TMI Tax Updates - e-Newsletter
August 21, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Articles

1. MISCELLANEOUS EXEMPTIONS UNDER SERVICE TAX - PART I

   By: Dr. Sanjiv Agarwal

2. THE SANCTIONING COURT HAS INHERENT POWERS TO SANCTION THE SCHEME OF AMALGAMATION IF IT IN CONSONANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956.

   By: DR.MARIAPPAN GOVINDARAJAN

Notifications

Companies Law

1. F. No. 14/11/2012-CL-VII - dated 16-8-2012 - Co. Law

Gazette notification GSR 534(E) dated 14/07/2011-clarification regarding - Employee of a company holding shares of company up to 0.5% of paid up share capital also covered under category of persons not having any interest in capital of company

Highlights / Catch Notes

Income Tax

• Venture Capital Firm Wins Tax Exemption Eligibility u/s 10(23FB) of Income Tax Act.

  Case-Laws - AT : Denial of entitlement of u/s.10(23FB) - assessee is engaged in the business of providing venture capital by way of investment in equity capital - exemption u/s.10 (23FB) allowed - AT
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• Lease Rent and Pipeline Maintenance Under BOOT Contract Classified as Revenue Expenditure.

  Case-Laws - AT : Capital expenditure vs Revenue expenditure - expenditure on payment of lease rent and maintenance of the pipeline as per Build, Own, Operate, Transfer (BOOT) contract - held as revenue in nature - AT
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• Section 40(a)(ia): Applies to March 31 payables, not past year expenses paid without TDS deduction.

  Case-Laws - AT : Provisions of section 40(a)(ia) are applicable only to amounts of expenditure which are payable as on 31st March every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deducting TDS - AT
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• Assessee seeks tax authority's decision on commission income estimation or peak cash deposit taxation u/s 68.

  Case-Laws - AT : Addition u/s 68 - assessee has requested either estimate the commission income on such accommodation transactions or tax peak of the cash deposits - AT
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• Loan Repayment Classified as Deemed Dividend u/s 2(22)(e) of Income Tax Act, Added to "Other Sources" Income.

  Case-Laws - AT : Repayment of loan to be treated as deemed divided - Addition under the head “other sources” invoking the provisions of section 2(22)(e) - AT
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• Derivative Trading Losses Can Offset Non-Speculative Business Profits; Classified as Non-Speculative Business.

  Case-Laws - AT : Disllowance of set off of losses - as derivate trading itself is treated as a non- speculative business, and losses of any non- speculative businesses can be adjusted profits of any non-speculative business - AT
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• Foreign Dividends in India Taxable: Not Covered by Section 115-O; No Exemption u/s 10(34) of Income Tax Act.

  Case-Laws - AT : The Dividend if any received in India from foreign company is not exempt from tax as it will not be a Dividend covered u/s.115-O which alone is exempt u/s.10(34). - AT
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• No time limit on issuing notice u/s 142(1) of Income Tax Act; no implied restriction within one year.

  Case-Laws - AT : Wen there is no express provision limiting issuance of notice u/s 142 (1) within the period of one year from the end of the relevant assessment year, no such limitation can be read into the provision - AT
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• Income Tax Act Section 71(2A): Business Losses Cannot Offset Salary, But Can Offset House Property Income.

  Case-Laws - AT : Section 71(2A) bars set off of business loss against salary income and does not bar setting off of the business loss against the house property income. - AT
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Customs

• Appeal Rejected: Authorization to Lower Authorities Lacked Jurisdiction in Refund Claim Case.

  Case-Laws - AT : Invalid jurisdiction - appeal against order of first appellate authority setting aside order passed by the adjudicating authority on the refund claims - Since the authorisation granted to the lower authorities is without jurisdiction, appeal rejected - AT
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Corporate Law

• Company Faces Winding Up Over Debt Issues; Court Denies Respondent's Attempt to Withhold Payment Over Incurred Losses.

  Case-Laws - HC : Winding up – alleged that company unable to pay its debts - respondent could not take advantage of its own breach and withhold balance amount on plea of loss and damages having been incurred - HC
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Service Tax

• Company Faces Service Tax Demand for Employee Training Services from Foreign Parent Under Reverse Charge Mechanism.

  Case-Laws - AT : Alleged training of employees outside India as well as in India through availing services of parent company - demand imposed under the reverse charge mechanism for the services availed from foreign service provider - AT
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• Eligibility for Service Tax Refund on Services in SEZ Operations: Claim for Refund of Taxes Paid on SEZ Services.

  Case-Laws - AT : Refund Claim of Service Tax paid on services consumed within the SEZ and services which were used in the authorized operations of the SEZ units - AT
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• Appellate Tribunal can't hear appeals on revisionary orders by Commissioners u/s 84 post-August 19, 2009.

  Case-Laws - AT : Whether Appellate Tribunal does not have jurisdiction to entertain the appeals filed against revisionary orders passed u/s 84 by Commissioners after 19.8.2009 - AT
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Central Excise

• Show Cause Notice Invalidated for Being Time-Barred Due to Revenue Authorities' Prior Knowledge of Key Facts.

