AT : Eligibility for deduction u/s 1OA - the assessee has demonstrated that first invoice has been raised after it has obtained the approval of STPI. Thus claim of exemption u/s 10A is admissible. - AT
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• Are Share Sale Gains Long-Term or Short-Term? Determining Tax Implications Based on Dematerialization Date.

  Case-Laws - AT : Sale of shares - long term capital gains or short term - Whether purchase of the shares can be considered only on the date of dematerialization – AT
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• Eligibility for Section 54F Tax Exemption Depends on Taxpayer's Status and Property Holding at Transfer Time.

  Case-Laws - HC : Denial of claim of exemption u/s 54F - A reading of Section 54F clearly points out that the holding of the residential house as on the date of transfer has relevance to the status of the assessee as an individual or HUF. - HC
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• Appellate Tribunal errs by extending interim order of stay in pending appeal beyond 365-day statutory limit.

  Case-Laws - HC : Appellate Tribunal has committed a positive error in consciously extending the interim order of stay granted in the pending appeal beyond the period of 365 days - HC
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• Court Rules Royalty Payments Cannot Be Reduced After Arm's Length Price Justification, Despite Customer Non-Payment Issues.

  Case-Laws - HC : Disallowance made of royalty paid by the assessee to CAMI USA for distribution of software products in India - Once it is accepted that the ALP of the royalty is justified, there can be no reduction in the value thereof on account of the assessee's customers failing to pay the assessee for the product purchased by them from the assessee. - HC
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• Court Rules Third-Party Claims Insufficient for Seized Jewellery, Silver, and Cash Ownership Proof in Search Case.

  Case-Laws - HC : Jewellery, silver utensils and cash amounting were seized during search - assessee submitted that the articles belong to third party - Mere declaration by third parties may not be sufficient - HC
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• Exemption Allowed u/s 54F Despite Late Filing; Investment Made Before Filing Date Qualifies for Tax Benefit.

  Case-Laws - AT : Exemption u/s 54F - belated filing of return - investment after due date but before actual date of filing of return - exemption allowed - AT
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• Real estate activities don't qualify as civil contracts u/s 44AD; bank deposits related to them are excluded.

  Case-Laws - AT : Addition u/s 69 - computation of income u/s 44AD - activity of real estate is not in the nature of civil contract and therefore, provisions of sec 44AD are not applicable so far as the deposits in the bank account - AT
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• High Court Invalidates Second Notice Issued After Limitation Period u/s 143(2) of Income Tax Act.

  Case-Laws - HC : Notice under section 143(2) of the Act - Subsequent attempt to serve another notice under section 143(2) long after the expiry of the limitation period - not valid - HC
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• Payments to State Electricity Boards Exempt from TDS Deduction u/s 194C for Infrastructure Projects.

  Case-Laws - AT : TDS u/s. 194C - payments made to State Electricity Boards/State Government Corporations for necessary infrastructure – assessee was not liable to deduct TDS - AT
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• Tax Assessment Invalid Without Notice u/s 143(2) of Income Tax Act: Protecting Taxpayer Rights.

  Case-Laws - HC : Assessment - non-issuance/service of notice under section 143(2) of the Act – very foundation of the jurisdiction of the Assessing Officer is on the issuance of the notice under section 143(2) - HC
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• Tribunal Criticized for Upholding Income Attribution to Assessee Based on Suspicions, Contrary to Evidence.

  Case-Laws - HC : AO added income belonged to assessee’s wife treated as income in the hands of the assessee - ITAT uphold the view of AO - Tribunal has indulged in suspicions, conjectures and surmises and acted contrary to the evidence which position is judicially unsustainable - HC
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FEMA

• Exim Bank Grants USD 250 Million Credit Line to Nepal for Development Projects Under FEMA Guidelines.

  Circulars : Exim Bank's Line of Credit of USD 250 million to the Government of Nepal. - Circular
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• Exim Bank Grants USD 47M Credit Line to Ethiopia for Economic Development and Bilateral Cooperation Projects.

  Circulars : Exim Bank's Line of Credit of USD 47 million to the Government of the Federal Democratic Republic of Ethiopia. - Circular
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Service Tax

• Estoppel Doctrine Applied: Commissioner Classifies Services as 'Management or Business Consultant' in Service Tax Case.

  Case-Laws - AT : Whether the doctrine of estoppel can be invoked in service tax - Commissioner has, invoking the doctrine of estoppel, held that the appellants have treated themselves as rendering the services of 'management or business consultant' - AT
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Central Excise

• Chartered Accountant's Valuation Certificate Must Be Duly Considered; Presumed Thorough Review Conducted Before Issuance.

  Case-Laws - AT : Valuation of final products – Professional's certificate cannot be summarily dismissed, as the said professional, in this case, Chartered Accountant must have gone through the accounts and entire records produced before him. - AT
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Case Laws:

• Income Tax

• 2012 (7) TMI 599
  Reopen the assessment U/S 148 - Giving benefit of MAT credit before calculation of interest u/s 234 & benefit of Netting of Interest to the assessee while calculation of deduction u/s 80HHC - Held that:- Benefit of MAT credit before calculation of interest u/s 234B and Netting of Interest was not only discussed in the original assessment, the same was concluded in favour of the petitioner for the same assessment year by virtue of a decision of the Tribunal and CIT (A)respectively - Surely, when the Tribunal had already rendered its decision on a particular issue AO could not have taken a different view, unless of course such order of the Tribunal was reversed by the High Court - as in the reasons recorded it is not even an allegation that any income chargeable to tax escaped assessment on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for such assessment - in favour of assessee.

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• 2012 (7) TMI 598
  Deduction claimed for the expenditure on technical consultancy fees - Revenue contends that such expenditure should be treated as provided u/s 35AB - Held that:- Taking into account the relevant clauses of the agreement it can be concluded that such expenditure did not result into any enduring benefit but was only for improving the existing efficiency of the assessee company and was thus was purely revenue in nature - the nature of expenditure is found to be revenue in nature, then section 35AB may not apply - such provision would not apply to a revenue expenditure even if the same was incurred for acquisition of technical know-how - Deduction on such expenditure was available even before the introduction of section 35AB and such deduction cannot be curtailed or limited by applying section 35AB - thus taking such an expenditure out of section 37(1) would not arise - in favour of assessee.

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• 2012 (7) TMI 597
  Reopen the assessment u/s 147 - the petitioner has not fulfilled the conditions laid down by the amended provisions of section 80HHC - Held that:- On plain reading of the reasons recorded it is evident that there is not even a whisper to suggest that there is any failure on the part of the petitioner to disclose fully and truly all material facts - when the petitioner filed its return of income, the amended provisions of section 80HHC had not been brought on the statute book and the law requires the assessee to file returns in accordance with the existing laws, and does not and cannot expect the assessee to anticipate any future amendments made in the enactment and file its return accordingly - when the amended provisions of section 80HHC of the Act were not in existence at the relevant time when the return came to be filed, no such failure can be attributed to the assessee - in favour of assessee.

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• 2012 (7) TMI 596
  Penalty levied u/s. 271(1)(c) - CIT(A) deleted the penalty - Held that:- In respect of commission paid to party and ERP Software expenses incurred on ERP software, the assessee has filed along with the return of income audit report and other relevant statements in support of such claims and also during the course of assessment proceedings the assessee further submitted all the information and explanations as required by the A.O. - The explanation offered by the assessee in support of such claims were not found false by the A.O. Therefore, merely because assessee’s claim has been disallowed, it cannot be said that the assessee is also guilty of concealment of income or furnishing of inaccurate particulars of income - no material or evidence for arriving at a reasonable conclusion that amount of addition under consideration represent the income of the assessee. Penalty levied on salary & marketing expenses - Held that:- As on similar facts penalty imposed by the A.O. was deleted by ld. CIT(A) as upheld by the tribunal for the assessment year 1999-2000 thus respectfully following the same, the order passed by ld. CIT(A) deleting the penalty is hereby confirmed - decided in favour of assessee.

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• 2012 (7) TMI 595
  Penalty u/s 271(1)(C)- assessee contested that on same facts penalty was not even initiated during the A.Y. 2001-02 - Held that:- In the year under appeal assessee had not disclosed the sale of the plot during the year under appeal and it was only on enquiry made by the A.O. during assessment proceedings after finding some credit entries in the assessee’s bank account that the full facts were brought on record. Had there been no scrutiny assessment during the year under appeal, the full facts would not have come to light - the facts of both the years are not comparable as during the assessment year 2001-02 the assessee duly declared sale of half portion of plot as capital gain and also claimed deduction u/s 54EA. Therefore, there was complete disclosure of facts when assessee filed his return of income for that assessment year - pure case of concealment of income - against assessee.

