TMI Tax Updates - e-Newsletter
July 9, 2012

Case Laws in this Newsletter:

Income Tax Customs FEMA Service Tax Central Excise

Articles

1. PLACE OF PROVISION OF SERVICE RULES, 2012 – AN OVERVIEW.

   By: DR.MARIAPPAN GOVINDARAJAN

2. RAILWAYS- WHY REPEATED AND SHORT TERM EXEMPTIONS which lead to uncertainty?

   By: DEVKUMAR KOTHARI

News

1. India and Mauritius to Expand Trade Ties in Textile Sector India -Mauritius Trade almost Doubles to US$ 1.395 Billion from 2010.

Circulars / Instructions / Orders

Service Tax

1. 161/12/2012 - dated 6-7-2012

Accounting Code for payment of service tax under the Negative List approach to taxation of services, with effect from the first day of July 2012 - regarding.

2. 162/13 /2012 - dated 6-7-2012

Clarification on Point of Taxation Rules - regarding.

FEMA

3. 02 - dated 6-7-2012

Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR.

4. 01 - dated 5-7-2012

Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs).

DGFT

5. 09 (RE-2012)/2009-2014 - dated 6-7-2012

Export of additional 4,476 MTs of raw sugar to USA under Tariff Rate Quota.

6. 08(RE-2012)/2009-14 - dated 6-7-2012

Introduction of electronic Bank Realization Certificate (e-BRC) system.

Companies Law

7. 16/2012 - dated 6-7-2012

Filing of Balance Sheet and Profit and Loss Account in Extensible Business Reporting Language (XBRL) Mode for financial year commencing on or after 1.4.2011.

Highlights / Catch Notes

Income Tax

• Assessee Not in Default for Short Deduction and Late Payment Due to Mention of Section 194J in TDS Return.

  Case-Laws - AT : TDS - Merely because the assessee mentioned section 194J in the TDS return by itself is not sufficient to put the assessee in default for short deduction and late payments of taxes with interest - AT
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• Appellate Authorities Can Permit or Deny Additional Section 43B Deduction Claims Not in Original or Revised Tax Return.

  Case-Laws - HC : Admissibility of claim of deduction not made in the original return and not supported by a revised return - deduction u/s 43B - The appellate authorities have the discretion whether or not to permit such additional claims to be raised. - HC
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• Tax Law Allows Two Portfolios: One for Share Investment, Another for Business Dealings in Shares.

  Case-Laws - HC : Purchase and sale of shares - there is no bar for an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares - HC
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• High Court Confirms Eligibility for Amortization of Euro Issue Expenses u/s 35-D, Equating "Expansion" with "Extension.

  Case-Laws - HC : Assessee's entitlement for amortization u/s 35-D - expenses related to the 'Euro issue' - the word "expansion" in relation to industrial activity gives the meaning as "extension" - this warrants the eligibility of the assessee to amortise certain preliminary expenses - HC
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• Trust's Income Not Subject to 40% Maximum Marginal Rate u/s 164(1) for Tax Re-computation.

  Case-Laws - HC : Re-computation of income tax liability - to adopt the maximum marginal rate of 40% applicable under Section 164(1) - the maximum marginal rate could not be applied to the income of the Trust - HC
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• Section 44AD: Taxpayers using presumptive taxation don't need detailed books or justify cash deposits linked to gross receipts.

  Case-Laws - AT : Once under the special provision of section 44AD exemption from maintenance of books of accounts have been provided and the presumptive tax at 8% of the gross receipts itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposits in the bank unless such entries had no nexus with the gross receipts. - AT
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• Section 115JB Update: Write-off of Capitalized Interest Added to Book Profit, Provision for Employee Benefits Introduced.

  Case-Laws - AT : Addition made in the book profit u/s 115JB - claim of interest capitalized in earlier years written off during the current year - creation of provision for employee benefits - AT
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• Consultancy Fees Income Recognition Dispute Involving AS-9 Compliance for UG Hospitals Pvt. Ltd. Case.

  Case-Laws - AT : Income recognition - income accrued - assessee received consultancy fees from UG Hospitals Pvt. Ltd.for the term of five years - assessee’s reliance of AS-9 issued by the ICAI is also relevant - AT
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• High Court Affirms CIT(A)'s Power to Return Cases to AO Post-Amendment of Section 251(1)(a) as Authorized.

  Case-Laws - HC : Justification of power of CIT(A) in restoring the matter back to the file of AO - Even if the appeal had been filed after amendment to section 251(1)(a) the order as passed by the CIT(A) directing the AO to decide the matter in accordance with the directions of the ITAT cannot be said to be unauthorized - HC
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• Broker's Security Transaction Tax Collection Disallowed u/s 88E of Income Tax Act.

  Case-Laws - AT : Regarding disallowance of Security Transaction Tax - The assessee is only a broker who has collected STT on behalf of the stock exchanges and has paid the same to the latter - STT is required to be excluded u/s 88E - AT
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• Brokers' Forced Sale Losses Excluded from Explanation to Section 73 of Income Tax Law.

  Case-Laws - AT : Transactions in shares - in case of brokers loss arising on account of purchase and sale of shares under forced circumstances and under compulsion will not be covered by Explanation to Section 73.- AT
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• Trust Can Treat Unrecoverable Fees as Bad Debts for Exemption u/s 11 of Income Tax Act.

  Case-Laws - AT : Exemption u/s 11 - amount of unrecoverable fee, treated as bad debts, is also allowable to the appellant trust while computing its surplus and application of its income for the purpose of granting exemption u/s 11 - AT
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• Understanding "Full Value of Sale Consideration" vs. "Fair Market Value" in Tax Code Section 55A.

  Case-Laws - AT : The expression "full value of sale consideration" is not the same as "fair market value" as appearing in section 55A. - AT
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• DVO Reference Allowed for Capital Gains Valuation u/s 50C, Not Section 55A, in Property Value Disputes.

  Case-Laws - AT : Scope of reference u/s.55A vis-a-vis section 50C of I.T. Act. - for the purposes of the computation of capital gain u/s. 48, a reference can be made to DVO only in a situation as prescribed u/s. 50C of the Act. and not otherwise. - AT
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• High Court Affirms Designs and Drawings as 'Manufacture' u/s 80-IA; Assessee Eligible for Tax Deductions.

  Case-Laws - HC : Deduction under Section 80-IA - preparing of designs and drawings - Activity of the assessee falls within the meaning of the word 'manufacture' or produce used in Section 80-IA - HC
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• Assessing Authority Issues Certificates: Payer Not Default Assessee Despite Later Tax Payable Under Income Tax Act.

  Case-Laws - HC : TDS - assessing authority has issued certificates authorizing the payment without deduction of tax - payer cannot be treated as an assessee in default even if tax is found payable under Act - HC
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• Court Upholds Inclusion of Sum u/s 68; Bank Transactions Alone Don't Ensure Tax Exemption.

  Case-Laws - HC : Inclusion of any sum u/s 68 in the hands of the assessee - Merely because the transactions are through bank channels, the assessee would not be entitled to the benefit - HC
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Customs

• Sections 112 & 117: Penalties on Directors Not Applicable Without Company Duty Liability.

  Case-Laws - AT : Penalty on directors of company – In the absence of any duty liability on the main Company, the provisions of Section 112 and 117 for imposition of penalties on the Directors cannot be invoked - AT
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DGFT

• DGFT Approves Export of 4,476 Metric Tons of Raw Sugar to U.S. Under Tariff Rate Quota.

  Circulars : Export of additional 4,476 MTs of raw sugar to USA under Tariff Rate Quota. - Public Notice
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• E-BRC System Revolutionizes Export Verification: Streamlines Process, Enhances Transparency, Reduces Paperwork, and Boosts Ease of Doing Business.

  Circulars : Introduction of electronic Bank Realization Certificate (e-BRC) system. - Public Notice
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FEMA

• India-USSR Deferred Payment Protocols Highlighted in FEMA Circulars: Key Financial Terms and Tax Alerts Explained.

  Circulars : Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR. - Circular
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• High Court Rules Remittance of US$ 25,000 by Appellant Not a Violation of FERA Section 9(1)(f)(i.

  Case-Laws - HC : FERA – penalty - payments made for being remitted outside India with a view to acquire US$ 25000/- by such appellant would not be in violation of Section 9(1)(f)(i) of the FERA - HC
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Corporate Law

• Mandate for Companies to File Financials in XBRL Mode from April 1, 2011, Enhancing Data Accessibility.

  Circulars : Filing of Balance Sheet and Profit and Loss Account in Extensible Business Reporting Language (XBRL) Mode for financial year commencing on or after 1.4.2011. - Circular
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Service Tax

• Court Denies CENVAT Credit Refund for Terminal Handling Charges on Export Services, Impacting Appellant's Financial Recovery.

  Case-Laws - AT : Export of goods - refund of cenvat credit on the ground that the appellant is not eligible for the refund of service tax paid on input services i.e. on Terminal Handling Charges - AT
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• Amendment to Section 78 Invalidates Penalty u/s 76 in Service Tax Case Issued on June 18, 2008.

  Case-Laws - AT : Penalty under Section 76 and 78 simultaneously -show cause notice is issued to the appellant on 18.6.2008 and whereas the amendment to Section 78 was carried out on 10.05.2008 – Penalty u/s 76 not sustainable - AT
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• Appellants Allowed to Re-Credit Cenvat Amount Back into Account for Service Tax Payment.