  Case-Laws - HC : Alleged suppression of assessable value of the goods - the facts were within the knowledge of the Revenue - SCN could not have been issued as it was time barred. - HC
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• Appellants entitled to interest for delayed sanction of rebate or refund claim related to Central Excise.

  Case-Laws - AT : Refund - The appellants are entitled for interest on delayed sanction of rebate / refund claim. - AT
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Case Laws:

• Income Tax

• 2012 (8) TMI 497
  Assessment framed u/s 153A in case of search based on evidence gathered in the course of search of another assessee for AY 2003-04 to 2008-09 - assessment framed u/s 144 for AY 2009-10 - assessee contesting assessments u/s 144 on ground that Section 153A or Section 153C has no application on assessment for the AY 2009-10 - assessment u/s 153A(1) on the ground of non-recording of satisfaction by AO who conducted search - Held that:- Best judgment assessment u/s 144 was for failure of the assessee to file return for the said AY and its validity is not in any way affected just on ground that AO by mistake has quoted Sections namely Sections 153C and 153A wherein it is also stated that the said assessment is made u/s 144. Assessment is one made exclusively u/s 144 after issuing notice to the assessee. Transfer of recovered books of accounts, evidence or materials is only a procedural formality to be complied with by the AO who searched an assessee and recovered materials pertaining to another assessee, and the AO who takes up assessment u/s 153C against the latter will have full jurisdiction to appreciate evidentiary value of the books of accounts or materials or goods received from the other officer and proceed to make assessment in his own way. Therefore, satisfaction is not required to be recorded by the AO, who conducted the search before transferring materials found belonging to another assessee - Decided against assessee

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• 2012 (8) TMI 496
  Undisclosed income - Search and seizure - addition u/s 68 made of difference in value of property purchased at Rs 71.35 lacs and seized document in the handwriting of the father of the assessee showing the property valued at Rs.80.00 lacs - Held that:- Document found during the search has been explained satisfactorily viz. that it is the resale value of the property and the figures were recorded only for the purpose of distribution of the property within the family. Gifts - addition - assessee furnished copies of the pass books, income tax details and PAN of the donors - Held that:- Respondent has sufficiently discharged the onus casts upon her to establish the source of gifts and credit worthiness of the donors. Genuineness of gift held by appellate authorities. Both the findings being pure findings of fact are not alleged to be perverse. Consequently no substantial question of law arises - Decided against Revenue

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• 2012 (8) TMI 495
  Disallowance on Expenditure towards Non-Compete Fees & depreciation on leased premises - re-assessment order passed u/s. 147 - Held that:- Learned Third Member u/s. 255(4)on difference of opinion between the Ld. Members constituting the Division Bench in respect of validity of the re assessment order decided that the assessment order passed by AO is illegal and void abinitio - in favour of assessee.

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• 2012 (8) TMI 494
  Denial of entitlement of u/s.10(23FB) - assessee is engaged in the business of providing venture capital by way of investment in equity capital - Held that:- Condensing the assessee's chart in its submission where it is shown that when the management and administration expenses are reduced from the corpus figure then the eligible investments in Venture Capital Undertakings have achieved the stipulated minimum percentage of 66.67% in two other years apart from the current Assessment Year i.e., during F.Y. 2006- 2007 and 2007-2008. Under the circumstances, the appellant’s contention that the stipulated condition under SEBI Regulation 12(d) for being eligible to exemption under 10 (23FB) of the Income Tax Act have been fulfilled, is acceptable, and the assessee is entitled to exemption u/s.10 (23FB). AO's reliance on CIT (A)'s order for AY 2004-05 is erroneous to the extent that the term ‘investible funds’ has not been examined and wrongly considered to mean the corpus, whereas, in fact the term ‘investible funds’ have been defined under SEBI regulations in regulation (hh) as ‘investible funds’ means corpus of the fund net of expenditure for administration and management of the fund;’ and taking into consideration the same if the working is made as has been done herein above, it can be seen that the assessee had already achieved the conditions prescribed - Following this decision of CIT (A)-II for the Assessment Year 2004-2005, it is held that the exemption u/s.10 (23FB) is available to any income of the assessee, be it interest, dividend, etc. - in favour of assessee.