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• 2012 (7) TMI 594
  Levy of capital gains tax - in the year in which the dissolution of the firm takes place or year in which consequent to such dissolution the distribution of assets takes place as per Section 45[4] - Tribunal concluded that the assets held by the assessee was treated as its stock in trade and therefore could not be brought to tax under the head capital gains - Held that:- Tribunal has basically proceeded on the premises that the seized material per se did not indicate any undisclosed income of the assessee i.e. the firm because the information which is sought to be used was not directly one relating to the assessee, but an indirect one, such as in the account books of some other person the name the firm figures in some capacity. The tribunal also did not agree with the finding that the firm had continued on and after 1-4-1987, based on the statement of Sri Ramachandra Raje was not a correct approach. Where a plausible view can be taken and more so in a matter where a finding is based on a reading of the contents of a couple of documents and its inference, which becomes a finding and if more plausible views or inferences can be drawn, such matters are not matters which are required to be examined as a pure question of law within the scope of Section 260A - it is not possible to make any conclusions unless there is a positive finding that the firm did exist after 25.03.1987 or after 01.04.1987. This factual position is not definite or clear, deserving a conclusion in law. In such circumstance an inference on the legal position is not warranted - no scope for interference with the order of the tribunal under Section 260A of the Act is very less

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• 2012 (7) TMI 593
  Reopen the assessment of the petitioner - beyond a period of four years - undisclosed the payment for scientific research made for the research done at the premises of the Mother Dairy, New Delhi & the payments made to Delhi University and Nagpur University for which the claim u/s 35(1)9(ii)claimed - Held that:- Claim of deduction was at large before the AO as he applied his mind and called upon the petitioner to supply necessary details to substantiate such claims. If thereafter no disallowances were made it cannot be stated that the petitioner failed to disclose all material facts - as along with the return and during the course of assessment proceedings, the assessee had made necessary disclosures to substantiate such claims. However, having dropped the inquiry at that stage and indirectly having accepted the claims, in facts of the case, it was thereafter not open to issue a notice for reopening of the entire assessment beyond a period of four years from the end of the relevant assessment year. With respect to payments made to Delhi University and Nagpur University they were duly approved under notification issued under Income Tax Act of 1922 held to be valid for the purpose of successor Act also. Merely because such notifications were not produced on record during the original assessment, can hardly be a ground for reopening the assessment beyond a period of four years - decided in favour of assessee.

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• 2012 (7) TMI 592
  Liability u/s 179 to pay the tax dues - a Revision Application under Section 264 filed by assessee - Held that:- As in the first round of the proceedings u/s 179 CIT set aside the order of ITO directing him that before any order u/s 179 is passed against the petitioner, AO must give a specific finding to the effect that efforts made to recover the tax dues from the said company had failed and that the petitioner should be heard before any order is passed u/s 179 - the petitioner was never informed of the efforts made by the department to recover the amounts from the said company - the reliance placed upon a report of the Tax Recovery Officer for conforming the liability, however, no copy of the said communication of the Tax Recovery Officer was ever made known to the petitioner and in spite of the petitioner seeking inspection of all the documents on record, no such inspection was ever given to the petitioner. In this circumstances, the order passed is not only on the basis of the material viz. Tax Recovery Officer's letter/report that was not disclosed to the petitioner, but also passed without a personal hearing, as directed by the order of the CIT as a breach of the principles of natural justice has occurred the order of ITO is liable to the quashed and set aside and the matter ought to be remanded to the Tax Officer for de novo adjudication - in favour of assessee by way of remand.

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• 2012 (7) TMI 591
  Disallowance u/s 14A - Revenue contented that once deduction stands allowed, the income in view of the deduction ceases to be a part of the total income - Section 14A applicable in respect of deduction allowed under chapter VI-A? - Held that:- Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words do not form part of the total income under this Act is significant and important - Before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced. Incomes in Chapter III are not chargeable to tax and, therefore, fall outside the ambit of Sections 4 and 5 but while computing the taxable income, deductions are allowed to the extent stipulated in Sections 80C to 80U. The distinction between the two, has been accepted and recognized by the Supreme Court in Second Income Tax Officer and Another v. Stumpp Schuele and Somappa Private Limited [1990 (9) TMI 69 - SUPREME COURT] - deduction if allowed does not mean that the said income ceases to be part of the total income - the income on which the deduction is allowed forms a part of the total income, though not included in the amount or quantum on which tax is paid - in favour of assessee.

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• 2012 (7) TMI 590
  Difference in method of accounting adopted - EMI method to account the finance charges for the income tax purposes and SOD Method to arrive at balance sheet and profit and loss statements - hire purchase agreement - Held that:- Method employed for arriving the monthly installment is an EMI method and the right of the assessee to receive the hire purchase charges on various due dates are as per the schedule mentioned in the agreement - considering the character of the transaction as the title to the property will pass on to the hirer, when all the installments are paid and when the hire purchaser exercises his option to purchase was pure and simple and that the transaction had not in any manner undergone any change ever since the assessee started its business in this field the Tribunal came to the conclusion that the AO had committed a serious error in ignoring the EMI method, to adopt SOD method - once the Revenue had accepted the character of the transaction as hire purchase transaction and when the Revenue had not disputed the fact that on all the earlier years there are no materials available as on record to show that following such method had really resulted in suppression of income - in favour of assessee.

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• 2012 (7) TMI 589
  Eligibility of amalgamated company for exemption u/s 10B - Held that:- As in the case the subsidiary company amalgamated with the holding company with effect from 1.1.93 and as a result of the merger, the business of the amalgamating company became the business of the assessee company. Given the fact that the assessee is a holding company of the subsidiary company, when the assets stood transferred to the amalgamated company, evidently, the export business done by the assessee is not a business formed by splitting up or reconstruction of a business already in existence. As far as sub clause (iii) of Section 10B(2) is concerned, the criteria for grant of the relief is that the undertaking is not formed by transfer to a new business of machinery or plant previously used for any purpose - Extending the said decision to sub clause (iii) of Section 10B(2) it is clear that as a result of the merger of the subsidiary company with the holding company, there is no new business formed by transfer of machinery or plant previously used for any business - the assessee s status as 100% EOU and after the deletion of Section 84 and insertion of 80J and thereafter benefit under Section 10B being attached to the undertaking no point of not extending the claim of exemption u/s 10B Development of software - a revenue expenditure or capital expenditure ? - Held that:- As decided in ALEMBIC CHEMICAL WORKS CO., LTD, [1989 (3) TMI 5 - SUPREME COURT] that upgradation of computers by changing certain parts, thereby enhancing the configuration of the computers for improving their efficiency, was only a revenue expenditure - in favour of assessee.

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• 2012 (7) TMI 588
  Reopening of the assessment u/s 147 - after expiry of four years - Held that:- As it is clear from the reasons recorded by the AO that the same does not disclose or state that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment - AO has examined the issue of total turnover and accepted the claim of the assessee while framing the assessment u/s 143(3) then even if it is found that the claim allowed in the original assessment should not have been allowed the same itself, is not a valid reason to reopen the assessment beyond the period of four years after the end of the relevant assessment years - in favour of assessee. Disallowance of bad debts written off - as the assessee failed to produce the complete details regarding the Debts written off and has failed to establish that the debt has actually become bad. Held that:- As far as the requirement of establishing that the debt has actually gone bad, the same is not essential for claiming the deduction of bad debts in view of the decision of Hon’ble Supreme Court in case of TRF LIMITED V. CIT (2010 (2) TMI 211 - SUPREME COURT ) - as assessee has filed the additional material before the CIT(A),which has not been properly examined, therefore this issue is remitted back to AO for verification and examination of the record filed by the assessee - in favour of assessee by way of remand. Disallowance of advances written off - Held that:- This issue is also similar to the disallowance of bad debts written off. Since the issue of disallowance of bad debts written off has been set aside to the record of the AO therefore, this issue is also remitted to the record of the AO - in favour of assessee by way of remand. Disallowance of software expenses being capital in nature - Held that:- The expenditure was incurred by the assessee for development of software to be used in the assessee's business of software as evident from the assessee's books of account that the assessee has shown the said expenditure as work-in-progress being capital in nature. Having regard to the facts and circumstances of the case that when the assessee has incurred the expenditure for bringing a new asset into existence to be used for the business of the assessee, then, the same cannot be allowed as revenue expenditure. Since the asset was not yet come into existence, therefore, there is no question of allowing any depreciation - against assessee. Justification on computation of deduction u/s 10A - Revenue held that loss on account of Exchange Fluctuation is the claim of expenditure but not an exclusion from total turnover - Held that:- There should be uniformity in the ingredients of both the numerator and the denominator of the formula as if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover - though there is no definition of the term ‘total turnover’ in Section 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator - that the total turnover for the purpose of computation of 10A deduction has to be taken after excluding the foreign exchange loss from the total turnover shown in the profit and loss account - in favour of assessee.