  Case-Laws - AT : Re-credit of Cenvat credit – service tax paid by utilising the Cenvat credit accumulated which was not allowed - appellants are allowed to re-credit the amount in their Cenvat credit account. - AT
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• Revenue Challenges Refund Order for Export Oriented Unit's Service Tax Claim Under Notification No. 41/2007-ST.

  Case-Laws - AT : Refund claim - appellant, a 100% EOU - refund claim of service tax paid by them, as per the provisions of Notification No. 41/2007-ST - Appeal by revenue against order granting refund - AT
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• Guidance on Service Tax Payment Under Negative List Approach Effective July 1, 2012: Compliance and Accounting Codes.

  Circulars : Accounting Code for payment of service tax under the Negative List approach to taxation of services, with effect from the first day of July 2012 - regarding. - Circular
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• Circular Clarifies Point of Taxation Rules for Service Tax, Aiming to Resolve Ambiguities and Ensure Consistent Application.

  Circulars : Clarification on Point of Taxation Rules - regarding. - Circular
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• Maruti Service Stations Cannot Be Double Taxed on Same Service, Violates Fundamental Legal Principle.

  Case-Laws - AT : Extended period - authorised service station for Maruti - Service tax cannot be collected twice on the same service and this is the basic principle of law - AT
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• Cenvat Credit Denied for Input Services in Trading Activities; Trading Not Recognized as Exempted Service.

  Case-Laws - AT : Cenvat credit and trading of goods - trading activity is not an exempted service and credit is not admissible on the input services in respect of the trading activity. - AT
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Central Excise

• CENVAT Credit Retained: No Reversal Needed on Non-Manufacturing Activities Once Final Duty is Accepted.

  Case-Laws - HC : Once the duty on final products has been accepted by the department, CENVAT credit availed need not be reversed even if the activity does not amount to manufacture. - HC
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• Dispute Over Suppression of Facts in Cenvat Credit Claim for Light Diesel Oil, Despite ER-1 Form Limitations.

  Case-Laws - AT : Suppression of fact - cenvat credit LDO - When there is a specific exclusion on availment of input credit, the submission that there was no suppression of this fact just because there was no column in ER-1 or no specific requirement of intimating the department or submitting invoice, is not acceptable - AT
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• Job Work Charges Must Be Included in Goods Valuation Under Central Excise Rules; Use Comparable Goods Value When Known.

  Case-Laws - AT : Valuation - job work - inclusion of job work charges in the value – in case value of comparable goods is known, the same can be adopted for goods manufactured by the job worker. - AT
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• Bus Body Parts Not Marketable, Duty Levy Deemed Unnecessary Due to Lack of Market Availability.

  Case-Laws - AT : Marketability of goods - bus body parts manufactured and supplied to their divisional office – not available in market no point of levy of duty - AT
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Case Laws:

• Income Tax

• 2012 (7) TMI 161
  Whether payment made for normal and routine supervision of works assigned was covered u/s. 194J as not u/s. 194C of the Income Tax Act, 1961 – assessee has deducted taxes @ 2.06% as per section 194C of the IT Act treating it as supervision charges - as per the AO, the same is covered by section 194J of the IT Act – Held that:- Matter requires reconsideration at the level of ld. CIT(A) because he has to specify in the appellate order as to which of the clauses of section 194J would apply in the case of assessee and he has to give reasons for the same in the appellate order. Merely because the assessee originally mentioned section 194J in the TDS return by itself is not sufficient to put the assessee in default for short deduction and late payments of taxes with interest - CIT(A) has not given any finding on the same and dismissed the appeal of the assessee despite specific material was produced before him - appeal of the assessee is partly allowed for statistical purposes

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• 2012 (7) TMI 160
  Re-assessment proceedings - capital gain arising out of sale of agriculture land –value of land as on 01.04.1981 was higher than the consideration amount - no return of income was filed being the income not liable for income-tax – Held that:- AO merely received information from ITO 6(3), Jhansi that the assessee has sold the land on 05.08.2003 at the higher rate as against Government value. The AO has not verified the information - Assessing Officer had not examined the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings - Assessing Officer had thus acted only on the basis of suspicion and it could not be said that it was based on belief that the income chargeable to tax had escaped income - Assessing Officer had to act on the basis of “reasons to believe” and not on “reasons to suspect” - Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and therefore the issuance of notice under section 148 of the Act for reassessment proceedings was not valid - appeal of the assessee is allowed

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• 2012 (7) TMI 159
  Waiver of interest u/s 229(2A) - petitioner was the erstwhile partner of a firm which was dissolved in the year 1993 - Held that:- All the three ingredients of Section 220(2A) are fully satisfied as the firm was managed by the erstwhile managing partner and the petitioner was under the impression that at the time of dissolution of the firm, all taxes payable were duly paid. The petitioner could not also trace out any documents after 17 years in respect of the assessment as well, thus payment of such amount would cause genuine hardship to the assessee insofar as the petitioner has to suffer the burden of the tax by himself - the very same circumstance prove that the default in payment was due to the circumstances beyond the control of the assessee and the petitioner had co-operated with the enquiry relating to the assessment as well - waiver of interest is warranted.

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• 2012 (7) TMI 158
  Admissibility of claim of deduction not made in the original return and not supported by a revised return - assessee's claimed deduction u/s 43B - Held that:- Even assuming that the AO is not entitled to grant a deduction on the basis of a letter requesting an amendment to the return filed, the appellate authorities are entitled to consider the claim and to adjudicate the same - The declaration of law is clear that the power of the Appellate Assistant Commissioner is coterminus with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power - There appears to be no good reason and none was placed to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer - The appellate authorities have the discretion whether or not to permit such additional claims to be raised. The conclusion that the error in not claiming the deduction in the return of income was inadvertent cannot be faulted for more than one reason. It is a finding of fact which cannot be termed perverse. There is nothing on record that militates against the finding. The appellant has not suggested, much less established that the omission was deliberate, mala-fide or even otherwise. The inference that the omission was inadvertent is, therefore, irresistible

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• 2012 (7) TMI 157
  Entitlement to be taxed under the head capital gains in respect of purchase and sale of shares - Assessee has shown speculation loss in share trading business - Held that:- As the assessee has not borrowed any funds for its investments and that LTCG were attributable to only shares of 4 companies out of which 3 were held for a period of about 5 to 12 years and about 93% of the short terms gain/loss of shares ranging in excess of 1 month - as the assessee had returned speculation loss in his return ITAT followed the decision as decided in CIT V/s. Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] to hold that there is no bar for an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares - no substantial question of law - in favour of assessee.

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• 2012 (7) TMI 156
  Entitlement for amortization u/s 35-D - expenses related to the 'Euro issue' - word "being" as used in Section 35D(2)(c)(iv) is not 'illustrative' but only 'restricted' to - Held that:- Considering the eligibility of the assessee company no denial of the fact that the object of issuing shares was for raising the assessee's expansion activities, particularly in the field of capacity expansion and also proposed to invest for expansion of its plants for materials and modernisation of the existing facilities and developments. Thus all the Units of the assessee were to go for expansion programme as well as for modernisation programme, which was in the form of capital expansion - thus no denial of the fact that the expenditure incurred was not in connection with the setting up of a new industrial plant - the word "expansion" in relation to industrial activity gives the meaning as "extension" - this warrants the eligibility of the assessee to amortise certain preliminary expenses - in favour of assessee. Declared as the meaning of the phrase "being" no hesitation in holding that the expenditure that qualified for consideration under Section 35D is restricted by reason of use of the phrase "being".Other than what is contemplated under Sub Clause D, if there are still other expenditure in connection with the commencement of business or in connection with the expansion of the industrial undertaking after the commencement of the business or in connection with the set up of a new industrial unit, the same would also qualify for amortization u/s 35D

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• 2012 (7) TMI 155
  Disallowance of bad debts - Held that:- Simply following the findings of earlier assessment years AO has not given any reason for disallowing the claim - after the amendment in Section 36(1)(vii), the assessee is not required to demonstrate that the debt is bad - in favour of assessee. Addition of service charges - AO stated that company changed its policy of accounting the service charges from mercantile system to cash system - Held that:- As assessee being a non banking finance company is bound to follow the guidelines of RBI according to which NBFC are not required to credit interest on NPA on accrual basis as the interest is required to be credited only on receipt basis - in favour of assessee. Disallowance being amount deducted as TDS on payments in respect of charges for services - Held that:- That amount paid was only to the discharge of the liability which liability the assessee had taken to pay as part of the agreement entered into. The amount so paid as tax has been held to be the amount payable between the collaborator and the assessee - against assessee.