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• 2012 (8) TMI 493
  Capital expenditure vs Revenue expenditure - expenditure on payment of lease rent and maintenance of the pipeline as per Build, Own, Operate, Transfer (BOOT) contract with M/s Dodsal - Held that:- In present case, assessee company, by making lump sum payment to Dodsal has not acquired any capital asset but has acquired only the right to operate and maintain the said pipeline for its business purpose and got rid of making monthly payment. The assessee company has stated that even when the BOOT agreement was in operation, the assessee was neither the owner of the pipeline nor after making the lump sum payment to Dodsal on terminating the BOOT agreement the assessee became the owner of the pipeline. Since, assessee has not acquired any capital asset but has only got the right to use the said pipeline for its business purposes and has not acquired any capital right in the said pipeline, therefore, the same is to be considered as revenue in nature. See Madras Auto Service (P.) Ltd (1998 (8) TMI 1 - SUPREME COURT ) - Decided in favor of assessee Further, claim of the assessee which is otherwise allowable as revenue expenditure, cannot be denied merely on the ground that the assessee has capitalized the said expenditure by making entries in its books of account. Sales tax incentive being exemption granted by the State Government of Gujarat on ground of industry being situated in the backward area - capital receipt or revenue receipt - assessee contended that incentive available is based on the capital invested in the aforesaid project, hence capital receipt - Held that:- Sales tax incentive to be constituted capital receipt. See DCIT v/s Reliance Industries Ltd [2003 (10) TMI 255 (Tri)] - Decided in favor of assessee Business Expenditure - Donation/contribution to various organisations/ Community Welfare Expenses - dis-allowance - Held that:- Tribunal in assessee' case in earlier year allowed such expenditure by holding that just because the expenses are voluntary in nature and are not forced in the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Dis-allowance deleted - Decided in favor of assessee Expenditure on registration fee, stamp duty of lease transactions - Held that:- By incurring the said expenditure, the assessee has not acquired any assets of enduring nature and the said expenditure could not be disallowed as of capital nature. Same is held revenue in nature. See Hoechst Pharmaceuticals Ltd (1977 (11) TMI 55 - BOMBAY HIGH COURT) - Decided in favor of assessee Expenditure incurred on account of repairs - designing and re–location of the reactor purchased in year 1999 - Held that:- Incurring the expenditure to relocate the reactor from its existing place to a new place to make use of it does not create any new asset to the assessee. Same is held revenue in nature. See Abbott Laboratories (I) Pvt. Ltd. (1993 (2) TMI 83 - BOMBAY HIGH COURT) - Decided in favor of assessee Rejection of claim of deduction u/s 80HHC for the purpose of computing book profit u/s 115JB on ground that deduction u/s 80HHC is NIL under normal provisions of law - Held that:- Issue is now covered in favour of assessee by judgment in case of Bhari Information Tech. Sys. P. Ltd.(2011 (10) TMI 19 - SUPREME COURT OF INDIA , wherein it was held that deduction u/s 80HHE is required to be worked out on the basis of adjusted book profits u/s 115JA and not on the basis of profit computed under regular provisions of law applicable to the computation of profits and gains of business. Section 80HHC as well as section 80HHE falls in the same Chapter and provisions u/s 115JA are also in pari material with the provisions of section 115JB. Consequently, decided in favor of assessee by reversing the orders of the authorities below. Lease rent paid on boilers - dis-allowance of amount attributable to re–payment of principal amount - Held that:- Same is allowed in view of order of Tribunal in favor of assessee in respect of earlier years Dis-allowance u/s 40A(9) of contribution to various clubs run by and meant for the staff and their families - Dis-allowance of prior-period expenditure - Held that:- Issue on identical fact is covered in favour of the assessee by the earlier decision of the Tribunal Adjustment for provision of bad and doubtful debts while computation of book profits u/s 115JB - Held that:- In view of the amendment made by the Finance (no.2) Act, 2009, by inserting clause (i) to Explanation (1) of section 115JB(2), with retrospective effect from 1st April 2001, the provisions made for bad and doubtful debt is to be disallowed. Dis-allowance confirmed - Decided in favor of Revenue Depreciation in respect of jetties constructed by the assessee and used for the purpose of its business - dis-allowance - assessee constructed jetty for and on behalf of Gujarat Maritime Board (GMB) - exclusive ownership being vested in GMB - assessee being afforded the facility for preferential use of jetty over other users and licence to use jetty - depreciation being allowed since AY 1997–98 - assessee contended the same to be acquisition of commercial right or license and intangible asset within the meaning of section 32(1) - Held that:- Tribunal considered similar issue in the case of Reliance Ports and Terminals Ltd., and allowed the claim for depreciation on the cost incurred by the assessee on construction of jetties. Since aforesaid case squarely applies to this case, depreciation at the rate as applicable on the cost incurred for construction of jetty at Dahej is directed - Decided in favor of assessee Addition on account of unavailed CENVAT credit u/s 145A - Held that:- If the closing stock to be increased on account of unutilised MODVAT credit, the corresponding opening stock of that year is also to be increased, as the Department has not disputed the fact that the purchases have been debited exclusive of the excise duty element i.e., by adopting net method of purchases. If the value of closing stock is increased by the MODVAT, the purchases should also be increased by a similar amount. Whenever there is change in the valuation at one end, there must necessarily be a corresponding change at the other end otherwise the true picture would not be reflected. Addition is deleted - Decided in favor of assessee.