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• 2012 (7) TMI 587
  Disallowance under section 14A - investment made by the assessee in the shares totaling Rs. 3.01 crores - Held that:- where a business strategy had been adopted by the assessee by way of investment in shares of sick company in order to take over the said company for widening its operation of business, cannot be held to be investment per se - as the assessee has no intention to earn any dividend from the said investment as the company in which the amount was invested was running into losses - Rule 8D are applicable from assessment year 2008-09 and are not retrospective and year under appeal is assessment year 2006-07 - in favour of assessee. Disallowance under section 36(1)(iii) of the interest expenditure - Held that:- In the case of the assessee where it has mixed funds available for its business activity, the plea of the assessee that it had interest free funds available for the purposes of advancing to its subsidiary cannot stand - transfer of funds in the range of Rs. 5 lacs from month to month also does not justify the plea of commercial expediency - against assessee. Disallowance on account of interest capitalized for the period prior to putting the assets to use - Held that:- Considering the facts and circumstances of the case where the assessee has failed to establish its case of availability of non-interest bearing funds and specially in view of the mixed pool of funds available with the assessee no merit in the present ground of appeal raised by the assessee - against assessee. Dis allowance of deduction u/s 80IB/80IC on AMC charges - Held that:- as AMC charges received by the assessee are directly relatable to the business carried on by the assessee of manufacturing, commissioning and erection of cooling system and consequently the assessee is eligible to the claim of deduction u/s 80IB/80IC - in favour of assessee. Dis allowance of deduction u/s 80IB/80IC on bad debts recovered - Held that:- The amount received on recovery of bad debts is income derived from industrial undertaking and as the outflow of bad debts written off is allowable as a deduction while computing the income of the industrial undertaking eligible for deduction under section 80IB/80IC consequently, the inflow of the amount of bad debts recovered is includible as profits of eligible unit, on which deduction under section 80IB/80IC is claimed - in favour of assessee. Dis allowance of deduction u/s 80IA - Held that:- assessee is entitled to the benefit of deduction under section 80-IA both on the manufactured items and the bought out components, used for the erection of cross flow (XE series) and counter flow (CM series) cooling tower and is not entitled to any deduction under section 80-IA on Round Bottle (RB) Cooling Towers and bought out components used for erection of Round Bottle Cooling Towers - partly in favour of assessee. Dis allowance of deduction u/s 80IB/80IC on bought out components - Held that:- Even after assembling the unit the assessee was also providing the services by the AMC of the said unit in entirety and we find no merit in the observation of the Assessing Officer to the contrary - in favour of assessee. Charging of interest u/s 234B and 234C being consequential is dismissed - in favour of assessee.

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• 2012 (7) TMI 586
  Allowance of claim of deduction u/s 54 - joint holders of property - Held that:- Capital gain arising from the transfer of a residential house is not admissible against the investment in second house as the only restriction is that the capital gain arising from the sale of one residential house must be invested in one residential house and not in two residential houses - Unable to agree with the view taken by the CIT(A) that the two flats constituted one residential house. The flats were located in two different buildings owned by the two different housing societies and were situated on two different roads. These flats were acquired in two different years. There was no common approach road to the buildings. Therefore the two flats cannot be treated as one residential property only on the ground that two buildings in which the flats were located were within the walking distance as claimed by assessee - Assessee sells more than one residential houses in the same year and the capital gain is invested in a new residential house, the claim of exemption cannot be denied if the other conditions of section 54 are fulfilled - No rulings have been brought on record by the ld. DR to show that the capital gain arising from sale of more than one residential houses cannot be invested in one residential house - The only requirement of section 54 is that income should be chargeable to tax under the head "house property income" and it is not necessary that income should have been actually charged - direct the AO to allow the capital gain exemption u/s 54 after verifying that the new residential house had been constructed within prescribed time limit - partly in favour of revenue.

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• 2012 (7) TMI 585
  Penalty u/s 271(1)(c) - Penalty levied on both Principal and Agent - shipping profits were claimed exempt from tax in India - DTAA between India and Mauritius - Held that:- Section 160(1)(i) provides that in respect of income of the non-resident, the agent of such non-resident is to be treated as representative assessee. Thus, the assessment should have been either made in the case of the representative assessee i.e. the agent or to non-resident itself. The department cannot make the assessment on both the persons on agent as well as principal. Similarly, the penalty under Section 271(1)(c) for the same income cannot be levied in the case of both the persons. In the return of income, the assessee had duly disclosed the freight receipts, the income from such freight receipts under presumptive provisions of Section 44B and also the tax payable on such income. Based on this, DIT relief certificate by the AO in India and tax residency certificate by the authorities of Mauritius, tax exemption has been sought in the return of income - as department itself on the one hand, gives certificate for 100% tax relief and on the other hand, treats the same to be provisional in nature, cannot frame the charge of concealment of income or furnishing of inaccurate particulars of income - nowhere it has been found that the assessee was not acting bonafidely - no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false as mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars - in favour of assessee.

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• 2012 (7) TMI 584
  Addition on account of unexplained investment in the wrist watches - A.O. has made this addition on the ground that the appellant has not produced any bills or other evidence in support of the contention that these watches were covered with the withdrawals made by the family members of the appellant – Held that:- There was sufficient withdrawals shown by the family members which could cover the purchase of the wrist watches - normally bills of such items like watches are not preserved for record - Assessing Officer has not made any specific or exact investigations or market enquiries which could establish the estimation of value of these watches - value of the wrist watches adopted by the Assessing Officer was arbitrary – In favor of asssessee Addition made u/s 69A of the Act - search and seizure - cash was found at the residence of the assessee - assessee has stated during the search itself that the cash found belongs to MR. Educational Institution - A.O. has made this addition on the ground that sources of this cash have not been explained by the appellant – Held that:- Cash books were duly produced before the A.O. Copies of the relevant pages of cash books were also filed by the appellant during the appeal proceedings as part of the paper book - If the A.O was not satisfied with the authenticity of the entries made in the cash books, some enquiries could have been made to prove so. However, in the absence of such enquiries or evidence, the A.O. cannot be said to be justified at all to make addition considering this cash to be unexplained – In favor of assessee Addition made on account of unexplained investment u/s 69 of the Income-tax Act, 1961 and undisclosed income – addition made on the basis of document seized during search - assessee has denied any relationship with the document at the time of search itself - The document is denied to be in handwriting of the assessee or handwriting of any family member – Held that:- Revenue has failed to collect any corroborative material which could explain the real character of the transaction - document is not clear it does not give any conclusive and meaningful conclusion in respect of the transactions. It also does not establish the correct nature of the transaction. The revenue has failed to collect corroborative evidence to establish the correctness of the transaction recorded in the loose paper - appeal of the revenue is dismissed.

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• 2012 (7) TMI 583
  Taxability of Income as assessee trust - maximum marginal rate. - CIT(A) held that the trust cannot be held as an association of a person as the constituent persons have not come together to earn income in question - DR asked for the applicability of sec 161(1A) in respect of the license fee received by the assessee trust in subletting out the property in question - Held that:- The provisions of sec. 161 (1A) are applicable only when the income of the trust is business income and the activity of subletting is a single isolated activity and there is no structured, systematic activity with frequency, therefore, the addition is not sustainable - the individual income has been already taxed in their hands as stated by the appellant, there can be no double taxation of the same amount - the assessee trust merely sub-let out the leased property and the income is held to be liable to tax as income from other sources and not income from house property or income from business - provisions of sec. 161(1A) are not applicable in the case of the assessee. - in favour of assessee.