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• 2012 (7) TMI 154
  Entitlement to benefit of absolute stay in view of the Circular bearing No.334 (F.No.400/3/81-ITCO) dated 3.4.1982 - Held that:- As the petitioner has already satisfied an additional sum of Rs.30,00,000 towards the disputed tax liability and in addition to the said amount, proving the bonafides on the part of the petitioner and giving effect to Ext.P10 interim order passed by the appellate authority granting the stay, the petitioner has satisfied the first installment of Rs.15,00,000, it is fit and proper to permit the petitioner to avail the benefit of the interim stay during the pendency of the appeal on effecting a further deposit by way of the 'second installment

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• 2012 (7) TMI 153
  Guidelines for granting interim stay - disallowance made u/s 40(a)(ia) - the question of granting interim stay by the appellate authority, nothing has been considered on merits - Held that:- As the merits have not been considered and what is considered is only that appellant has not been able to make out any case of financial stringency - the appellate authority is to discharge the function as a 'quasi judicial authority', who has to consider and decide whether or not any condition is to be imposed and if so, to what extent and why and in the absence of any such discussion, when such authority declares that 50% has to be satisfied, it cannot but be held as without proper application of mind - the condition imposed by the appellate authority upon the petitioner requires modification - petitioner to satisfy the second installment with in two weeks on which event he will continue to have the benefit of interim stay, throughout the pendency of the appeal.

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• 2012 (7) TMI 152
  Re-computation of income tax liability - to adopt the maximum marginal rate of 40% applicable under Section 164(1) - that the benefits are extended to the dependents and relatives of the employees also - Held that:- In all welfare measures, whether under Government or in Public Sector, benefits extended to the employees means benefits extended to their family members also as the immediate dependent family members of an employee cannot be disassociated from the employee. There is no case that the fruits of employment is enjoyed by the concerned employee individual himself alone. Thus, the trust in question was an exception to Section 164, the maximum marginal rate could not be applied to the income of the Trust - against revenue.

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• 2012 (7) TMI 151
  Addition made u/s 40(a)(ia) - CIT(A) deleted the addition - assessee during the course of hearing filed a letter stating that the firm was covered by the provisions of section 44AD and maintenance of books was not mandatory - Held that:- Once under the special provision of section 44AD exemption from maintenance of books of accounts have been provided and the presumptive tax at 8% of the gross receipts itself is the basis for determining the taxable income, assessee's income cannot be increased beyond this amount disclosed by it. Though from the details filed by assessee AO observed that no TDS has been recovered but as the assessee has disclosed the profits more than 8% of the gross receipts and there is no dispute in receipt of the gross receipts the addition made u/s 40(a)(ia) is not sustainable - decided in favour of assessee.

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• 2012 (7) TMI 150
  Addition made in the book profit u/s 115JB - claim of interest capitalized in earlier years written off during the current year - Held that:- Though the assessee company had already claimed the interest amount on year to year basis for the purpose of income tax, no benefit was required to be claimed in this year and consequently, in the course of assessment proceedings itself asked the AO to disallow the said amount and the AO, in doing so also, added same amount to the book profits for the computation of tax u/s 115JB - AO is not competent to make an addition to the book profits for an amount as the net profit had already been computed as per provisions of the Companies Act. The said amount does not fall under any of the specific items given in clause (a) to (i) of explanation (1) to section 115JB, which can be added back to the book profits for the purposes of taxation - in favour of assessee. Addition made in the book profit u/s 115JB - creation of provision for employee benefits resulting in increasing the value of current liabilities equivalent to the diminution of the value of current assets - retrospective amendment made by Finance Act 2009 applicable w.e.f. 1.4.2001 to specifically include any amount, set aside as provision for diminution in the value of any asset - Held that:- The AO has based his disallowance on the ground that creation of the impugned provision has led to the decrease in the value of assets of the company, though no specific diminution has been pointed out in the value of a particular asset. The assessee had to increase the current liability because of the creation of this provision as there was no amount in the general/revenue reserves as on the required date and therefore same can not be held to be fault on the part of the assessee as the provision had to be created because of adoption of accounting standard 15 meant increase in the liability of the assessee company - provision created is on account of ascertained liability and the same should logically be excluded out of the calculation of book profits Clause (c) of Explanation (1) of Section 115JB - in favour of assessee.

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• 2012 (7) TMI 149
  Income recognition - income accrued - assessee received consultancy fees from UG Hospitals Pvt. Ltd.for the term of five years - lower authorities treated the entire fee receipt in the year of appeal - Held that:- In service contract the income has to be recognized in proportion to the services rendered in a particular year. In the present case, admittedly the assessee has not rendered services for the period of 5 years, thus there is no point of recognizing the entire amount as income of the assessee in the year of receipt. It cannot be said that assessee has created such a debt or right against the M/s UG Hospital that the income for the entire 5 years had accrued to the assessee - as decided in CIT Versus. Dinesh Kumar Goel [2010 (10) TMI 287 (HC)]that though fees for full course of package is received in advance and service is to be rendered in next financial year income will not be not recognized unless service rendered - assessee’s reliance of AS-9 issued by the ICAI is also relevant which states that revenue from service transactions is usually recognized as the service is performed, either by proportionate completion method or by the completed service contract method - in favour of assessee.

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• 2012 (7) TMI 148
  Delay of filing of appeal by 412 days - petition seeking condonation of delay accompanied by a sworn affidavit - Held that:- As it is no doubt true that non-payment of admitted tax on the returned income is fatal to the validity of an appeal, in terms of the provisions of S.249(4)(a)as it is a curable defect, and till such time admitted tax is paid the appeal remains defective and not valid, and when such defect is cured by payment of tax on the returned income by the assessee, the appeal becomes valid, and such valid appeal is deemed to have been filed - as the assessee has admittedly paid the taxes on the returned income, only on 8.12.2011, before filing the present appeal before the Tribunal and the reason for the delayed payment of admitted tax on returned income is stated to be the absence of proper advice by the Chartered Accountant of the assessee is acceptable. On conjoint reading of Sub-sections (3) & (4) of S.249, it is inferred that defect arises due to non-compliance of Section 249(4) is a curable one and in a given case if the Tribunal is satisfied that there exist sufficient reasons for curing such defects after expiry of limitation, it would be in the realm of Tribunal's discretion to restore such matters to the file of the CIT(A) for deciding the controversy on merit because Section 254(1) provides wide powers to the Tribunal for passing such orders thereon as it thinks fit in the interest of justice.As the assessee has discharged the huge tax liability and as a proof the assessee filed a copy of challan it would be totally unfair for not providing an opportunity to her for disputing the additions made by the AO on merit - in favour of assessee.

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• 2012 (7) TMI 147
  Disallowance towards contribution to P.F. ESIC - Held that:- As decided in CIT Versus M/s. Alom Extrusions Limited [2009 (11) TMI 27 (SC)]the payment of PF/ESI within grace period as allowable as per the provisions of P.F. Act has to be accepted as the payment made within due date. Even if the payment is made after the grace period, but before the due date of filing of the return of income, no disallowance can be made - in favour of assessee. Disallowance toward weighted deduction u/s.35(2AB)in respect of Scientific Research expenses - as these expenses are not incurred for in-house R & D facility and the payment to institutes are sponsored research and that for the clinical trials undertaken etc., R & D is not covered by weighted deduction provisions - Held that:- The rational interpretation of the provisions of section 35(2AB) and its explanation should be this that these expenses which are included in explanation being expenditure for clinical drug trial and for approval of regulatory authority etc., should be in relation to scientific research carried out in-house Research & Development facility and the said expenses should not be in relation to research result which is not obtained from in-house research and development facility and it is not necessary that the expenditure itself on clinical drug trial should be incurred in-house - the disallowance made by the A.O for allowing weighted deduction in respect of clinical drug trial is unwarranted. Dis allowing weighted deduction u/s. 35(2AB) i.e. for Rs. 68,60,981/- being the payment to various institutions the order of the CIT (A)is set aside and restore back the matter to the file of the A.O. for a fresh decision taking into consideration that if it is found that the same is not in respect of full research but only in respect of procuring of some material or service then the same should also be considered for weighted deduction. Disallowance towards Foreign Exchange Rate fluctuation - Held that:- As decided in CIT Versus WOODWARD GOVERNOR INDIA PVT. LTD [2007 (4) TMI 118 - DELHI HIGH COURT] that it is an admitted fact in the present case that this expenditure was incurred by the assessee in respect of loan from the bank which were used for acquisition of certain plant and machinery - as it was observed from the details filed by the appellant that this loss has arisen because of repayment of principal amount and on conversion of IOB FCNRB loan to Union Bank of India Ltd decided against assessee. Disallowance in calculating Arms Length Price in respect of International transaction with Associate Enterprises - Held that:- As CIT(A) has not passed speaking and reasoned order, in the interest of justice, this matter should go back to him for fresh decision. Disallowance towards claim u/s. 80HHC - Held that:- The issue of inclusion of Excise Duty and sales tax in total turnover is decided in favour of the assessee considering the case of CIT Versus Sri Jayajothi And Company Limited [2006 (1) TMI 121 (HC)] whereas for reduction of 90% of Misc. Income from the business profit as per Explanation (baa) to section 80HHC assessee objected to this treatment given by the authorities below to the Misc. income but he could not bring on record any material to show that this misc. income is not covered by clause (baa) of section 80HHC and set off of negative profit against positive profit is squarely covered against the assessee as decided in Ipca Laboratory Ltd. Versus Deputy Commissioner of Income-Tax [2004 (3) TMI 9 (SC)]- partly allowed in favour of assessee. Dis allowing MAT Credit before charging interest u/s. 234B & 234C - Held that:- For the purpose of computation of interest payable by the assessee u/s. 234B and 234C, the credit of tax allowable in terms of section 115JAA has to be set off against the advance tax payable before calculating such interest as decided in CIT Versus Tulsyan NEC Ltd.[2010 (12) TMI 23 (SC)]- in favour of assessee. Disallowing a sum towards Prior Period expenses - Held that:- On account of advertisement expenses assessee, cost audit fee and raw material purchased do not find any force because it could not be shown that the payment of these invoices was in dispute and as there is no evidence that these expences was carried out after the end of these years i.e. in the present year - even if the bill was not received in the previous year, expenses should have been considered in the respective year and hence deduction is not allowable in the year under consideration - thus the assessee could not make out a case for deduction - against assessee.