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• 2012 (8) TMI 492
  Disallowance on account of Voluntary Retirement Scheme (VRS) - Held that:- The assessee has come out with VRS forced by commercial reasons and the liability is well supported by the actuary valuation the right of employees are supported by the agreement with the company and employee as the actual valuation certificate and the agreements between the company and the employees - as all the documents were not examined by the AO in the interest of justice and fair play this matter is restored back to the file of AO - in favour of assessee for statistical purposes. Disallowance of provisions of expenses made at year end - Held that:- CIT(A) has rightfully directed the AO to look into the contention of the assessee that in view of the method of accounting followed by them in which provision for expenses made at the end of the year are credited to the respective expenses heads in the subsequent year ought to be reduced to that extent and see that the same amount is not doubly taxed and has rightly confirmed the addition of Rs. 40,90,453 - against assessee. Disallowance of expenses as being in the nature of capital expenditure - Held that:- As decided in CIT Versus M/s. Geoffrey Manners & Co. Ltd. (Now known as Wyeth Limited) [2009 (2) TMI 13 - BOMBAY HIGH COURT] the claim of the assessee to treat the expenditure on production of films as revenue expenditure - in favour of assessee. Disallowance being the depreciation on Kandla plant - Held that:- Depreciation is allowed if the plant was actually in operation and which fact has not been brought on record, the issue deserves to be restored back to the file of AO to verify whether the plant was actually in use during the year under consideration and if satisfied the depreciation may be allowed - in favour of assessee for statistical purposes. Disallowance of 20% on foreign travel expenses - Held that:- As on identical facts the Tribunal has deleted the disallowance sustained by CIT(A) no point to disallow the claim in period under question - in favour of assessee. Disallowance of expenses for impending union settlement - Held that:- When there was a memorandum of settlement dt. 29.2.1988 and thereafter dt. 7.1.1991 why the assessee had not made any provision either on the basis of MOS dt. 29.2.1988 or on the basis of charter of demand dt. 7.1.1991 - as the facts being identical of AY 1992-93 with the current year and also considering the settlement which is executed on 23.8.1993 relates to A.Y. 1994-95 and the Ld. CIT(A) has rightly held that deduction in the year under consideration does not arise - against assessee. Disallowance of hotel expenses and air fare on foreign visitors coming to India - Held that:- Considering the details of foreign travel expenses submitted by the assessee and respectfully following the decision of the Tribunal in assessee’s own case for A.YT. 1992-93 no dissallowance of the claim of expenses incurred by the assessee for the purpose of business is warranted - against revenue. Disallowance for expenditure incurred on transit houses maintained at Goregaon and Goa - Held that:- Considering the decision of Tribunal in assessee's own case in AY 1991-92 wherein Tribunal has held that expenditure of food and beverages have to be allowed - thus as in the year in question AO is directed to consider the details filed by the assessee giving break-up of expenses incurred on guest house maintenance and allow the expenses incurred on food and beverages - in favour of assessee for statistical purposes. Apportionment of expenses - Lunch expenses, canteen expenses, business meeting expenses and expenses on AGM - Held that:- Considering the assessee's submission direct the AO to allow the business meeting expenses and expenses on AGM which expenses cannot come under the category of entertainment expenses and to add only Rs. 2,00,000/- out of total canteen expenses which is in the line of the finding of the Tribunal in assessee’s own case for assessment year 1992-93 - partly in favour of assessee. Inclusion of sales tax and trade discount from the figure of total turnover for the purpose of computing deduction u/s. 80HHC - assessee also took an additional ground by which asked to exclude excise duty element - Held that:- As decided in CIT Versus Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME COURT] excise duty and sales tax were includible in the "total turnover", which was the denominator in the formula contained in section 80HHC(3) as it stood in the material time - in favour of assessee. Disallowance of expenses for the A.Y. 1992-93 - Held that:- Considering the submissions of the assessee it can be concluded that as this liability was incurred for earning the profits and gains for the A.Y. 1992-93, therefore the same is allowable against the profits and gains for A.Y. 1992-93 and confirm the disallowance made by AO - against assessee. Disallowance of deduction u/s. 80HH - Organic Phosphates and Phosphites unit situated at Goa - Held that:- On submissions of assessee that there are no brought forward losses available as they have been set off from the profit of other units of the assessee need to be verified, it is desirable to restore this matter back to the file of AO - in favour of assessee for statistical purposes.

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• 2012 (8) TMI 491
  Disallowance of expenditure on account of advertisement u/s 37(1) - reopening of assessment proceedings u/s 148 - Held that:- A.O. has power to re-open the assessment provided there is tangible material to come to the conclusion that there was escapement of income from assessment & reason must have a live link with the formation of the belief - in the instant case no findings of reasons having any link with the formation of the belief since the A.O. while reopening the assessment for A.Y. 2004-05 has relied on the assessment order for 2005-06 on the issue of disallowance of advertisement expenses which are completely different from the A.Y. 2004-05 in view of the findings of the Third Member in assessee’s own case for A.Y. 2005-06 - the reassessment proceedings are invalid - in favour of assessee.

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• 2012 (8) TMI 490
  Penalty u/s 271(1)(c) - dis-allowance of deduction u/s 80HHC during reopening proceedings, relying on decision in case of IPCA Laboratories (2004 (3) TMI 9 - SUPREME COURT) - assessee contended that where two views are possible, penalty cannot be levied - Held that:- This is a simple case of disallowance of deduction because of a later judgment from the Apex Court, and has nothing to do with either inaccurate particulars or concealment of facts. Revenue is unable to point any omission, concealment or inaccurate and certainly nothing has been found to be “false”, in any case, issue of penalty being not exigible in such circumstances, is now squarely covered by the recent decisions of Apex Court in CIT vs Reliance Petro Products Pvt. Ltd.(2010 (3) TMI 80 - SUPREME COURT). CIT(A) order of cancelling the penalty is upheld - Decided in favor of assessee.