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• 2012 (7) TMI 582
  Eligibility for deduction u/s 1OA - assessee company has five units registered under STPI - Held that:- To avail the facilities and privileges admissible under the STP scheme the unit has to be custom bonded. The assessee has obtained clarification from STPI as per letter dated 20th April, 2004 from Director, STP. It is mentioned that if the assessee intend to avail any duty concession, then the assessee is required to approach custom for custom bonding. Hence, it cannot be read in the provisions of the Act that for availing deduction s/u lOA, the assessee should first obtain the custom bonding and then should commence production - the assessee has demonstrated that first invoice has been raised after it has obtained the approval of STPI. Thus claim of exemption u/s 10A is admissible. For the purpose of computing deduction u/s 10A of the Income-tax Act, if any income is excluded from the export turnover, then the same has to be excluded from the total turnover also. Addition of an amount as foreign exchange gain for the purpose of computing deduction u/s 10A by assessee - Held that:- CIT Vs. Infosys Technologies Ltd. [2011 (11) TMI 443 - KARNATAKA HIGH COURT] wherein the Hon’ble Karnataka High Court confirmed that the fluctuation in the valuation of currency which has to be converted to foreign exchange currency has direct nexus to the export of software and can never be included as income from other sources - in favour of assessee. Inclusion of income in the nature of ‘interest income’ and ‘miscellaneous income’ in the profits of the undertaking as eligible for deduction u/s 10A - Held that:- The ‘interest income’ and ‘miscellaneous income’ for units 5 and 6 have been excluded from the profits and gains of the undertaking for computation u/s 10A and while making such adjustment in computation, inadvertently foreign exchange gain was also excluded from the profit of the business of the undertaking - thus to consider the actual bifurcation deem it fit and proper to remit the issue back to the file of the AO for reconsideration. Claim of assessee to include the income from recruitment fee as part of export turnover for the purpose of computing the deduction u/s 10A - assessee submitted the recruitment/human resource services rendered by the company squarely falls within the ambit of human resources services mentioned in the notification dated 26.9.2000 - Held that:- As both the parties have agreed for accepting the alternate plea that the assessee must prove with supporting evidence as to which expenses are allowable under the Act and should produce evidence for claiming the expenses relating to the business of ‘body shopping’ by the assessee,no reason to adjudicate on the issue as to whether the recruitment fee would form part of export turnover. Therefore, the issue is left open to the assessee to agitate in appropriate cases - direct the AO to consider only the net income from ‘manpower supply’ as ‘income from other sources’

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• 2012 (7) TMI 581
  TDS - Liability of the payer to make deduction of tax – Held that:- Payment made by the assessee is purely reimbursement of expenses which in no way fall within the ambit of the provisions of TDS - Appellant was not liable for deduction of tax as per the provisions of section 194J of the Act, the assessee should not be treated as ‘assessee in default under section 201(1) of the Act - Assessing Officer directed to delete the demand Regarding interest u/s. 201(IA) – Held that:- original payment was made by the sister concern of the assessee to Diamond Trading Company on behalf of the assessee and subsequently the assessee has reimbursed the amount to the sister concern - once the TDS was deducted by the sister concern and deposited to the government account, then no subsequent TDS is required to be deducted on the same amount - Since the payment was not subjected to TDS provisions, then the liability of interest also does not arise - there is no loss of revenue because the original payment was already subjected to tax and the amount in question is only reimbursement – In favor of assessee

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• 2012 (7) TMI 580
  Condonation of delay - delay of 243 days - reasons stated for the delay in filing the cross objections are that, on professional advice from the present Counsel, these cross objections were filed – Held that:- Assessee has not demonstrated that it had a reasonable cause for filing the cross objections with a delay of 243 days - cross objections preferred by the assessee are dismissed Computation of Arms Length price - international transactions - adjustment to the international transactions – TPO had rejected the methodology adopted by the assessee on the ground that there is no comparability as the set of skills that an employee requires vary from function to function – Held that:- Rates charged by the assessee company are identical to the rates charged by the third parties in the same line of business for the same job and the assessee has proved the same with evidence - TPO has not brought out any material on record to prove that the per hour rate charged by the assessee company is lower than that charged by the third parties in the same line of business - Assessing Officer has not given any reason that TNM is the best method and the CUP method is not appropriate - adjustment has been made by the Assessing Officer himself. No reference was made to the TPO - dismiss the adjustment made by the TPO / Assessing Officer – Revenue’s appeal dismissed.

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• 2012 (7) TMI 579
  Denial of exemption u/s.80P(2)(a)(vi) - A.O. found that some of the members of the society had no actual link with the actual business affairs of the society and there by the collective disposal of labour specialized/skilled or manual for all the 61 members of the society for this year never happened – Held that:- AO has also not even made out any material on record either by examining the President/Members of the assessee-society regarding the way in which the assessee has executed the contracts - issue in favour of the assessee basing on the remand report given by the predecessor of the Assessing Officer, the Assessing Officer in order to deviate from that finding has to necessarily examine this aspect by examining the aspect as to how the assessee was carrying out the contract with reference to the contractees or the President of the Society or the Members of the Society - only on assumption and presumptions of his choice, the Assessing Officer has inclined to disallow the claim of the assessee u/s.80P(2)(a)(vi) of the I.T.Act - finding of the AO without bringing any material on record is not sustainable for legal scrutiny - rejection of the claim of the assessee u/s.80P(2)(a)(vi) of the I.T.Act is not correct Disallowance u/s.40A(3) of the I.T.Act – Held that:- Assessing Officer has not made out on record as to whom the payments were made, whether they are members of the assessee society who are executing the contract works or not - He has not even examined the aspect as to who are the persons executing the contracts on behalf of the assessee, whether its members or else - The genuine and bonafide transactions are not to be disallowed under this Section - addition made u/s.40A(3) is not sustainable for legal scrutiny Addition on account of provision for Roller - assessee’s books of account are audited by competent authority as authorized by the Government of Orissa and it was not the case of the AO that the auditors who audited the accounts of the assessee has raised any objection for the financial activities of the assessee – Held that:- Assessee has not claimed any deduction of this provision though shown as provision for Roller - When the assessee has not claimed any deduction, addition of such amount to the total income of the assessee is not tenable under law – In favor of assessee

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• 2012 (7) TMI 578
  Addition on account of suppressed sales – sale of plots – valuation – Held that:- There are certain fixed norms for determining the market value of a particular plot, no such steps were taken either by the Assessing Officer or by the Inspector - assessee has sold the plot at a rate of Rs.1441 per sq. yd. The circle rate at that point of time was Rs.1338 per sq. yd. therefore, no addition is to be made for the sale of plots - appeals as well as cross objection of the assessee deserve to be allowed partly, whereas appeals of the revenue are de void of any merit - Assessing Officer directed to estimate the sale value of the plots for Rajinder Nagar Industrial Area only and he will adopt a rate of Rs.2500 per sq. yd. instead of Rs.1,000 per sq. yd. disclosed by the assessee, while quantifying the sale proceeds - assessee are partly allowed

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• 2012 (7) TMI 577
  Sale of shares - long term capital gains or short term - Whether purchase of the shares can be considered only on the date of dematerialization – Held that:- In view of the CBDT Circular No. 704 dtd. 28.4.1995 in case of securities the "date of purchase" has to be taken from the broker's note/contract note and the period of holding is also to be reckoned from the "date of purchase" and not from the "date of dematerialization" - Since the holding period of the shares as per the broker's note and its subsequent sale after dematerialization is more than 12 months, therefore, the shares become long term capital asset and the assessee's claim of long term capital gain is correct - order of CIT set aside and direct the A.O. to accept the long term capital gain declared by the assessee - appeal filed by the assessee is allowed.

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• 2012 (7) TMI 576
  Revisionary power of Commissioner under section 263 of the Act - addition was made in respect of profits from the unit at Gurgaon by disallowing some expenses - assessee during the course of the original assessment proceedings before the Assessing Officer had submitted, details of commission paid, purchase details, etc. – Held that:- Commissioner did not dispute or deny that the assessee had filed invoices, commission vouchers and details - Assessing Officer did not conduct any enquiry or verification whether the aforesaid commission of Rs. 3.33 crores was attributable to the orders placed and exports made by the Chennai unit - Failure to conduct the said enquiries, makes the assessment order erroneous and prejudicial to the interests of the Revenue - Commissioner rightly exercised his revisionary power under section 263 of the Act - required conditions for exercise of the said power are satisfied - in favour of the Revenue

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• 2012 (7) TMI 563
  Denial of claim of exemption u/s 54F - as possession of the property under consideration by the appellant to the developer for development of the property under the development agreement and therefore transfer for the purpose of assessment of capital gains took place - Held that:- as joint owners of the property, the assessee and her husband had shown 50% share with reference to the clinic and the residential portion in their respective returns. Thus, it is clear that as on the date of the transfer, the assessee did not own a residential house in her name only, the income from which was chargeable under the head "income from house property", to bring into operation, the proviso to Section 54F - A reading of Section 54F clearly points out that the holding of the residential house as on the date of transfer has relevance to the status of the assessee as an individual or HUF. On the admitted fact that the assessee herein, as an individual, does not own any property in the status of an individual as on the date of transfer, we have no hesitation in accepting the case of the assessee, thereby allowing the appeal - in favour of assessee.