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• 2012 (7) TMI 146
  Justification of power of CIT(A) in restoring the matter back to the file of AO - revenue contested that considering the amendment in section 251(1)(a)Commissioner (Appeals) may not set aside the assessment and refer the case back to the AO for making fresh assessment - Held that:- CIT(A)in his impugned orders has not passed an order as if he was setting aside the order of assessment and referring the matter back to the AO for making fresh assessment in accordance with his directions as the ITAT in its orders dated 22.11.2001 and 23.11.2001 restored the question of claim of higher depreciation to the file of AO for decision afresh after inspection of the building wereas the CIT(A) found that such directions of ITAT had not been complied with. The directions of ITAT were in any case required to be complied with by the AO and CIT(A)in fact had done nothing more than issuing directions for implementation of the order of the ITAT. In this position, when the CIT(A) was hearing the appeal against an order of assessment passed after the directions of ITAT, his power to annul the assessment order if found contrary to the ITAT's directions and directing the AO to carry out the requirements of the order of ITAT cannot be denied - considering the amendment in section 251(1)(a)it cannot be assumed that the CIT(A) is divested of the power to annul the assessment and then to pass appropriate consequential order. Even if the appeal had been filed after amendment to section 251(1)(a) the order as passed by the CIT(A) directing the AO to decide the matter in accordance with the directions of the ITAT cannot be said to be unauthorized - against revenue.

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• 2012 (7) TMI 133
  Regarding disallowance of Security Transaction Tax - on account of STT payment in case of broker while computing total income - AO observed that any amount paid on account of STT was not allowable in view of provision of section 40(a)(ib) inserted by the finance act, 2004 – Held that:- Liability on account of STT is the liability of the clients of the assessee who are buying and selling shares and, therefore, the provisions of section 40(a)(ib) will be applicable in those cases and it is because of this reason, the rebate under section 88E is also allowable in case of buyer/seller of shares under section 88E of the Act. The assessee is only a broker who has collected STT on behalf of the stock exchanges and has paid the same to the latter - STT is required to be excluded while computing the income of the assessee from brokerage - authorities are not justified in disallowing the claim of deduction on account of STT in case of the assessee – In favor of assessee Regarding disallowance of loss on account of error trade - loss had occurred on those transactions undertaken on behalf of the clients in which there were errors and transactions were not as per orders booked by the clients – Held that:- in case of brokers loss arising on account of purchase and sale of shares under forced circumstances and under compulsion will not be covered by Explanation to Section 73. - Matter requires fresh examination and in case loss is found to have occurred on account of error trades conducted by assessee on behalf of clients, the claim has to be accepted as business loss – matter remanded to AO for fresh order Regarding disallowance of expenses under section 14A – AO had disallowed the expenses @ 5% of dividend income - CIT(A) has directed the AO to compute the disallowance as per Rule 8D – Held that:- Same issue had been considered by the Tribunal in assessment year 2004-05 and the Tribunal has reduced the disallowance to Rs. 2.00 lacs - in this year are almost identical as no major distinguishing factors have been brought to notice by the ld. Departmental Representative – disallowance of expenses relating to dividend income at Rs. 2,20,000 Regarding disallowance of VSAT, leaseline charges and transaction charges paid by the assessee to the stock exchange as brokerage - AO had disallowed the claim holding that payments were fees for technical service covered by Section 40(a)(ia) and since the assessee had not deducted tax at source the claim had been disallowed – Held that:- VSAT, and leaseline charges, were reimbursement of expenses to the stock exchanges for use of standard facilities and transaction charges were not disallowable - transaction charges paid by the assessee were of the nature of fees for technical services – In favor of assessee Regarding allowability of expenditure incurred by the assessee on account of payment made to stock exchanges for violation of their bye-laws - AO had treated the expenditure as payment for violation of law and disallowed the same under section 37(1) – Held that:- Violation of regulations of stock exchanges did not amount to violation of law - no infirmity in allowing the claim – In favor of assessee Allowability of deduction on account of bad debt - amounts had been taken into account in the computation of the earlier year - AO disallowed the amount only on the ground that the assessee had not established that the debt had become irrecoverable – Held that:- In view of the amendment to section 36(1)(vii) w.e.f. 1.4.1989, the burden is no longer on the assessee to prove that the debt has become bad/irrecoverable - only conditions for allowability of bad debt is that the amount should have been taken into account in the computation of income of earlier year and should have been actually written off in the books - no dispute regarding fulfillment of these conditions - claim of bad debts can not be disallowed Business loss - out of pocket expenses incurred by the assessee in connection with certain work relating to these clients – Held that:- Eexpenses which were required to be reimbursed by the clients were not reimbursed as transactions did not go through - claim has not been controverted by the AO by placing any material on record. Therefore, these expenses which were actually incurred and about which there is no dispute has to be allowed as business loss

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• 2012 (7) TMI 132
  Capital gain – sale of shares - addition made by treating the profit on sale of shares as business profit as against Short Term Capital Gains and Long Term Capital Gains - assessee derives income from purchase and sale of Biri and match box etc. in the name of proprietary concern as well as from business of share trading – Held that:- Assessee declared Long Term Capital Gain on sale of shares on delivery basis and the intention of the assessee was to earn dividend - dividend has been earned by the assessee in respect of investment in shares - assessee has recorded the share transaction in books of account in first set of transaction as investment in shares and second set of transaction investment in shares for the purpose of business - order of CIT(A) that in A.Y. 2005-06 the CIT(A) accepted the assessee’s claim and set aside the order of A.O - to maintain consistency CIT(A) has rightly set aside the order of A.O. and allowed the claim of the assessee in respect of shares for which the assessee has shown Capital Gain – In favor of assessee

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• 2012 (7) TMI 131
  Penalty u/s. 271(1)(c) of the IT Act – AO determined the profit from sale of country liquor in the absence of sale bills - assessee submitted before the AO that all expenses except freight in the trading account are paid to Excise Department and are verifiable and stock register and sale price are checked by the Excise Authorities - estimate of income by applying higher sales and higher gross profit by the AO – Held that:- When the income of the assessee is estimated, there cannot be a case of concealment of income or filing inaccurate particulars of income - assessee disclosed all particulars in the return of income and at the assessment stage, therefore, merely on estimate of income, penalty is not leviable – In favor of assessee

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• 2012 (7) TMI 130
  Quashing the re-assessment proceedings u/s. 148 by CIT(A) - lack of jurisdiction with the Assessing Officer - canceling the penalties u/s. 271(1)(c) - Held that:- CIT-II while passing the jurisdictional order u/s. 120 assigned concurrent jurisdiction in favour of ACIT, who has issued notice u/s. 148 in the case of assessee in respect of the cases falling in the jurisdiction of AO, Circle 4(1), Agra to which circle, the case of the assessee also falls. He was assigned this power and jurisdiction in addition to the work already allotted to him. The assessee has not brought anything on record to show that the concurrent jurisdiction vested in ACIT was withdrawn by CIT concerned on the date of issue of notice u/s. 148. Therefore, ACIT having been authorized to deal with the subject matter was vested with the jurisdiction to deal with the matter in issue. Since he found that income escaped assessment for the assessment year under appeals while scrutinizing the return of assessee for subsequent assessment year 2001-02, therefore, he has rightly exercised jurisdiction u/s. 148 for reopening of assessment u/s. 148 - before issuing notice u/s. 148, ACIT had obtained approval of Addl. CIT, Range IV, Agra, otherwise if he had no jurisdiction over the case of the assessee on the date of approval, the ld. Addl. CIT, Range, would not have granted him approval - as the issue of jurisdiction in favour of the Revenue, therefore, the orders on penalties are also set aside and the penalty appeals are restored to the file of ld. CIT(A)to decided afresh - in favour of revenue.