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• 2012 (8) TMI 489
  Non deduction of tax at source on clearing and forwarding charges - Held that:- As if there is one single consolidated bill then the provisions of section 194J would be attracted but here it is found that four bills raised by party at periodic intervals, which does not mean that there was one / single bill - Considering decision of the CIT(A), who has restored the issue to the file of the AO with certain directions it need to be modified by adding that the AO shall examine the issue in detail with reference (i) to the amounts that are covered by TDS, (ii) which the assessee has himself disallowed in his computation and (iii) the extent of reimbursement of expenses, which, do not get covered by the provisions of TDS. As a part of the amount on which TDS is not deducted is suo-moto disallowed by the appellant in his return of income filed, provisions of section 40 (a) (ia) are applicable only to amounts of expenditure which are payable as on 31st March every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deducting TDS - in favour of assessee for statistical purposes.

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• 2012 (8) TMI 488
  Interest on borrowed funds - proportionate dis-allowance attributing the same towards Capital Work In Progress - Held that:- There is opening WIP of Rs. 3.16 crores in relation to which no disallowance of interest had been made in the preceding year which means that capital WIP to that extent had been accepted by the department as explained from own funds. Therefore no disallowance of interest can be made in relation to the opening WIP. The addition during the year is only Rs. 66.50 lakh. The capital and reserve of the assessee had increased during the year of Rs.10 crores and increase in loans during the year was only of Rs. 3 crore. Moreover, the assessee during the year had earned profit of Rs. 14 crores. Therefore, capital addition during the year is easily explained out of own funds. Dis-allowance deleted Depreciation on UPS - Revenue contending 15% whereas assessee contended 15% - Held that:- Depreciation @ 60% has to be allowed in case of UPS. See CIT vs BSES Rajdhani Powers Limited (2010 (8) TMI 58 - DELHI HIGH COURT) Interest income received from fixed deposits kept as margin money for LCs / Bank Guarantee and also as security deposit with Maharashtra State Electricity Board (MSEB) - Business Income or Income from other sources - Held that:- Interest income has to be considered as incidental business income. See CIT Vs Indo Swiss Jewels Limited And Another (2005 (9) TMI 47 - BOMBAY HIGH COURT) - Decided in favor of assessee

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• 2012 (8) TMI 487
  Disallowance of deduction u/s 10A - assessee had not allocated the common headquarter expenses aggregating to the 10A unit - Assessee has argued that attribution of expenses of the head office on turnover basis is not correct - Held that:- The head office caters to the needs of all the units and therefore the head office expenses are required to be attributed to the various units and attribution of expenses based on turnover is quite appropriate. While working out the profit of the unit, the indirect expenses incurred in the head office have therefore, been correctly attributed on the basis of turnover - against assessee. Disallowance of expenses under section 14A r.w.r. 8D - Held that:- Rule 8D is applicable only from assessment year 2008-09 and, in respect of prior years, expenses relating to exempt income both direct and indirect have to be computed on a reasonable basis after allowing opportunity of hearing to the assessee - as in this case, CIT (A) has directed the AO to compute the disallowance after allowing opportunity of hearing to the assessee no infirmity in the order of CIT(A) of disallowance - against assessee.

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• 2012 (8) TMI 486
  Addition u/s 68 - assessee has requested either estimate the commission income on such accommodation transactions or tax peak of the cash deposits - Held that:- As it is not in dispute that the assessee was providing accommodation entries an admitted fact that the assessee could not produce any of the beneficiaries to whom he was providing “accommodation” and at the same time the assessee has not discharged the initial onus cast upon him and therefore fails in succeeding in this ground of appeal. As the assessee’s has agreed that he has no objection in estimation of profit from hawala business the income of the assessee can be enhanced on the basis of the peak credit statement submitted by the assessee during the course of the appellate proceedings is to be accepted as held in assessee's own case in A.Y. 2002-03 - the entire cash deposit for the year under consideration cannot be added as deemed income of the assessee and at the most the peak deposit in all the bank accounts taken together should be taken for the addition u/s. 68 - restore this issue back to the file of the AO directing to verify the peak deposits of all the bank accounts together - partly in favour of assessee.

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• 2012 (8) TMI 485
  Disallowance of TDR transaction on account of inflated sales - transaction claimed to have been entered by the assessee with a sister concern - Held that:- Assessee had purchased TDR from KHPL, its sister concern, who has claimed the purchase of TDR from original vendor company and finally sold by assessee resulting in profit of Rs. 3,59,750/- which is claimed to be offered for tax and not disputed by Revenue - sister concern has claimed to have paid tax @ 30% on profit from above transaction which has not been disputed on behalf of revenue, thus in case KHPL has suffered tax, then it cannot be said that tax planning device adopted by assessee by inflating its purchase price of TDR. As decided in CIT Vs. Indo Saudi Services (Travel) Pvt. Ltd. [2008 (8) TMI 208 - BOMBAY HIGH COURT] if sister concern with whom transaction was entered was also assessed to tax in such situation no disallowance has to be made u/s. 40A(2) in respect of the payment made to the relatives and sister concern where there was no attempt to evade tax - in favour of assessee.