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• 2012 (7) TMI 562
  Power of Tribunal to extend the stay beyond a period of 365 days - Revenue contested it to be order contrary to Section 254 - Held that:- Considering the provisions of Section 254(2A) the first proviso provides that the said Appellate Tribunal may, on merit, pass an order of stay in any proceedings relating to an appeal were period of stay cannot exceed 180 days from the date of such order and the said Appellate Tribunal shall dispose of the appeal within the specified period of stay - The second proviso to further extend the period of stay originally allowed. However the aggregate of period originally allowed and the period so extended should not exceed 365 days. The Appellate Tribunal is required to dispose of the appeal within the extended period - The third proviso provides that if such appeal is not decided within the period allowed originally or the period extende the order of stay shall stand vacated after the expiry of such period or periods. Appellate Tribunal has committed a positive error in consciously extending the interim order of stay granted in the pending appeal beyond the period of 365 days ignoring the language of Section as the language of the legislature being quite clear about the outer time limit stipulated for the duration of the operation of stay - in favour of revenue.

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• 2012 (7) TMI 561
  Denial to grant approval u/s 10(23C)(vi) - petitioner is a society registered under the Societies Registration Act - Held that:- As the petitioner has been approved in the past for the purposes of Section 10(23C)(vi) and it has also been approved for the purposes of Section 80G and hitherto no fault has been found in the manner in which the books of accounts have been maintained and expenses and payments have been made. The registration under Section 12A continues to remain in force - the suspicious approach of the respondent towards the evidence adduced by the petitioner without noticing the crucial facts such as payment by cheques etc., it seems to us that the respondent was not justified in law in readily inferring that the petitioner manipulated and fabricated its books of accounts and vouchers and also debited personal, bogus and exaggerated expense - in favour of assessee.

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• 2012 (7) TMI 560
  Disallowance made of royalty paid by the assessee to CAMI USA for distribution of software products in India - whether the royalty should be allowed to be written off to the extent of the unpaid invoices during the year itself - ITAT deleted the disallowance - Held that:- Merely because the respondent had paid the royalty even in respect of the products sold by it to the clients, who had not paid for the same, it would make no difference to the determination of the Arm's Length Price of the transaction - Once it is accepted that the ALP of the royalty is justified, there can be no reduction in the value thereof on account of the assessee's customers failing to pay the assessee for the product purchased by them from the assessee. Transactions between the respondent and CAMI are unrelated to the transactions between the respondent and its clients i.e. purchasers of the products from the respondent. CAMI was not concerned with the respondent's inability to recover the consideration from its clients. It is not suggested that the transactions in this case either between the respondent and CAMI or the respondent and its clients are colourable - in favour of assessee.

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• 2012 (7) TMI 559
  Block assessment Order u/s 158BC r.w.s. 143(3) - jewellery, silver utensils and cash amounting were seized during search - assessee submitted that the articles belong to third party & are covered under the Voluntary Disclosure of Income Scheme, 1997 - Held that:- Mere declaration by third parties may not be sufficient unless the assessee also establishes as to how the items in question reached the assessee from third parties and consequentially found in his possession at the time of search - entire issue was restored to the file of the AO but the petitioner, instead of attending the hearing before the AO and producing the necessary evidence in support of his claim, filed the present petition in the Court - as the adjudication proceedings consequent to the order of the ITAT are pending before the AO it is desirable that assessee should attend the personal hearing as and when the matter is fixed for hearing by the AO - in favour of revenue.

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• 2012 (7) TMI 558
  Challenging notice of reopening u/s 148 beyond a period of four years - according to AO the claim for deduction of license fees paid by the petitioner assessee was required to be dealt with in the manner provided in section 35ABB - Held that:- AO has placed no reliance on any new material at his command to form a belief that income chargeable to tax has escaped assessment. Further during the original assessment framed after scrutiny, the claim of deduction for license fees paid by the petitioner came up for consideration - It may be that some of the queries did not directly relate to such claim and the limitation of deduction as provided in Section 35ABB. However, entire issue was at large before the AO - it cannot be stated that there was any failure or omission on part of the petitioner to disclose truly and fully any material facts necessary for assessment. As in addition to lodging the claim for deduction in the original return filed giving full details and particulars and accounting policies followed the petitioner further elaborated its claim for deduction to the query issued by the AO during such correspondence and if the AO was of the opinion that such expenditure had to be spread over as provided in Section 35ABB nothing prevented AO from doing so in the original assessment that he framed. Full facts with respect to such claim were on record before him as it was not for the assessee to lead the Assessing Officer to any particular legal inference - impugned notice is not sustainable - in favour of assessee.

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• 2012 (7) TMI 557
  Violation of provisions of Section 40A(3)- Tribunal allowed payment of cash amounting to Rs.3,80,083 by the assessee to the supplier's bank account - Held that:- Unless there are exceptional and unavoidable circumstances, the payment made in excess of Rs.10,000/- by cash would not escape the rigour of Section 40A(3) - the mere circumstance that the amount had been remitted to the account of the payee, would not be a good ground to accept the case of the assessee that Section 40A(3)will not applied - the deposit of the amount to the bank does not make the case any shade better than a cash payment for the purpose of condoning the conduct of the assessee - Order of Tribunal is set aside - against assessee.

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• 2012 (7) TMI 556
  Income escaping assessment - period of limitation u/s 149 - Revenue stated that Section 149 lays down since the income escaped assessment in the present case is more than Rs.1,00,000/- the un-amended provision of Section 149, the limitation would be seven years - Held that:- Considering interpretation given to Sections 147 to 149 when there is full, complete and true disclosure of all material facts, the limitation is only four years from the end of the assessment year concerned and when there is non disclosure of facts the limitation is four years in case the income escaping assessment is less than Rs.1,00,000/- and in case there is non-disclosure of facts and the income escaping assessment is more than Rs.1,00,000/- the limitation is six years - in favour of assessee.

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• 2012 (7) TMI 555
  Disallowance of claim u/s 54F - that appellant did not deposit the sale consideration, on sale of shares, in capital gains account scheme before due date for furnishing return - Held that:- Appellant not having filed his return of income for AY 2008-09 within the time allowed u/s 139(1), is eligible to do so till 31-3-2009 which is the extended time u/s Sec.139(4) and accordingly he filed it on 9-1-2009 - the amount utilized by the assessee for purchase of new residential house before 9.1.2009 qualifies for consideration with reference to which deduction u/s 54F(1) is to be computed. Thus, the CIT(A) was not justified in holding that only the amount which was utilized by the assessee before 31.3.2008 only qualifies for deduction - in favour of assessee.

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• 2012 (7) TMI 554
  Substantial question of law - Block assessment - Undisclosed income - unexplained cash - Block period u/s 158BC/143(3)by AO - Held that:- Tribunal were fully justified in coming to this conclusion by rightly placing reliance or the decision of the Bombay High Court CIT vs Shamlal Balram [2000 (2) TMI 37 - BOMBAY HIGH COURT] that the question proposed is not a substantial question of law.