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• 2012 (7) TMI 129
  Addition warranted u/s 68 - assessee contested that the identity and financial capacity of the donor and genuineness of the transaction which is through banking channel - Held that:- In case of gift from Smt. Neelam Kumari, though in the photocopy of gift deed it was mentioned that gift was given by donor out of natural love & affection, however, appellant failed to furnish evidence showing that the donor was related to him by way of relationship or friendship. In spite of sufficient opportunity, the assessee failed to produce the L/h of Smt. Neelam Kumari. Even the complete address of L/h was not furnished - survey at the office premises of Shri D K Agarwal, CA, reveled that as many as 292 trusts are being operated from the aforesaid address with no actual business being conducted. This clearly indicate that Narmada Benefit Trust was created with the sole intention of defrauding the revenue by providing fictitious entries in respect of gift etc. There are unexplained cash deposits in the bank account of aforesaid trust, in such circumstances gift advanced by Smt. Neelam Kumari cannot be held as genuine gift. In the case of Ratan Singh from whom gift of Rs.2 lacks received though his L/h has confirmed the facts, however, copy of bank accounts was not produced. During the concerned year, the total income of Ratan Singh was only Rs.1,49,750 and from the copy of his capital account produced by L/h it appears that Late Shri Ratan Singh has given gift of Rs.5,10,000. Appellant failed to produce bank statement or books of account of late Shri Ratan Singh, in such circumstances creditworthiness of Ratan Singh remained unproved. A person having measure income of Rs.1,49,750 cannot have sufficient fund to give gift to the tune of Rs.5,10,000 - Decided against assessee. Additional ground challenging jurisdiction u/s 147 as the reasons recorded with regard to escapement of income are not specific but are general in nature - Held that:- As the assessee did not point out any mistake in the original order, in the light of section 254(2) which provides power to ITAT to amend the order with a view to rectifying any mistake apparent from the record, passed by it under sub-section (1), no reason exists so as to disturb the original finding of the I.T.A.T. that neither any mistake in this regard has been pointed out by the assessee at the time of hearing nor such mistake has been pointed in M.A. order by the Tribunal - against assessee.

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• 2012 (7) TMI 128
  Disallowance of interest expenditure under section 36(i)(iii) - AO stated that the assessee has diverted interest bearing funds to the sister concern without interest - Held that:- As regards the contention of the assessee that the interest free loans/advances were not given out of borrowed funds the advances to the sister concerns is not acceptable as the assessee has failed to furnish any evidence to prove as the money was received back in the next F.Y. and the amount was given on account of mutual understanding - the assessee's claim that the advance was given for some deal but he failed to furnish any documentary evidence in support of the contention - nothing has been brought on record that the sale deed for the purpose of which ostensibly the money was advanced has been executed as merely filing a sale agreement of third party and saying they have deposited sale deed against the advance is not acceptable as no other evidence has been filed. Share application money and sundry creditors shall also be available with the assessee as interest free - Held that:- share application money as interest free is not acceptable as the assessee is a private limited company and share application money has been kept as a trustee of that application money - as the Sundry Creditors is pertaining to the business of the assessee, therefore, it cannot be said to be interest free own capital or reserve available with the assessee for giving interest free advance - as decided in CIT vs. Radico Khaitan Limited [2004 (9) TMI 37 (HC)] if the assessee is having sufficient capital and reserve fund, to that extent interest free advance given to the sister concern cannot be disallowed. In case of otherwise position proportionate disallowance is warranted - on perusal of Balance Sheet and P&L Account for the year under consideration, the interest free own fund in the form of capital and reserve after reducing loss available with the assessee is only Rs.21,02,941/- (35,09,000 – 14,06,059) - remit the matter back to the file of the AO to make necessary calculation of amount of disallowance on proportionate basis - partly allowed in favour of assessee.

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• 2012 (7) TMI 127
  Disallowance u/s 14A by invoking Rule-8D - interest claim of the assessee is disallowable on the ground that the assessee has used the interest bearing borrowed funds in the investment of shares - Held that:- The interest expenses is allowable under section 36(1)(iii) such disallowance cannot be made in case where the assessee is having sufficient interest free funds - As decided in case of CIT vs. Hero Cycles Limited, 323 [2009 (11) TMI 33 (HC)] wherein it has been held that disallowance under section 14A is not permissible where no nexus between the expenditure incurred and income generated has been established - the admitted fact that the assessee was having sufficient own interest free fund to cover the investment made in shares no disallowance can be made under section 14A and Rule 8D can be applicable only where disallowance of interest on borrowed capital warrant for expenses out of such borrowed capital with the amount relating to investment in shares and search and not ascertainable - decided against revenue.

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• 2012 (7) TMI 126
  Addition made on account of unrecoverable fees - amount of unrecoverable fee as taxable income as expenditure is considered as bad debts in the sections of ‘Business and Profession’ and since the assessee is a trust and covered u/s. 12AA so it can not take the benefit of those sections application for B & P - CIT(A)deleted the addition made by AO - Held that:- the appellant has claimed exemption u/s 11 on the basis of registration u/s 12AA and fulfillment of prescribed conditions regarding accumulation, amount expended on objects of the trust, modes of investments, application of income etc, no such violation of any of the conditions has been found by the A.O. during the entire course of assessment proceedings. For the purpose of computing income and its application u/s 11, real income received by the appellant is to be treated as income for the purpose of application - as various courts have held that the amount of depreciation debited to the accounts of a charitable institution has to be deducted to arrive at the income available for application to charitable purposes even when the said capital expenditure has also been allowed for purposes of application of income. By following the same analogy, amount of unrecoverable fee, treated as bad debts, is also allowable to the appellant trust while computing its surplus and application of its income for the purpose of granting exemption u/s 11 - in favour of assessee.

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• 2012 (7) TMI 125
  Refusal to grant approval u/s 80G(5)(vi) - scope of enquiry by Commissioner while dealing with an application under section 80G(5)(vi) - the assessee trust/institution runs an educational institution and enjoyed continuous registration u/s. 12AA - Held that:- On examination of objects of the assessee institution, the same were prima facie appeared to be charitable in nature. Therefore, according to Rule 11AA of the IT Rules, the assessee complied with the requirements for extension of the approval. All inquiries have been conducted by the ITO (Tech.) - Held that:- Order sheet written by ITO (Tech.) was not approved by former CIT or officiating CIT who passed the order denying grant of approval. Thus, there was no reason to believe that any of the Commissioners, above, have called for any documents or information from the assessee institution in order to satisfy themselves about the genuineness of the activities of the assessee institution or the funds as desired under the Rule 11AA . The impugned order is passed by CIT, Aligarh without giving any opportunity of being heard to the assessee and the impugned order was also passed beyond the period of 6 months from the date of filing of application - These facts would clearly prove that enquiries were done by the ITO (Tech.) without any authority of law as genuineness of the activities of the assessee and give opportunity of being heard to the assessee institution, cannot be delegated to the ITO (Tech.) - that the impugned order is passed in most mechanical manner without complying with the provisions of law, thus grant of renewal of approval u/s. 80G(5)(vi)is warranted - decided against revenue.

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• 2012 (7) TMI 124
  Provision for Warranty - dis-allowance - AY 06-07 - Held that:- Issue is now covered in favour of the assessee by the judgment in the case of Rotork Controls (India) Ltd (2009 (5) TMI 16 (SC)). It is undisputed that method of accounting adopted by the assessee for this year regarding making provision in respect of warranty expenses is consistently followed by the assessee in the subsequent years - Decided in favor of assessee. Dis-allowance u/s 14A read with Rule 8D of interest expenditure and administrative expenses - Held that:- Since no interest bearing borrowed funds were used for investment in shares and, therefore, no dis-allowance is called for out of the interest expenditure. However, dis-allowance of Rs. 50,000/- out of administrative expenses will meet the ends of justice. Export commission - dis-allowance - failure of assessee to furnish evidence regarding actual rendering of any services by the agent - Held that:- It is undisputed that export sales have been made during the year. In view of additional evidences produced by assessee, it is found that sufficient material has been brought on record in support of this contention that services were rendered by the agent. Once it is found that the services were rendered and commissions is paid, the same should be allowed as business expenses - Decided in favor of assessee.

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• 2012 (7) TMI 123
  Allowance of expenditure of HRC Plant as revenue expenses - Revenue contested that same was shown in the balance sheet as capital work-in-progress as commercial production had not started - Held that:- for the purpose of excise duty, the whole factory was considered as a one unit in the excise return and therefore the view taken by the AO that HBI and HRC were two different units was not correct - as the new project was a part of existing business as there was complete integration and interlacing of both the units, therefore the expenditure incurred such as interest on borrowed funds and general administrative expense have to be allowed. As regards the debenture issue expenses the debentures are not compulsorily convertible into shares as these were optionally convertible and therefore the conversion would depend upon option if any exercised by the debenture holders. Therefore it could not be said that intention was clearly to issue shares. Obviously the intention was to raise loan which could be converted into shares in future if any option was exercised. Thus,the debenture issue expenses considering the judgments in Ashima Syntex Limited. Versus Assistant Commissioner Of Income-tax Central Circle - 2(3)[2006 (3) TMI 188 (Tri)] have to be allowed - decided in favour of assessee. Deletion of disallowance of interest expenditure on the working capital of HRC Division - shown by the assessee company as Deferred Revenue expenditure - Held that:- As it has already been held that HRC project is part of the existing business of the assessee all revenue expenditure have to be allowed - in favour of assessee. Deletion of disallowance of lease rent - assessee had debited in the P&L account expenses on account of rent paid on leasing transactions less by Rs.25.15,95,039, while filing the return of income the assessee claimed this difference as a deduction - Held that:- The deduction claimed by the assessee was in respect of its actual liability of payment of lease rent to the lessor and the treatment in the books of account will not alter the character of the expenditure when it comes to claiming deduction while computing total income under the Act - no prejudice is caused to revenue - decided in favour of assessee. Deletion of addition of provision made for doubtful debts to the Book Profit u/s115JA - Held that:- By virtue of Finance(No.2) Act, 2009, clause (g) inserted in the Explanation contained in Section 115JA(2)the amount or amounts set aside as provision for diminution in the value of any asset, is specifically mentioned - that provision for doubtful debts and doubtful advances did not fall within clause (c) of the said Explanation in as much as they amounted to provision in respect of diminution in the value of asset - as provision made for doubtful debts which is debited to the P&L Account has to be added for arriving at the book profit, the addition made by the AO has to be restored - decided in favour of revenue. Maintainability of appeals only on ground of low tax effects - Held that:- As the appeals of the revenue have to be dismissed as not maintainable as the tax effect involved in these appeals were only notional as the income ultimately determined in assessment for these years was only a loss and as these appeals were filed prior to 15/5/2008 from which date notional tax effect was also considered as tax effect for filing appeals. Thus these appeals are dismissed - decided against revenue.