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• 2012 (8) TMI 484
  Repayment of loan to be treated as deemed divided - Addition under the head “other sources” invoking the provisions of section 2(22)(e) - Held that:- In order to attract the provisions of section 2(22)(e) there should be loan/advance by a company to its shareholder with an every amount paid must make the company a creditor of the shareholder of that amount. At the same time, it is to be borne in mind that every payment by a company to its shareholders may not be loan/advance. In the present case, the amount was withdrawn by the assessee from the company only to meet her short term cash requirements. By virtue of offering personal guarantee and collateral security for the benefit of the company, the liquidity position of the assessee had gone down, thus if it is to be construed the amount forwarded by the company to the assessee was not in the shape of advances or loans. The arrangement between the assessee and the company was merely for the sake of convenience arising out of business expediency. In the facts and circumstances of the case, it is not appropriate to hold that the amount withdrawn by the assessee partakes the character of deemed dividend under the provisions of section 2(22)(e) - in favour of assessee.

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• 2012 (8) TMI 483
  Disllowance of set off of losses - loss from transactions in futures & options against short term capital gain derived from transactions in shares and mutual fund units - Held that:- As a result of the amendment in Section 43(5) with effect from 1st April 2006, losses incurred in derivative trading are held to be eligible for being set off against normal business profits, as derivate trading itself is treated as a non- speculative business, and losses of any non- speculative businesses can be adjusted profits of any non-speculative business - the case of the assessee is squarely covered by the amendment in the Act As decided in CIT Vs. Shri Bharat R.Ruia [2011 (4) TMI 37 - BOMBAY HIGH COURT] future & option are one of the categories of derivatives and loss suffered by the assessee during future & option transactions is not a speculative loss thus, the same can be set off against short term capital gains by the assessee during the relevant assessment year - in favour of assessee.

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• 2012 (8) TMI 482
  Disallowance of deduction of diminution in value of investments written off - Held that:- The assessee has not brought on record any material to show that the shares of Shriram Asset Management Co. Ltd. are held as business assets and required to make provision for diminution in value of investment in the books of account. As the assessee reversed this provision in its books of account and offered to tax in the assessment year 2007-08 disallowing the same provision during the assessment year under consideration amounts to double disallowance AO is directed to verify the details - in favour of assessee for statistical purpose.

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• 2012 (8) TMI 481
  Disallownace of Interest incurred on borrowed funds - assessee invested in its fully owned subsidiary in Switzerland - show cause to assessee why the said amount should not be allowed u/s.36(1)(iii) read with section 14A - Held that:- The Dividend if any received in India from foreign company is not exempt from tax as it will not be a Dividend covered u/s.115-O which alone is exempt u/s.10(34). Further the Long Term profit on sale of shares is also not exempt since it is not covered u/s.10(38). Hence there is no application of section 14A in the present case. Except for making arguments the funds borrowed are for commercial expediency and incurred for the purpose of business of the assessee, no evidence whatsoever was produced by the assessee before the lower authorities - remit the issue of allowance of expenses back to the file of the AO to decide the matter afresh in accordance with law - in favour of assessee for statistical purposes.

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• 2012 (8) TMI 480
  Disallowance of an expenditure incurred on interiors and furnishings - Held that:- The AO is carried away by the size of the expenditure claimed, and not examined the capital or revenue nature of the each of the item of expenditure. This approach of the Revenue authorities is not correct and cannot be approved - it cannot be adjudicate the ground meaningfully without having facts as to description, use, function of each of the items, which is under dispute - restore the matter to the file of the AO with a direction to examine the nature of the item-wise expenditure claimed by the assessee. Non deduction of tax u/s 194C - Disallowance of expenditure in terms of S.40 (a) (ia) - Held that:- The word ‘payable’ used in section 40 (a) (ia) has to be given its natural meaning & is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting tax at Source - no dispute the payments in question were made by the assessee during the year under consideration - in favour of assessee. Direction to apply Rule 8D - Held that:- As the provisions of Rule 8D should be made applicable even to the assessment years prior to the amendment to the said rule no mistake in the direction of the CIT(A) to AO to apply the Rule 8D for determination of disallowable expenditure attributable for earning of exempt income on a reasonable basis mentioning the express reasons - against assessee.