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• 2012 (7) TMI 553
  Reopening of assessment u/s.147 of the Income Tax Act - grievance of the assessee is that the AO did not supply copies of the reasons recorded even when specifically was asked for from the A.O – Held that:- Before issue of notice under the section the AO shall record his reasons for doing so. Since the AO did not provide the assessee - reopening was bad in law, hence quashed. Addition made by rejecting of books of accounts - AO directed to estimate gross profit @ 22% by adopting the average Gross Profit of last six years as against 30% estimated by the Assessing Officer – Held that:- AO relied upon a part of a transaction for the preceding year while rejecting the other - This is not permissible in law - Without pointing out any error in the P&L a/c and the audited report, the powers of best judgment assessment could not be invoked. The principles of best judgment assessment do not appear to have been followed by the AO - in the absence of any specific adverse material on record, the AO was not justified in applying an adhoc gross profit rate which was rightly reduced by ld.CIT(A) – addition deleted Addition made by rejecting of books of accounts – Held that:- AO is directed to delete GP addition because he has not pointed out single defect in the books of account in the year under consideration - AO has neither bothered to issue a show cause notice before rejecting the accounts of the appellant firm. Application of GP rate at 30% on receipts has been made by the AO without bringing any material on record to justify it, without even caring to mention that he is applying 30% rate as against 20.89% GP rate shown by the assessee

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• 2012 (7) TMI 552
  Disallowance of salary – Held that:- Smt. Belwal (director) was an educated lady and after she left the assessee, she got employment at a hefty amount so therefore her working abilities cannot be doubted. Moreover, in the preceding year also, she was paid salary by assessee and no disallowance was made. Deduction of TDS on payment made to her also goes in favour of the assessee as far as genuineness of the expenses is concerned - person who receives salary as a Director cannot be expected to be involved in day today activities. His or her involvement remains at the level of making strategic decisions only and therefore the contention of the Assessing Officer that assessee could not provide proof of any services rendered by her is not correct in view of her role as an art director – addition deleted - decided in favour of assessee. Addition was made u/s 41(1) of the Act by treating the old outstanding amounts as deemed income u/s 41(1) of the Act - assessee had claimed during assessment proceedings that these were un-secured loans which were taken by the assessee 15-20 years back and they have been repaid now by crediting the account of Shri Mahesh Belwal and by debiting the respective account of the lenders – Held that:- Provision of section 41(1) are not attracted as these are attracted only if the liability ceased to exist by way of remission or cessation thereof - assessee has written back this amount and a corresponding credit of an equivalent amount has been given to Mr. Mahesh Belwal and therefore no benefit can be said to have arisen to the assessee In respect of Rs.3,29,748 - assessee has not written back and liability has not ceased to exist – only stand taken by the Assessing Officer that the amount is outstanding for long and hence need to be written back - Held that:- Assessing Officer directed to delete the addition - appeal filed by the assessee is allowed.

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• 2012 (7) TMI 551
  Revision u/s 263 - Interest on enhanced land compensation - assessee has not offered the same to tax by giving a note in the return of income that the same shall be offered for tax, if and when the matter is fianlised by the Highest Court in favour of the assessee – Held that:- Assessing Officer had mentioned that interest amount has not been brought on tax on the ground that the same would be taxable, when the case is finalized - order cannot be treated as erroneous or prejudicial to the interests of the revenue. In this view of the matter, it cannot be said that Assessing Officer has passed an order in undue haste, without proper application of mind and without conducting due and proper enquiry Regarding interest on late furnishing of return - section 234A(3) mandates levy of interest for late furnishing of the return, in response to section 148 of the Act - Assessing Officer has not charged this interest, the order is erroneous and prejudicial to the interests of revenue to this extent - Assessee is partly allowed.

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• 2012 (7) TMI 550
  Penalty u/s 271(1)(c) of the I.T. Act - penalties on additional income offered in the respective returns filed by the assessee in response to notice u/s 153A of the Act – Held that:- Penalty u/s 271(1)(c) is not imposable where there is neither concealment of income nor furnishing of inaccurate particulars of income in return filed u/s 153A of the Act - concealment of income is to be determined with reference to the return of income to be filed in response to notice u/s 153A of the Act. Once returned income filed u/s 153A is accepted by the assessing officer it can neither be a case of concealment of income nor furnishing of inaccurate of particulars of such income - appeals of the assessee get accepted

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• 2012 (7) TMI 549
  Addition u/s 69 of the IT Act on account of bank deposits - Assessing Officer noticed that the assessee had deposited cash of Rs. 23,89,500/- in the Saving Bank Account - Commissioner of Income Tax(Appeals) treated the amount deposited in the bank as undisclosed business deposits and thereby directed the Assessing Officer to determine the profit of the assessee @ 10% of the deposits – Held that:- Assessee by producing the material has demonstrated that these receipts in the bank account of the assessee are relating to its activity of real estate and for the purpose of purchasing the plot and then again returned the amount to the parties - activity of real estate is not in the nature of civil contract and therefore, provisions of sec 44AD are not applicable so far as the deposits in the bank account - receipt in the bank account are in relation to the business activity of the assessee - CIT(A) is just and proper in estimating the profit of the said activity at 10% of the deposits pertaining to the year under consideration

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• 2012 (7) TMI 548
  Addition made on protective basis in the hands of the assessee – Held that:- CIT(A) has not in corporated full facts in his order. Neither any finding have been given on merit nor the issue that how second notice u/s 148 is valid been examined whereas assessee has objected that no addition can be made on protective basis in proceeding initiated u/s 148 - matter sent back to the file of CIT - appeals of the Revenue are allowed for statistical purpose.

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• 2012 (7) TMI 547
  Exemption under section 80P(2) (a) (i) of the Income Tax Act - interest received from the members of the society – Held that:- Tribunal was required to examine the memorandum of association, the articles of association, the return of income filed with the Department, the status of business indicated in such returns, etc - parties not brought on record copy of Memorandum of Association and Articles of Association of the assessee-society nor produced copy of returns as filed by the assessee nor the relevant audit reports - issue requires verification of records and therefore, the issue should be restored to the file of the Assessing Officer for proper verification - matter remanded back to the file of the Assessing Officer - appeal of revenue is allowed for statistical purposes.

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• 2012 (7) TMI 546
  Whether the Tribunal was justified in holding that the assessments were invalid for the reason that search warrant issued in Form 45 was invalid - search is carried out strictly by following the procedure contained under Rule 112 and by issuing warrant by giving the names of each and every assessee separately - when notice after search was issued, each and every assessee without any objection filed return and contested the assessment on merit - In the first appeal stage also they had no contention that block assessments were invalid for want of separate warrants in the case of each and every assessee. However, at the second appeal stage the assessees raised the contention that warrants were defective - Since the Tribunal has followed their order in allowing assessee's claim which stands now reversed - orders of the Tribunal set aside and appeals restored back to the Tribunal for decision on merits.

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• 2012 (7) TMI 545
  Notice under section 143(2) of the Act - Held that:- Notice under the said section must be served on the assessee within the time stipulated in the proviso. In case the notice was not served within the said time limit the assessment order passed would be null and void - No attempt was made to serve the respondent-assessee at the correct address which was available with the Department - Subsequent attempt to serve another notice under section 143(2) long after the expiry of the limitation period – In favor of assessee

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• 2012 (7) TMI 544
  TDS u/s. 194C - payments made to State Electricity Boards/State Government Corporations for necessary infrastructure – Held that:- Assessee not awarded any works contract to the SEBs - complete exercise in the case has been carried out for the purpose of sanction of load for Railway traction sub-station to be operated on Ambala-Moradabad section - Merely because the infrastructure has been provided as per the application moved by the assessee in line with the requirement of the assessee does not establish the case of the Department that the same tantamounts to works - cost of the infrastructure has been borne by the assessee as there were no existing sub-station of the distribution licensee in the said area - no oral or written agreement between the assessee and the distribution licensee for the said purpose except the application made by the assessee, the estimate thereof by the distribution licensee and the payment of the estimated charges - no merit in the observations of the CIT(A) in this regard that the abovesaid represents a contract between the parties - assessee was not liable to deduct TDS out of the amounts paid to the distribution licensee for providing the infrastructure for providing electricity to the Railway traction sub-station of the assessee - AO directed to delete the demand raised under s. 201(1) and interest charged under s. 201(lA) of the Act.

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• 2012 (7) TMI 543
  Assessment - non-issuance/service of notice under section 143(2) of the Act – Held that:- Notice under section 143(2) of the Act was admittedly not issued in this case. The assessing authority thus did not have jurisdiction to proceed further and make assessment - very foundation of the jurisdiction of the Assessing Officer is on the issuance of the notice under section 143(2) - income-tax appeal is dismissed.