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• 2012 (7) TMI 122
  Renewal of recognition u/s. 80G(5)(vi) of the Income-tax Act - scope of enquiry by Commissioner while dealing with an application under section 80G(5)(vi) – Held that:- assessee continues to enjoy registration u/s. 12A(a) of the Act vide certificate of registration same would imply that assessee qualifies the condition prescribed in clause (i) of section 80G(5) of the Act and its objections raised by the commissioner are beyond the scope of enquiry at the present stage - objections raised by the commissioner may be relevant for the purposes of assessment of the income of the assessee in the respective assessment years by the assessing authority, but are certainly outside the purview of the scope of enquiry required to be carried out by the commissioner while granting approval u/s. 80G(5)(vi) of the Act - Commissioner directed to grant the renewal of recognition of the assessee u/s. 80G5(vi) of the Act in accordance with the law

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• 2012 (7) TMI 121
  Whether Commissioner is justified in substituting full value of consideration disclosed by the assessee on transfer of a capital asset with the fair market value – validity of revisionary proceedings - V.O. failed to take cognizance of auction at Vasant Kunj is prior to the sales effected by the assessee - report of the V.O. can be termed as an erroneous one which has been effected in the assessment order and which resulted the assessment order as erroneous. The cognizance taken by the Learned Commissioner to that extent can be justified – Amount of Rs. 33,47,66,257 directed to be substituted in place of Rs. 12,78,79,481 by the Learned Commissioner. This amount of Rs. 33,47,66,257 cannot be substituted. The appeal of the assessee is partly allowed. Area of operation of Section 55A of the Act is "to ascertain the fair market value of a capital asset". Since section 48 of the Act through which capital gain is computed prescribe to compute the gain on the "full value of the consideration received or accruing as a result of the transfer". Therefore, section 55A cannot give any assistance to compute the capital gain u/s.48 of the I.T. Act. - The expression "full value of consideration" (Sec. 48 ) does not have the same meaning and can not be used in place of "fair market value" (Sec. 55A). Scope of reference u/s.55A vis-a-vis section 50C of I.T. Act. - for the purposes of the computation of capital gain u/s. 48, a reference can be made to DVO only in a situation as prescribed u/s. 50C of the Act. and not otherwise. Section 142A - "Estimate by Valuation Officer in certain cases" - In this section as well there is no power vest with AO to seek the help of Valuation Officer in respect of determination of capital gain prescribed u/s.48 of the Act. The expression "full value of sale consideration" is not the same as "fair market value" as appearing in section 55A. Action of CIT for substituting the full value of consideration disclosed by the assessee with the fair market value is not sustainable.

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• 2012 (7) TMI 120
  TDS - Discount on advertisements – Assessing Officer stated that advertising agents collect money from clients who want to place their advertisements in the various media published/run by it and pass on the money to the assessee after deducting the discount/commission at 15% - AO proposed to treat the assessee as defaulter u/s 201 – Held that:- Assessee cannot be held as an assessee in default - amounts are nothing but discounts and are recognised as such by the entire trade - A trade discount, and admittedly it is not in dispute that the subject matter of the claim is a trade discount, and not an expenditure, clearly therefore there does not arise the question of applicability of section 40A(2)(b) - assessee is not liable to deduct tax u/s 194H – In favor of assessee Payment of data circuit rentals - Assessing Officer noticed that in the publication division and ETV other channels division, the assessee made payments towards use of data circuit lines to BSNL and that the assessee has not made TDS on these payments – Held that:- Payment of data circuit rentals cannot be regarded as fees for technical services - tax is not deductible on payment Data circuit rentals – In favor of assessee Payment of band width charges – Held that:- Payment made for using bandwidth and network operation are not technical services and tax needed not be deducted from such payments u/s 194J - payments of bandwidth are not liable for TDS under section 194J – In favor of assessee Payments of internet charges - Held that:- payments of Internet Charges are not liable for TDS – In the case of Skycell Communications Ltd. (2001 (2) TMI 57 (HC)) - provisions of section 194J are not applicable to the impugned payments – In favor of assessee Payment of Data Circuit Rental Charges – assessee not deducted TDS - Held that:- connectivity charges cannot come under the purview of technical/professional services. It is similar to telephone connection and therefore, provisions of section 194C are inapplicable – In favor of assessee TDS - Payment of transponder Rent – Assessing Officer held that the services provided are of very technical nature requiring highly skilled professionals - AO held that the assessee was liable to make deduction of tax at source u/s 194J on the transponder rent and raised demand accordingly – Held that:- Nature of facility that the assessee has obtained by making the impugned payment - payment of transponder charges is not fee for technical services - Income arising to IGL out of payments received from applicant is neither in nature of ‘royalty’ under Act nor is fee for technical service - Revenue’s appeals dismissed Payments to News service agencies - assessee deducted tax at source u/s 194C from payments made to various news service agencies - Assessing Officer held that the payments fall u/s 194J - work carried out by news paper agents requires professional qualifications and skills. Though, the data collected by such reporters has to be reviewed glossed up and made fit to be published/presented. Nevertheless, procurement of the basic data cannot be done without qualified reporters who utilise their professional skills for collection of the same. Further, the newspapers employ reporters who have been trained to have interrogative ability, presence of mind and have specialised in a way for doing their work and hence they are rendering work in their professional capacity - CIT(A) is right in deducting TDS u/s 194J and not under section 194C and dismiss the assessee’s appeal on this issue – Against assessee TDS - Payment of software expenses - Assessing Officer treated the assessee as defaulter u/s 201(1) r.w.s. 194C for non deduction of TDS on software expenses paid by the assessee - assessee submitted that the provisions of section 194C are not attracted for the reason that these parties did not carry out any work for the assessee within the meaning of section 194C of the Act – Held that:- Assessee is making payments to various agencies on revenue sharing basis from the income generated through advertisements by way of telecasting the serials or programmes produced by the agencies - mode of payment is nothing but a payment for contract of work and is squarely covered by explanation III to section 194C which says ‘work’ shall include programmes for such broadcasting or telecasting - nature of payments fall within the purview of section 194C

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• 2012 (7) TMI 119
  Deduction under Section 80-IA - Manufacturing activity - preparing of designs and drawings - number of workers employed - Section 80-IA(2)(V) of the Act - Held that:- Activities of the assessee involves various activities as per the requirement of their clients - Activities fall in the category of preparing engineering drawings, designs and other technical know how - what is transferred to the client is not the intellectual property, the consideration of which is for supply of drawings and design. Instructions given for preparing the equipment according to the drawings and also its installation when it is installed - Activity of the assessee falls within the meaning of the word 'manufacture' or produce used in Section 80-IA - assessee has employed nearly about 400 persons as work force to carry out its activities - Tribunal was justified in extending the benefit of Section 80-IA to the assessee - In favour of the assessee Whether assessee would be entitled to claim 80-O deduction - Services rendered or agreed to be rendered was utilized by the foreign company in India – Held that:- Assessee was rendering service from India, which service was being made use of by the foreign enterprise outside the country. Therefore, it is not a case of service being rendered inside India - Assessee has not rendered any service in India in connection with the entire project - Service is rendered from India to a foreign enterprise and therefore, Section 80-O is attracted and the Tribunal rightly extended the said benefit - In favour of the assessee Whether the Tribunal was correct in proceeding to hold that Section 80-IA and 80-O deduction operate under two different spears and the assessee would be entitled to claim both the deduction on the same income of project – Held that:- Section 80-IA and Section 80-O both fall under the heading deductions in respect of certain incomes both are independent of each other - assessee is entitled to claim deduction under both the Sections - overall claim under both Sections has to be restricted to the total profits and gains of eligible accounts from the total profits and gains - provision 9A to Section 80-IA was inserted by Finance Act No.2, 1988, which came into effect from 1.4.1998 that limitation was not there for the earlier assessment years - In favour of the assesses Whether the Appellate Tribunal was right in not apportioning the financial cost and operating expenses which had to be allocated to the export income before working out the deduction under Section 80-HHB of the Act – Held that:- no allocation of overheads in computing, the deduction is necessary - there is no error committed by the Tribunal on this issue of deduction under Section 80-HHB Whether the Tribunal was justified in the facts of the case in holding that Section 80-O deduction shall not be allowable on gross amount of foreign exchange brought into India and further, it should also not be allowed on net foreign exchange brought into India i.e., foreign exchange received minus foreign exchange expended – Held that:- Expenses in India currency cannot be taken into consideration - assessee is entitled to benefit only on the net income - claim of the assessee for deduction on the gross receipts rejected – Against assessee