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• 2012 (8) TMI 479
  Addition on account of unexplained investment - assessee contested against notice u/s. 142 (1) as issued beyond the prescribed time - Held that:- As per Proviso to S.142 (1)(i) it is clear that any notice served on the assessee after the end of the relevant assessment year shall be deemed to have been served in accordance with the provisions of S.142 (1) - Provisions u/s. 142(1) contain the operative expression, i.e. ‘any notice has been served…, such notice issued to him’ only qualify the conditions issue and service of any notice. The expression ‘any’ in our opinion should cover the impugned notice issued with the delay of 15 months of the end of the relevant assessment year 2005-06 - when there is no express provision limiting issuance of notice u/s 142 (1) within the period of one year from the end of the relevant assessment year, no such limitation can be read into the provision - no substantial force in the argument of assessee that notices u/s 142 (1) cannot be issued when no return of income was filed Notice u/s. 148 - arguments of assessee about applicability of the provisions of S.148 are of no use as it is a separate proceedings and is not the case here that proceedings under S.144 read with S.142 (1) (i) are simultaneously initiated, while the other proceedings under S.148 are in force or vice versa - set aside the matter to the file of the CIT (A) to dispose of the appeal on merits in accordance with law - Revenue’s appeal is allowed for statistical purposes.

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• 2012 (8) TMI 478
  Allowability of set off of the business loss brought forward arising out of banking business, income from which is eligible for deduction u/s 80P, against the house property income - Held that:- It is observed that S71(2A) bars set off of business loss against salary income and does not bar setting off of the business loss against the house property income. Further, CIT(A) has passed a non-speaking order and reference made to non-eligibility of exempt nature of the income for set off, whereas provisions of S.80P falls under category of deduction which is different from being exempt. It is settled position of law that the assessee is entitled for such set off of current year’s business loss against current year’s income from house property as held in the case of CIT V/s. Mughneeram Bangaru and Co.(1980 (8) TMI 12 - CALCUTTA HIGH COURT ). Since, CIT(A) is not specific to the issues raised before him. Therefore, matter should be referred back to the file of the CIT(A) with a direction to adjudicate the grounds and the issues raised in the grounds of appeal and the specific arguments advanced before him, qua the grounds raised.

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• Customs

• 2012 (8) TMI 477
  Penalty imposed u/s 112(a) - violation of the provisions of Section 111(m) for mis-declaration of value and violation of the provisions of Exim Policy u/s 111(d) - import of cars not in the possession of the importers for a period of one year - assessee contesting penalty and confiscation of car - Held that:- Since importers nor other parties on whom the penal proceedings were initiated, have filed any appeal against the adjudication order, therefore, it is presumed that they have no grievances against the order of confiscation and imposition of fine and penalties. It is undisputed that appellant was fully aware that the cars which were being imported were not in the possession of the importers for a period of one year, still he undertook to execute the instructions given by the Dubai supplier and arranged for the CHA. Since, appellant's knowledge and connivance in the entire transaction of importing second-hand cars without fulfilling the terms and conditions of the import stand clearly established. Therefore, penalty imposed on the appellant u/s 112(a) is fully justified - Decided against assessee.

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• Corporate Laws

• 2012 (8) TMI 502
  Amalgamation - Scheme of arrangement – held that:- the scheme of arrangement being fair and reasonable and all statutory provisions have been complied with and it is not adverse to public policy, and pursuant to the order passed by this court, public notice has been taken out by the petitioners in the newspapers and none have appeared to oppose the scheme of amalgamation, the same is required to be approved. The official liquidator has also filed a report stating that the transferor companies have not conducted their business prejudicial to the interest of its shareholders or public at large. – Amalgamation approved.

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• 2012 (8) TMI 475
  Winding up – alleged that company unable to pay its debts - appellant supplied certain goods to a company – Agreement provided for a guarantee clause that defective goods were to be replaced by appellant - Some of goods were rejected by respondent and appellant agreed to replace same but goods were not returned and a balance amount was due to respondent – Held that:- Before service of statutory notice when the company raised dispute with regard to the quality and quantity the same is good enough not to pass an order of winding up - since agreement provided for replacement of inferior quality goods but in instant case after rejection of goods there was no demand for replacement of same, respondent could not take advantage of its own breach and withhold balance amount on plea of loss and damages having been incurred – Company shall furnish security by way of bank guarantee

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• Service Tax

• 2012 (8) TMI 501
  Commercial coaching and training services - alleged training of employees outside India as well as in India through availing services of parent company - demand imposed under the reverse charge mechanism for the services availed from foreign service provider - assessee contended that expenditure incurred in the foreign exchange are not for training purpose but are only towards travel, accommodation and other expenses - Held that:- Contention of the respondent has not been controverted by any supporting evidence by the Revenue. Hence, respondents are not liable to pay any service tax under reverse charge mechanism on the services availed by them from their parent company as they have not paid any remuneration for the training charges. If at all any charges were paid for training outside India is not chargeable to service tax as per provisions of Taxation of Services (Provided from outside India and received in India) Rules, 2006 - Decided against Revenue.

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• 2012 (8) TMI 500
  Refund Claim of Service Tax paid on services consumed within the SEZ and services which were used in the authorized operations of the SEZ units - partial denial on ground of absence of nexus and non-application of Notification No. 09/2009-ST - Held that:- Approval Committee, examined this issue and had issued a specific certificate indicating the various services received by the appellant and justification for use of such services in relation to authorized operations. Once the Approval Committee has given the nexus and the justification, rejection by the lower authorities of the refund claims of the service tax paid on various services on this ground is bad in law and is accordingly set aside. In the case of services which are wholly consumed within the SEZ, there is no necessity to discharge the service tax liability ab initio. That does not mean that in a case where service tax liability has been discharged, the appellant is not eligible or not entitled for refund of the service tax paid under the provisions of Section 11B of the Central Excise Act, 1944 r.w.s. 83 of the Finance Act, 1994. If the appellant is eligible for refund u/s 11B, then the same cannot be denied on the ground that the claim was made under Notification No. 09/2009-ST - Decided in favor of assessee.