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• 2012 (7) TMI 542
  Capital gains - denial of the deemed exemption under s. 10(38) of the Act - Assessee had purchased the shares outside stock exchange directly from the broker in physical form - he was not having D-mat account - alleged that purchase contract notes are not genuine and that the shares were not purchased by the assessee - Held that:- Before the AO copies of the share certificates held by assessee in physical form were provided which contained complete relevant details - merely because there was substantial delay in transferring the shares into D-mat account from the date of purchase and the transactions not routed through Stock Exchange, the AO was not justified in doubting the declared date of purchase of the shares ignoring the evidences - AO directed to allow the claimed exemption under s. 10(38) of the Act on the long-term capital gain shown by the assessee on those shares – In favor of assessee

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• 2012 (7) TMI 541
  Revenue or capital Expenditure - purchase of tin plates for advertisement and publicity – Held that:- These tin plates were not of a life which can provide benefit of enduring nature - in the past and subsequent years, such expenditure has been treated as revenue in nature and without any cogent reason, the revenue should not have disturbed the same - no fault in the order of the CIT (A) in granting the relief. Reassessment proceedings – Held that:- Assessing Officer while finalizing the initial assessment has not applied his mind - No discussion has been made about this particular expenditure in the assessment order - reply of the assessee to the query is also silent on the issue, thus it is clear from the records that the assessment order was passed without any application of mind and such non-application of mind is clear from the order of the assessment itself - no fault in the order of CIT (A) in upholding the reopening of the assessment proceedings

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• 2012 (7) TMI 540
  Penalty u/s 271(1)(c) of the Income tax Act - assessee company, it accepted its mistake and filed a revised computation of income – Held that:- Imposition of penalty on withdrawal of claim by way of revised computation assumes a character of technical default. In respect of bad debt also assessee filed all the primary particulars in this behalf and was under bona fide belief that the amounts having become irrevocable same were allowable as bad debts on write off - penalty should not be imposed only because it is lawful to do so and that the penalty should not be imposed for technical and venial defaults - assessee having furnished all primary facts along with the return of income and the mistake being technical or venial in nature, assessee is not liable to be visited with penalty u/s 271(1)(c) - penalty deleted - revenue’s appeal is dismissed.

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• 2012 (7) TMI 539
  Addition on account of unaccounted income - Assessing Officer took into consideration the documents forwarded to him by the CBI and on that basis added certain incomes as unaccounted income – income belonged to assessee’s wife treated as income in the hands of the assessee - contention of the appellant that the assets for which wealth-tax already stood paid by his wife, Smt. Asha Bhatnagar, could not be the subject-matter of the additions – Held that:- statement on oath of Smt. Asha Bhatnagar has been repelled cursorily although she had in detail explained the circumstances under which she had made her savings ; her earning earned by tuition ; amounts received by her in terms of the will of her father-in-law enabling her to purchase the aforenoted properties as noted in group II in her own name - Tribunal has indulged in suspicions, conjectures and surmises and acted contrary to the evidence which position is judicially unsustainable - order set aside – In favor of assessee

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• Customs

• 2012 (7) TMI 575
  Penalty - Red Sander logs, prohibited for export under the Foreign Trade Policy, were being smuggled out of India – Held that:- Appellant had hatched a fraud against the department by creating a web of intermediaries to smuggle prohibited red sander logs under garb of granite cobble stones - mis-declaration of description of goods as well as consequent mis-declaration of value etc - appellant is liable to penal action under Section 114 of the Customs Act, 1962 - goods valued at Rs. 23 lakhs in the Indian market have been absolutely confiscated. In cases of absolute confiscation, where the entire value of the goods is lost to the importer/exporter, a lower penalty would meet the ends of justice - penalty imposed on the appellant is reduced

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• Service Tax

• 2012 (7) TMI 602
  Clearing & forwarding agent's services - assessee's contention that review order passed by the Commissioner is time barred confirming the service tax demand including the amount already confirmed and paid by the appellant - Held that:- Review power under Section 84 should be exercised correctly and properly within the prescribed limitation period prescribed which starts from the date on which the order sought to be reviewed was passed - since the Assistant Commissioner's order has been passed on 15/12/04, in view of the provisions of Section 84(5), the review order should have issued within a period of 2 years i.e. by 14/12/06, while in this case the order was signed on the note sheet of the review file on 8/12/06,the fair copy of the order for issue/distatch was signed only on 29/12/06 - though the endorsement regarding dispatch signed by the Superintendent (review) and enclosed with the order bears the date "8/12/06" below the signatures of the Superintendent, forwarding of the fair copy on 8/12/06 would be impossible when the fair copy itself was signed on 29/12/06 - the impugned order is not sustainable and, hence, has to be set aside - in favour of assessee.

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• 2012 (7) TMI 601
  Refund claim - Export of services - exemption notification for 'Medical Transcription Services' withdrawn effective from 01.03.2006 - respondents filed refund claims on 20.07.2006 under Rule 5 read with Notification 5/2006 CE (NT) dated 14.03.2006 which was rejected by the original authority on the ground that claim relating to earlier period cannot be entertained - claim related to the period from March 2006 to September 2006 - Commissioner (Appeals), holding that the ground on which the original authority rejected the refund claim was beyond the scope of the show-cause notice issued for proposing rejection for the refund claim – Held that:- denial of refund merely on the ground that the refund relates to period prior to registration not be justified. Therefore, there is no justification to interfere with the findings of the Commissioner in so far as the same related to the eligibility of the refund claim. Decided in favor of assessee.

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• 2012 (7) TMI 600
  Penalty under Sections 76,77 and 78 - assessee discharged the Service Tax liability on pointed out by the Department – the interest for the period in question is still outstanding - Held that:- As the assessee has paid entire amount of Service Tax, he also agreed to pay the said interest as due – waiver of penalty u/s 78 as though there was a delay in making the payment of the Service Tax same was not by way of suppression, misdeclaration etc., as the entire value of taxable services for the relevant period has been correctly shown in the Balance Sheet – as there was a delay in payment of Service Tax and the short payment was made good on being pointed out by the Department the Appellant are liable to penalty under Section 76 only.

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• 2012 (7) TMI 574
  CENVAT Credit of Service Tax paid on the Banking and financial services receive from City Bank has been denied on the ground that the invoices were issued in the name of another unit of the same company and not in the name of the appellant – Held that:- If another opportunity is given, they will submit the relevant details and also their books of accounts and satisfy the adjudicating authority that the services have actually been received by the appellant and not by the 100% EOU and the bills received by them cover the services provided - order is set aside and the matter is remanded to original adjudicating authority

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• 2012 (7) TMI 573
  Whether the appellant is eligible for credit of Service Tax paid on courier service in respect of goods issued by them to the customers and for sending samples – Held that:- In the case of Continental Foundation Jt.Venture (2007 (8) TMI 11 (SC) ) held that appellant is eligible for credit of Service Tax – In favor of assessee

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• 2012 (7) TMI 568
  Scope of input service - Rule 2(l) cenvat credit rules, 2004 - contention by AO that services allowed are having no nexus with the manufacturing activity - assessee contention that definition of input service is an inclusive definition and services used even in relation to setting up, modernization, renovation or repairs of a factory etc. are included in the ambit of "input service" - Held that:- Considering the case of CCE, MUMBAI-V Versus GTC INDUSTRIES LTD.[2008 (9) TMI 56 (Tri)] Commissioner has failed to discuss individually how each of the services claimed by the respondent-assesses as input services in the light of inclusive part of the definition has been accepted by him - every input service availed by the manufacturer cannot be treated as eligible for input credit without looking into the nexus - the matter is remanded to the Commissioner (Appeals) to record his finding in respect of each of the disputed services have been treated as falling under input service in terms of Rule 2(1) of the CENVAT Credit Rules

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• 2012 (7) TMI 566
  Cargo handling service - service tax demand and penalty of identical amount u/s 78, 75A, 76 and 77 - Held that:- After examining the activity undertaken by the appellant as reflected in the agreement the prime work for which the contract was awarded to the appellant for crushing, screening and sieving of the dolomite in the mining area. The movement of the end-product from site of one activity to the site of second activity for further work upon the same is within the mining area. As such, it can be safely concluded that the said activity, being within mining area cannot be held to be covered by the definition of cargo handling service. The activity of loading of finally processed dolomites at Dadhapara Railway sidings for transportation of the same to Bhilai would get covered by the definition of "cargo handling service" as it is not the case of unloading from where transportation has already been completed but a case of loading, for further transportation of the same. The issue involved is of legal interpretation of the definition of the various services and being a complicated issue, the assessee cannot be saddled with any suppression or misstatement or mala fide intention so as to invoke longer period of limitation - direction to re-quantify the demand of the service tax only on consideration received for movement for loading of dolomite for further movement within normal period of limitation - as no mala fide on the part of the appellant, imposition of penalty upon them is not justified - partly allowed in favour of assessee.