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• 2012 (7) TMI 118
  TDS - assessing authority has issued certificates authorizing the payment without deduction of tax - after the issuance of the said certificate the assessee made payments as against each invoices without any deductions – Held that:- Under section 197, there is no obligation on part of payer to pay tax as long as certificate issued under section 197 is in force and not cancelled and - payer cannot be treated as an assessee in default even if tax is found payable under Act - assessee could not have deducted tax at source - he cannot be treated as a defaulter under law - He is not an assessee in default as understood under Section 201 of the Act - In favour of assessee

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• 2012 (7) TMI 117
  Deduction u/s.10AA - whether foreign exchange fluctuation was not part of the sale proceeds – Held that:- Foreign exchange fluctuation is liable to be treated as part of the sale proceeds and consequently liable to be included in the export turnover - Assessing Officer is directed to re-compute the deduction u/s.10AA by including the exchange gain and loss when computing the export turnover Arms' Length Price - transactions where the sale price to Associated Enterprise was lower than the sale price to non-Associated Enterprise – Held that:- On the purchase the assessee has a positive differential i.e. the assessee purchases at a lower price from its AE than the non-AE and when its sales to the AE, its selling price is lower than the selling price as compared with the non-AE - Assessing Officer is directed to re-compute the ALP by taking into consideration both the net difference on the sale from the AE and purchase from the AE. The Assessing Officer may look into the fact as to the margins of the profits in regard to the transactions done by the assessee with its AE, as also the non-AE transactions and then compute the adjustment of ALP - assessee stand partly allowed for statistical purposes. Whether 5% tolerance limit prescribed by the second proviso to Section 92V(2) would apply only in those cases where more than one comparable price has been adopted to arrive at the Arm's Length Price – Held that:- claim of the assessee for 5% of tolerance limit cannot be granted as no arithmetical mean as provided in the first proviso has been determined – Against assessee Levy of interest under sections 234A, 234B and 234C of the Act – Held that:- Levy of interest under sections 234A, 234B and 234C are consequential in nature, the same are dismissed - Appeal of the assessee is partly allowed for statistical purposes

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• 2012 (7) TMI 116
  Inclusion of any sum u/s 68 in the hands of the assessee - assessee had received loans from various partners - the trial balance so submitted by assessee showed credits of unsecured loans from different parties aggregating to Rs. 4,54,07,931 and debits of Rs. 1,09,46,081 - Tribunal directed the AO to take note of only those credits where the lenders have confirmed for having lent monies to the assessee - Held that:- As it is reveled from the material on record that the assessee has maintained two books of account, but for the search, the kachcha books would not have come to light. The entries in the kachcha books are not reflected in the regular books of account maintained by the assessee and merely because the kachcha books are found during investigation and that the assessee owns the said books and also contends that the entries found therein are true and correct, it is not safe for the authorities to act on such entries - If the assessee wants to have the benefit of the entries in the said books, as he did not produce voluntarily it is for him to substantiate it by such acceptable evidence as to the correctness of those entries - As no explanation is forthcoming for not examining those creditors who in the normal course would have come forward and conformed those entries the Tribunal was justified in excluding those credit entries which are confirmed by the creditors and those entries which are not supported by creditors directing the AO to accept the cash credits wherever the lenders have confirmed for having lent the monies to the assessee and not in other cases - against assessee. Treatment of the unsecured loans - Tribunal considered it as genuine and bona fide - Held that:- Merely because the transactions are through bank channels, the assessee would not be entitled to the benefit - without conducting an enquiry with regard to the identify of the payer i.e. creditors, creditworthiness of the said payer and the genuineness of the transaction it cannot be considered bonafide - in favour of the revenue

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• Customs

• 2012 (7) TMI 144
  Penalty on directors of company – M/s. Evergreen Exim Pvt. Limited, being 100%EOU trading unit could not have sold the goods under advance license as per the provisions of Para 9.21 of the Export Import Policy - appellants had cleared the consignments of goods imported without payment of duty by executing B-17 Bond - bond clearly indicates that the Deputy Commissioner of Customs & Central Excise had permitted the appellant Company to remove the goods to another EOUSEZ Unit against the advance license or specific duty free entitlements – Held that:- According to CBEC Circular No. 49/2000-Cus EOU trading units were allowed to supply the goods to other EOU/STP units against valid advance license or specific customs entitlements - M/s. Evergreen Exim Pvt. Limited had cleared the goods imported by them on which the customs duty was foregone to advance license holders EOU - there cannot be any duty liability on the said M/s. Evergreen Exim Pvt. Limited. In the absence of any duty liability on the main Company, the provisions of Section 112 and 117 for imposition of penalties on the Directors cannot be invoked - order to that extent it imposes penalty on the appellants herein, is liable to be set-aside

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• 2012 (7) TMI 115
  Denial of claim of concessional duty under Notification No.02/95-CE dated 4.1.95 for not achieving NFEP as has been undertaken by assessee - Held that:- Considering EXIM Policy 1997-2002 about calculation of NFEP annually and cumulatively for a period of five years from the commencement of commercial production based upon the formula whereas the case in hand, it is undisputed that five years have not been completed after the start of commercial production by the appellant. Even in the event of failure to make or continue exports, the Development Commissioner's recommendation is required before duty demands can be confirmed by the Customs authorities. In this case, there is no definite conclusion arrived at by the concerned authority namely the Development Commissioner. On the other hand, the Development Commissioner has vide its letter dated 22-12-1998 extended the period of validity for a further period upto 31-3-1999 and the importers have further requested for further extension. Therefore, in the present case, the duty demand is premature and we see no option but to set aside the impugned order - in favour of assessee.

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• FEMA

• 2012 (7) TMI 145
  FERA – penalty - contravention of Section 9(1)(f)(i) of FERA 1973 - appellants had paid equivalent Indian currency through Mr. Niranjan Shah to a person outside India without any general or special exemption granted by the RBI as a consideration for acquisition of US$ 1,00,000 - Each of the appellant received US$ 25000/- in their respective saving bank account on or about 12.10.1991 as and by way of remittance - According to the appellants the said remittances were received by them in accordance with the scheme namely Remittances in Foreign (Immunities ) Scheme, 1991 – Held that:- Scheme framed under the said Act gives various immunities which are listed in Section 3 of the said Act - payments made to Shri Niranjan Shah for being remitted outside India with a view to acquire US$ 25000/- by such appellant would not be in violation of Section 9(1)(f)(i) of the FERA Act in view of the fact that the amount of US$ 25,000/- has been declared as having been received under the said Scheme - no action could have been initiated against appellants under Section 9(1)(f)(i) of the FERA Act

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• Service Tax

• 2012 (7) TMI 165
  Export of goods - denial of refund of cenvat credit on the ground that the appellant is not eligible for the refund of service tax paid on input services i.e. on Terminal Handling Charges - terminal handling charges and REPO charges were paid to JNPT/NSICT and GTIL port services – Held that:- Department could have easily verified whether THC and REPO charges were actually charges paid towards service tax for port services or not since Expressing Shipping and Logistics clearly says that whatever they have collected they have paid to the port authorities. Once REPO have been allowed, no justification to deny terminal handling charges – in favor of assessee Regarding bill of lading charges - no certificate given by Express Shipping and Logistics and from the invoices also it cannot be found out as to under which category of services the service has been classified - Since refund of service tax is allowed based on specific category of services, it is necessary for the refund sanctioning authority to know under which head service tax has been paid - as regards service tax on bill lading charges, the matter is remanded to the original adjudicating authority - in favour of the assessee

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• 2012 (7) TMI 164
  Penalty under Section 76 and 78 simultaneously - Non-payment of service tax liability under the category of Management, Maintenance and Repair Services - appellant before issuance of show cause notice has paid the entire amount of service tax liability, interest and 25% of the penalty imposed under Section 78 of the Finance Act, 1994, within 30 days of the issuance of the adjudication order – Held that:- Provisions of Section 78 was amended from 10.05.2008, wherein an amendment is brought in indicating that, where penalties payable under Section 78, no penalty under the provisions of Section 76 shall be attracted - show cause notice is issued to the appellant on 18.6.2008 and whereas the amendment to Section 78 was carried out on 10.05.2008 – Penalty u/s 76 not sustainable – In favor of assessee

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• 2012 (7) TMI 163
  Waiver of pre-deposit - Demand of Service Tax - Service Tax was not paid in respect of rent-a-cab services provided by the appellant – Held that:- appellant has not been able to show that the vehicles were of more than 12 passenger capacity and they had failed to indicate the Registration No. of the vehicle in the bill. On enquiry from the Bench, the ld.Chartered Accouantant produced 2 invoices and both the invoices were found not containing a word 'Kilometer' at all anywhere in the invoices. Application for waiver dismissed.

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• 2012 (7) TMI 162
  Re-credit of Cenvat credit – service tax paid by utilising the Cenvat credit accumulated - with effect from 1.3.08, the appellant was not entitled to utilise the Cenvat credit for payment of Service Tax on GTA service and such liability was required to be discharge through cash – Held that:- appellants have deposited the amount in cash, which was already paid by them through Cenvat credit. With such deposit in cash, they become entitled for reversal of the credit so utilised by them for payment of the same tax amount. As such, the appellants are allowed to re-credit the amount in their Cenvat credit account. Regarding penalty – Held that:- there was utter confusion in the field during the relevant period and as such imposition of penalty is not justified, the same is accordingly set aside.