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• 2012 (8) TMI 499
  Short payment of service tax and delay in payment - Held that:- The strict procedure of applying for provisional assessments or refund may not be applied in this case considering the facts that this was initial period of service tax levy and procedures had to evolve and settle As the impugned service tax was always collected along with the bill amount and the money was always lying in the account of GOI a Department of GOI during the relevant period, was constrained in its method of collection of bills including service tax and adjustment thereof from one account of the GOI to the account of GOI for receiving service tax due to instructions issued by GOI, thus the amounts paid by customers inclusive of service tax were always in Government account and this is a matter of just adjustment of money from one account of GOI to another account of GOI. The short payment of tax for the disputed period is also very small - as the excess payment of tax deposited by the respondent for subsequent period was admittedly provisional there is no tax due from the respondent in the impugned matter - no need to collect any interest in the case of delay in deposit of service tax by Department of Post - in favour of assessee.

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• 2012 (8) TMI 498
  Revisionary proceedings by the Commissioner under Section 84 of the Act – whether Appellate Tribunal does not have jurisdiction to entertain the appeals filed against revisionary orders passed by Commissioners after 19.8.2009 – Held that:- Order passed by the Commissioner in such revision proceedings under the old Section 84 of the Act would be appealable to this Appellate Tribunal as if the words and figures "or section 84" had not been omitted from sub-section (1) of Section 86 of the Act - lis between the Department and the assessees commenced on the dates of institution of the revision proceedings and the law prevailing on such dates would govern the maintainability of appeals against the orders-in-revision - appeals are maintainable before this Appellate Tribunal

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• Central Excise

• 2012 (8) TMI 474
  Alleged suppression of assessable value of the goods - assessee engaged in manufacturing of M.S.pipes undertook job work of fabrication of M.S.pipes at the site provided by Essar Projects Limited - Revenue contended mis-declaration and non-disclosure on ground that goods cleared were exclusive of cost of free facilities provided by the supplier of inputs - extended period of limitation - Held that:- Tribunal observed that it could be seen from the challan/ invoice that the address given therein was c/o Essar Projects Ltd and the description of the goods was specifically stated as 'M.S. Fabricated pipes from your supplied free issue material' on job work basis. Scope of the work of the assessee as well as that of the Essar was indicated in the work order, hence the same was within knowledge of the Revenue. Therefore, SCN could not have been issued as it was time barred. Further, pipes were captively consumed by Essar. In the facts and circumstances, it is confirmed that there was no suppression with intention to evade duty - Decided in favor of assessee.

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• 2012 (8) TMI 473
  Cenvat credit on inputs received from 100% EOU - appellants availing full Cenvat credit of CVD, Education Cess, Secondary and Higher Education Cess - Revenue contending inadmissibility in view of in view of Rule 3 of the Cenvat Credit Rules - Held that:- It is the fact that the SCN was issued on 30.3.2010 demanding the cenvat credit for the period May, 2007 to October, 2008 i.e. beyond the period of one year. The appellants were relying on the decisions in the case of Shreya Pets Pvt.Ltd. vs. CCE, Hyderabad (2008 (9) TMI 351 - CESTAT, BANGLORE ) and others which were issued prior to the issue of SCN. Therefore, appellants were under bona fide belief that Cenvat credit is admissible on Education cess and Secondary and Higher Education cess even for the period prior to the amendment has considerable force. Order set aside - Decided in favor of assessee.

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• 2012 (8) TMI 472
  Entitlement of interest on delayed payment for sanction of refund of the rebate claim by the adjudicating authority - revenue contending that appeal regarding rebate claim is not maintainable before this Tribunal - Held that:- Since it is a case of interest on rebate claim and the same is maintainable before this Tribunal. Further, Supreme Court held in case of Ranbaxy Laboratories Ltd. Vs. UOI (2011 (10) TMI 16 - SUPREME COURT OF INDIA) that interest has to be paid on delayed sanction of refund claim after three months of the date of filing of the refund claim. Therefore, the issue is no more res integra. The appellants are entitled for interest on delayed sanction of rebate claim. Appeal allowed in favor of assessee.

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• 2012 (8) TMI 471
  Penalty u/s 11AC for belated payment of excise duty during the period January, 2009 to March, 2009 - belated filing of returns during period January, 2009 to June, 2009 - assessee pleaded financial crisis - Held that:- It is no doubt that the appellant did not pay duty in time, they also did not file the return in time, but when they filed the return and thereafter they made the payment of entire amount of duty along with interest. Therefore, penalty u/s 11AC is dropped but, as the appellant has contravened the provisions of law, they are liable to pay the penalty under Rule 27 of the Central Excise Rules, 2002 - Appeal is partly allowed with consequential relief.

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