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• 2012 (7) TMI 565
  Whether the activities relate to field of Management or Engineering - ERP implementation – Held that:- ERP software has been prepared obviously taking inputs from various domain experts such as inventory control, production engineering, finance, labour management, marketing etc. However, the software is predominantly a product evolved by engineers - It cannot be said that everybody who is concerned with ERP implementation should be a Management consultant as such consultant can be from any other discipline as well - Activities clearly are in the field of engineering and not in the field of management. Whether the service falls under Management Consultant - Appellants are claiming that their activities are only in relation to ERP implementation – Held that:- appellants are actually implementing applications software like SAP, Oracle, people soft. They are also into upgradation of application software from existing release level to higher version. They are also specifically into running of electronic data processing centre, business of data processing, word processing etc. - Same appears to be limited only to the field of Engineering and the services would fall under the category of consulting engineers only. Whether the doctrine of estoppel can be invoked - Commissioner has, invoking the doctrine of estoppel, held that the appellants have treated themselves as rendering the services of 'management or business consultant' - Appellants have availed the benefit of Notification No. 16/2004 ST - demand stands confirmed only on the ground that the activities of the appellants can be considered to be in the field of management to bring them under the category of "management consultant"/"management/business consultant". This is held to be not sustainable - Commissioner has chosen to treat as if there were no exports at all and demanded service tax on the entire turnover and there is no justification for demanding service tax on the export of services - denial of credit amounting to Rs. 2.33 crores during the period October 2005 to March 2008 was on the ground of non-production of the necessary documents. This is being contested by the appellants stating that they have produced the necessary documents to department - Regarding the taxability of services which is in favour of the assessee - Order of the Commissioner is set aside and the appeal allowed

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• 2012 (7) TMI 564
  Eligibility for exemption under Notification No. 12/2003-ST, dated 20.6.2003 – reimbursement expenses - Held that:- As the respondent was not merely acting as a Commission Agent but was also doing business promotion activity, the reimbursements of expenses of the staff employed by the respondents were being given is clearly not covered by the definition of commission agent in Notification No.12/2003-ST. So this issue is answered in favour of the Revenue. Taxability of the consideration received as reimbursable expenses – Held that:- Without employing manpower the respondents could not have provided the service in question. The case laws on "reimbursable expenses" developed around expenses incurred by Clearing and Forwarding agents for godown rented out for keeping the goods of the principal and freight paid for forwarding the goods. These essentially do not form part of the value of the services of C&F agents. Now such decisions are being further interpreted to argue that any amount like wages of the personnel employed by the service provider, the telephone expenses incurred by the service provider, office rent of the service provider etc. will not form part of the value if billed as reimbursable expenses. This matter has been examined by a Larger Bench of the Tribunal in the case of Sri Bhagavathy Traders v. CCE [2011 (8) TMI 430 - CESTAT, BANGALORE] the ratio laid down in that decision would apply and service tax has to be paid on value inclusive of such amounts even if billed as reimbursements. In the matter of Misc. expenses like Registration fees for label or brand, the expenses is not for providing the service being provided by the respondents. So if there is any proof of such expenses incurred by the respondent and reimbursed by SBL, such reimbursed amount will not form part of gross value of services. Similar is the case of transportation expenses paid by respondents on behalf of the SBL. The respondents are not in the business of organising or doing transportation. Transportation is not part of business promotion activity. So actual transportation cost reimbursed will not form part of value of service rendered by the respondents. Invoking section 80 – Held that:- A person giving his own interpretation of notification and then arguing that he was under the bona fide belief cannot get the protection of such section 80 - as the adjudicating authority did not give the option of paying 25% of the duty demanded within 30 days of the order for discharge of the liability imposed as penalty the matter is remanded to the adjudicating authority for calculation of penalty payable based on rulings given above - there is no need to impose penalties under Section 76 when penalty is imposed under Section 78.

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• 2012 (7) TMI 538
  Permissibility of collection of service tax from the service receiver in case of foreign based service providers before 18.04.2006 - Held that:- It is only after enactment of Section 66-A that taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian residents. In such cases, the Indian recipient of the taxable services is deemed to be a service provider. Before enactment of Section 66-A there was no such provision in the Act and therefore, the Respondents had no authority to levy service tax on the members of the Petitioners-association - Respondents are restrained from levying service tax from the members of the Petitioners-association for the period from 1-3-2002 till 17-4-2006 - in favour of assessee.

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• Central Excise

• 2012 (7) TMI 572
  Assessable value – inclusion of value of bought out items and drawing and design charges collected from their clients – Held that:- Entire drawing and designing charges involved in the 8 contracts in the department s appeal and 5 contracts involved in the assessee-appellant s appeal can be apportioned in the ratio of 50 : 50 towards general drawing and designing charges in respect of the plant of the customers - matter remanded to the original authority for the limited purpose of determining the duty liability on the value of drawing and designing charges in respect of the manufactured components after allowing 50% abatement towards general drawing and designing charges

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• 2012 (7) TMI 571
  Treating the duty payable only in respect of one furnace out of two - Annual capacity of production is required to be determined taking the installed capacity of two Furnaces for calculating the duty payable - appeal filed u/s 35 ( G) - Held that:- Whether two furnaces installed by the appellant were functioning or out of two only one was functioning at the relevant time was essentially a question of fact and did not involve any question of law much less substantial question of law - when the Commissioner of Central Excise and then, the Tribunal had concurrently recorded a finding of fact that the appellant was at the relevant time not only opted for payment of the duty on the basis of their two furnaces and further, both were found in operation then such finding being pure finding of fact - appeal is found to be devoid of any merit - against assessee.

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• 2012 (7) TMI 570
  Demand of interest on the amount of differential duty - enhancement of price as per the price variation clause of the relevant contract - differential duty was paid - demand of interest on the amount of differential duty – Held that:- Payment of differential duty was under sub-section 2(B) of Section 11A of the Central Excise Act and, therefore, interest was leviable thereon under Section 11AB of the Act – Against assessee

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• 2012 (7) TMI 569
  Refund of Cenvat credit in terms of Rule 5 of Cenvat Credit Rules, read with Notification 11/2002 – Held that:- Assessees used the inputs and have exported the impugned goods and the refund is only in respect of input credit attributable to the inputs utilized in the exported goods - duty paid inputs are used in the manufacture of finished products which are exported - assessees have complied with Rule 5 of the Cenvat Credit Rules, 2004. Therefore, they are in law entitled to refund of the unutilized Cenvat Credit in their account – In favor of assessee

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• 2012 (7) TMI 537
  Stay Petition - Waiver of pre-deposit - classification of the product - Jelly Confectionary - classification of the product is under Chapter 17 only and correctly demanded the duty and interest - classification confirmed by the lower authorities upheld and uphold the demand of penalty and interest Penalty under Rule 25 of Central Excise Rules, 2002, in our view, the penalty of 25% of the amount of duty liability confirmed by the lower authorities is enough to meet the ends of justice - appeal allowed as regards setting aside the balance amount of penalty

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• 2012 (7) TMI 536
  Classification of the product - product TETMOSOL Soap is assessable under Section 4A of the Central Excise Act, 1944 or not – Held that:- Product covered under the provisions of Section 4A of Central Excise Act, 1944 Penalty – Held that:- Demand for subsequent period and when the show cause notice was issued, the issue for the earlier period had not attained finality. The issue attains finality after the order was issued only. The Tribunal passed the order on 13.5.2005, whereas the show cause notice related to the year 2003. Therefore, it cannot be said that there was any suppression of facts or willful mis-declaration, fraud or collusion etc – Penalty set aside

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• 2012 (7) TMI 535
  Valuation of final products – alleged that the appellant has under valued the goods i.e. by understating raw material s cost and by doing so, they have not discharged the correct duty liability – appellant produced Chartered Accountant s certificate – lower authority recording that the said Chartered Accountant s certificate is for the finished goods without having any cost data and showing details of raw materials price and other expenses etc – Held that:- Professional s certificate cannot be summarily dismissed, as the said professional, in this case, Chartered Accountant must have gone through the accounts and entire records produced before him. If the lower authorities had any reason to disbelief the said certificate, they should have called for an explanation from the appellant and who could have given the explanation from the Chartered Accountant himself - approach of the first appellate authority inconsistent with the law - order set aside and matter remanded back to the adjudicating authority to reconsider the issue afresh - Appeal is allowed by way of remand.

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