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• 2012 (7) TMI 140
  Refund claim - appellant, a 100% EOU - refund claim of service tax paid by them, as per the provisions of Notification No. 41/2007-ST - held that:- . As the transporters are not making payment of service tax on GTA service, there can be no objection for not mentioning the service tax registration No. on the LRs. The purchase order Nos. are given in invoices and LRs and invoices Nos. are given on shipping bills. Thus, it can be easily correlated that the transportation of export goods was done and hence refund claim has been correctly sanctioned. There is no provision in the Central Excise Act to file appeal on the ground that Range Superintendent proposed for rejection of less amount but the Assistant Commissioner has rejected higher amount. Claim was scrutinized by Range Superintendent, then show cause notice was issued, defence reply was submitted and the claim was sanctioned after considering all the facts. This plea in the departmental appeal is totally frivolous because nothing has been stated that why claim can not be sanctioned. In place of filing an appeal on such a ground, the Review Cell should have randomly verified the payments of service tax and ascertained that in respect of some invoices, the respondent obtained refund but did not pay the same. In absence of such an allegation, the appellate authority cannot reject already sanctioned claim on the ground that random check of actual payment of service tax was not done.

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• 2012 (7) TMI 138
  Waiver of pre-deposit - Supply of relevant documents to the assessee - Appellant’s claim before the adjudicating authority as well as the first appellate authority that they have not signed the power of attorney in the name of Shri Chudasma who had been interacting with the recipient of service and the service recipients were making payment for the services rendered, to such a person – Held that:- Documents may be needed by the assessee-appellant for defending his case of non-liability of Service Tax, as their claim is that some one has impersonated them. Non-supply of these documents and an order passed is in violation of principles of natural justice and both the lower authorities have passed the orders in violation of principles of natural justice and are liable to be set aside - appeal is allowed by way of remand

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• 2012 (7) TMI 137
  Stay Petition - waiver of pre-deposit - service rendered by the appellant is towards the construction of the roads which was sought to be brought under the category of management, maintenance or repair of the roads for the period 16.06.2005 to 27.07.2009 – Held that:- Issue is covered by Section 97 of Finance Act, 2012 - Finance Act has clearly stated that no Service Tax can be levied on the services which are under the category of Management, Maintenance or Repair of the roads for the period – In favor of assessee

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• 2012 (7) TMI 136
  Refund - inputs as well as input services utilised/ used in the manufacture of goods, which are exported under Notification No. 41/2007-ST – refund granted - revisionary authority not given any reasoning for refund – Held that:- Revisionary authority has not given any reasons to uphold the order of the adjudicating authority, hence, is, as such a non-speaking order - order set aside and matter remanded back to the revisionary authority

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• 2012 (7) TMI 135
  Extended period - authorised service station for Maruti - appellants had received incentive for vehicle loans given to the customers who purchased Maruti vehicles – Appellants paid service tax even though it was their claim that Maruti Udyog Limited has paid the service tax on the full amount of incentive/ commission - Held that:- Service tax cannot be collected twice on the same service and this is the basic principle of law and therefore, once a claim is made that service has already suffered tax, it should have been verified. Further, if the appellant was aware that service tax was being paid by Maruti Udyog Limited, invocation of extended period also may not be fair since there cannot be any suppression of facts or mis-declaration in such a situation. Regarding trading activity - amendment to Cenvat Credit Rules and various decisions on the issues have not been taken into account, nor the same have been brought up before the lower authorities – Held that:- matter is remanded to the original adjudicating authority

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• 2012 (7) TMI 134
  Cenvat credit and trading of goods - applicants are manufacturing as well as trading in respect of motor vehicles – assessee availed credit in respect of the service tax paid on common services which are in relation to the manufacturing activity as well as trading activity - contention of the applicants is that as per Rule 6 of the Cenvat Credit Rules, the trading activity cannot be considered as an exempted services therefore the demand is not sustainable – Held that:- trading activity is not an exempted service and credit is not admissible on the input services in respect of the trading activity. applicants are directed to deposit an amount of Rs.50 lakhs. - Pre-deposit of the remaining amount of duty, interest and penalty is waived.

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• Central Excise

• 2012 (7) TMI 143
  Cenvat credit – assessee converted into a 100% EOU from a DTA unit with effect from 27.12.2006 in terms of Para 6.19(a) of Foreign Trade Policy 2004-09 and they have been granted a license under 100% EOU scheme - unutilized balance of cenvat credit of capital goods and cenvat credit of inputs – Held that:- EOUs were allowed to pay duty from PLA as well as from Cenvat credit account. The appellant unit was converted into 100%EOU with effect from 27.12.2006 which is after the amendment had taken place

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• 2012 (7) TMI 142
  Stay petition - waiver of pre-deposit along with interest and equivalent amount of penalty - belated filing of the appeal - amounts have been confirmed on the ground that the appellant is required to assess the captively consumed goods on the basis of CAS-4 while the appellant is assessing the same on the basis of the goods sold to independent buyers – Held that:- Issue in which the appellant is already in contest and before the higher fora, the delay should have been condoned -Matter remanded back to the first appellate authority to reconsider the issue afresh - Appeal is allowed by way of remand

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• 2012 (7) TMI 141
  Whether Cenvat credit of duty paid on HR / CR coils - held that:- It is only on 24th June 2010, the Board has issued a Circular to the effect that the process of pickling does not amount to manufacture. Therefore, during the relevant period, that is, during the period from 2nd March 2005 to 31st December 2005, it could not be said that the issue was settled and that the assessee paid duty on decoiled HR/CR coils knowing fully well that the same were not manufactured goods. If duty on decoiled HR/CR coils was paid bona fide, then availing credit of duty paid on HR/CR coils cannot be faulted. Once the duty on final products has been accepted by the department, CENVAT credit availed need not be reversed even if the activity does not amount to manufacture.

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• 2012 (7) TMI 139
  Classification of goods as Governing System under Chapter Heading 84.79 vide the Classification List No.1/88-89 – SCN by classifying the goods under 84.83 - Commissioner set aside the OIO as Classification List was already approved and same cannot be re-opened – Held that:- As SCN was issued within the normal period of six months prescribed under Section 11A is not liable to be rejected as Department can raise a demand within six months in the case where Classification List has also approved u/ s 110(1) &(2)of Finance Act - the Section 11A of the Act as amended is a valid piece of legislation and Commissioner (Appeals) order is not sustainable as per law - the same is required to be re-examined - remand the case to the Commissioner (Appeals) for deciding the classification of the goods.

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• 2012 (7) TMI 114
  Suppression of fact - cenvat credit on ineligible inputs, Light Diesel Oil - Held that:- Appellant has clearly suppressed the fact that they were availing cenvat credit on an input which was specifically named in the definition of inputs and excluded from the list of inputs on which credit can be taken. When there is a specific exclusion on availment of input credit, the submission that there was no suppression of this fact just because there was no column in ER-1 or no specific requirement of intimating the department or submitting invoice, is not acceptable - Appellant cannot take shelter behind technicalities having availed the totally inadmissible and irregular credit knowing fully that credit was not available - suppression of fact has been correctly invoked and demand has been correctly confirmed and penalties have been correctly imposed - appeal is rejected

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• 2012 (7) TMI 113
  Valuation - job work - inclusion of job work charges in the value – Held that:- in case value of comparable goods is known, the same can be adopted for goods manufactured by the job worker. - goods were cleared on the price of M/s Reliance Industries Ltd., so the price of comparable goods are known and when value of polyester textured yarn of M/s Reliance Industries Ltd. was known the alternative of cost construction is barred and cannot be resorted to - duty has correctly been paid as determined on the basis of the value of comparable goods. - amount towards job work charges not required to be included - decided in favor of assessee.

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• 2012 (7) TMI 112
  Dismissal of appeals - non-compliance with the Order of the redeposit - appeal to Tribunal - Held that:- As decided in CCE, Chandigarh vs. Smithkline Beecham Co. Health C. Ltd [2003 (9) TMI 82 (SC)] that if the Commissioner (Appeals) merely dismisses any appeal for not making the predeposit, then the only question remains to be decided whether the appeal can be decided on its merits or not - the learned Commissioner (Appeals) has not decided the merits of the case, thus the matter is remanded back for reconsideration on merits without insisting for the redeposit.

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• 2012 (7) TMI 111
  Marketability of goods - bus body parts manufactured and supplied to their divisional office – Held that:- The components of bus bodies are meant for specific use in buses made for repair and maintenance purposes cannot be used in other buses made by other bus body builders - no evidence from the Revenue to show that the components are bought and sold in the market as commodity – BOARD OF TRUSTEES Versus COLLECTOR OF CENTRAL EXCISE, A.P.[ 2007 (8) TMI 350 (SC)] - The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold as decided in UOI vs. Sonic Electrochem (P) Ltd 2002 (9) TMI 104 (SC) - The products, components of bus bodies made by the appellant are not available in market no point of levy of duty – in favour of assessee. Scrap generated during the course of manufacture of the parts – Held that:- once the department itself has held the goods as non-excisable and each sale of scrap was intimated to the department by the unit, allegation of suppression of fact against the appellant does not survive.

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